The 2026 federal budget, handed down on 12 May 2026, has generated significant discussion among wealth management professionals and their clients. This is not a budget that targets only the wealthiest Australians in any simple sense. It targets the structures that aspiring investors and growing families have used for decades to build and protect wealth: investment property, capital assets held over a long time, and the family trust.
If you hold investment property, own shares or other assets with embedded capital gains, or use a discretionary trust as part of your wealth planning, the changes announced in this budget require your attention. Understanding what is changing, and when, is the first step toward protecting your position.
Key Takeaways
- The 2026 federal budget introduces three major structural changes: capital gains tax reform, negative gearing restrictions, and a minimum tax on discretionary trust distributions.
- From 1 July 2027, the 50 per cent capital gains tax discount will be replaced by inflation indexation and a 30 per cent minimum tax rate on gains. These changes are now law.
- Negative gearing on residential property will be restricted to new builds from 1 July 2027. Established (second-hand) residential properties purchased after the budget announcement (12 May 2026) will no longer qualify for negative gearing.
- From 1 July 2028, distributions from discretionary family trusts to adult beneficiaries will attract a minimum 30 per cent tax rate paid by the trustee. This measure is not yet law.
- A three-year roll-over relief window runs from 1 July 2027 to 1 July 2030, designed to facilitate the transfer of assets out of discretionary trusts into other entity types without triggering an immediate CGT liability.
- Assets acquired before 20 September 1985 (previously exempt from CGT) will be caught by the new regime for gains accrued from 1 July 2027.
- For investors holding property, shares, or family trusts, the period before 1 July 2027 is the primary planning window.
What the 2026 Federal Budget Changed
Three structural changes were announced. Each has a different start date and affects a different part of how wealth is taxed in Australia.
| Change | Applies To | Effective Date | Status |
| Capital gains tax reform | Investment property, shares, and other assets | 1 July 2027 | Now law |
| Negative gearing restrictions | Established (second-hand) residential property | 1 July 2027 | Now law |
| Discretionary trust minimum tax | Family trusts distributing to adult beneficiaries | 1 July 2028 | Not yet law |
Capital Gains Tax Reform
From 1 July 2027, the 50 per cent capital gains tax discount will be replaced by a system of cost base indexation with a 30 per cent minimum tax rate on capital gains.
| Current rules | From 1 July 2027 | |
| CGT treatment | 50 per cent of the gain excluded from tax, regardless of how long the asset was held | Gain indexed for inflation; real gains above indexation taxed in full |
| Minimum effective rate | None | 30 per cent |
| Investment property | Eligible for 50 per cent discount | Subject to new rules |
| Shares and other assets | Eligible for 50 per cent discount | Subject to new rules |
| Primary residence | Exempt | Exempt (unchanged) |
For investors who have historically relied on the 50 per cent discount to reduce their CGT liability, particularly those with highly appreciated assets such as long-held investment properties or share portfolios, this change is material. These measures are now law.
You can find the ATO’s guidance on the capital gains tax changes on the ATO website.
Negative Gearing Changes
Also from 1 July 2027, negative gearing on residential property will be restricted to new builds only.
| Scenario | Negative Gearing from 1 July 2027 |
| Established (second-hand) residential property purchased after 12 May 2026 | No longer available |
| Established residential property held at 12 May 2026 | Continues to apply (grandfathered) |
| New build residential property (any purchase date) | Available — unchanged |
| Commercial property | Available — not affected by this change |
These negative gearing changes are now law. For investors whose strategy has depended on buying established residential properties and offsetting rental losses against other income, this requires a direct reassessment.
Discretionary Trust Distributions
From 1 July 2028, distributions from discretionary family trusts to adult beneficiaries will attract a minimum effective tax rate of 30 per cent. The trustee is responsible for paying this tax.
- Who it applies to: Discretionary family trusts distributing to adult beneficiaries
- Minimum rate: 30 per cent, paid by the trustee
- Effective from: 1 July 2028
- Legislative status: Not yet law as at the date of this article
The intent is to prevent high-income individuals from using trust distributions to shift income to beneficiaries in lower tax brackets, thereby reducing the overall tax paid on that income. From 2028, regardless of a beneficiary’s marginal rate, a minimum of 30 per cent tax applies to distributions received.
For trusts that distribute to corporate beneficiaries, the interaction between this new minimum rate and the existing corporate tax rules may result in a higher combined effective tax rate.
This measure has been announced but is not yet law as at the date of this article.
You can find the ATO’s guidance on the minimum tax on discretionary trusts on the ATO website.
Pre-1985 Assets: No Longer Fully Exempt
Assets acquired before 20 September 1985 have been exempt from capital gains tax for 40 years. The 2026 federal budget ends that exemption for future gains:
- Gains accrued up to 30 June 2027 remain fully exempt — the historical exemption is preserved.
- From 1 July 2027, gains on pre-1985 assets that accrue after that date will be subject to the new CGT rules.
- Investors who have held these assets for decades and have never needed to consider their CGT position face an entirely new planning requirement.
Roll-Over Relief for Trust Restructuring
Alongside the discretionary trust minimum tax, the government announced a three-year roll-over relief window. Key details:
- Available from: 1 July 2027
- Window closes: 1 July 2030
- Purpose: Transfer assets out of discretionary trusts into other entity types that are not discretionary trusts
- Tax effect: CGT deferred, not triggered at the point of transfer
- Legislative status: Not yet law — tied to the discretionary trust minimum tax measure
For trustees and beneficiaries considering restructuring, three years is a meaningful but not unlimited window. The legal, financial, and tax implications of moving assets out of a trust are complex. Beginning that review now, rather than waiting until closer to 2028, is the more practical approach.
Who Is Most Affected
These changes do not affect all investors equally. The people most likely to see a material impact from the 2026 federal budget include:
- Investment property owners who have relied on the 50 per cent CGT discount or negative gearing as part of their strategy
- Trustees and beneficiaries of discretionary family trusts used for income distribution, wealth protection, or estate planning
- Long-term investors in shares or other assets, where the capital gain is substantial and the difference between the old and new CGT treatment is most significant
- Holders of pre-1985 assets, who have had no CGT exposure and for whom this is an entirely new consideration
- Investors approaching or in retirement, whose drawdown strategy may depend on assumptions about the tax treatment of asset sales
If you fall into one or more of these categories, the period between now and 1 July 2027 is your primary planning window for assets subject to the CGT and negative gearing changes. For trusts, the deadline is 1 July 2028, but the structural complexity involved means earlier review is more practical. Our retirement planning services can also help you think through how these changes interact with your drawdown timeline.
Questions Worth Asking Before 2027
The decisions made in the period before 1 July 2027 will largely determine an investor’s tax position under the new rules. The right questions to raise with your adviser now include:
- Which assets should be held, sold, or restructured before the new CGT rules apply? The existing 50 per cent discount remains available until 30 June 2027. For assets with significant embedded gains, this may be the last opportunity to crystallise under the current and more favourable treatment.
- Does my investment property strategy still work under the new negative gearing rules? A strategy that has depended on buying established residential properties and offsetting losses against other income needs to be reassessed before 2027.
- Is my discretionary trust still fit for purpose? If the structure was designed around a tax assumption that is now changing, a review is warranted before 2028.
- Do I hold any pre-1985 assets, and if so, what is my plan from 1 July 2027 onward? These assets have been fully exempt for decades. That is about to change.
Capital gains tax planning and trust restructuring are not quick conversations. They involve detailed modelling of your specific financial position, legal advice, and close coordination with your accountant. Starting early matters.
Frequently Asked Questions
Will the capital gains tax changes affect my family home?
No. The primary residence exemption remains unchanged. The new capital gains tax rules apply to investment assets, including investment property and shares. Your principal place of residence is not affected.
My family trust distributes income to adult children who are on lower incomes. How will the new rules affect this arrangement?
From 1 July 2028, distributions from discretionary trusts to adult beneficiaries will attract a minimum 30 per cent tax rate, with the trustee responsible for paying it. If your trust currently distributes to beneficiaries on lower marginal rates, this change is likely to increase the tax paid on those distributions.
Is there a roll-over relief option for investors with assets in a discretionary trust?
Yes. The government announced a three-year roll-over relief window from 1 July 2027 to 1 July 2030 specifically to assist with the transfer of assets out of discretionary trusts into other entity types. This allows those transfers to occur without immediately triggering a CGT liability. The relief is tied to the discretionary trust minimum tax measure, which is not yet law. Eligibility conditions will apply, and you should take specific advice before assuming the relief applies to your situation.
Does the negative gearing change affect my existing investment properties?
No. Properties held at the time of the budget announcement (12 May 2026) are grandfathered. Negative gearing will continue to apply to those assets. The restriction applies to established (second-hand) residential properties purchased after the announcement date. New build residential property remains eligible for negative gearing under the new rules.
How do I know if these changes affect my specific situation?
The impact varies significantly depending on what you own, how it is structured, and how long you have held it. A structured review of your current asset position, including any investment properties, trust arrangements, and long-held assets, is the right starting point. We recommend speaking with a qualified financial adviser before making any decisions.
Ready to Review Your Position Before 2027?
If the budget changes described in this article are relevant to your situation, the most practical next step is a conversation with a qualified adviser well before July 2027.
We work with high-net-worth families across Perth and Western Australia to navigate structural changes like these, coordinating investment strategy, tax planning, and estate planning in a way that protects what you have built. We are fee-for-service, fiduciary advisers. Our advice is never shaped by commissions or product relationships.
Our tax planning services and wealth planning services are designed to help investors understand exactly how legislative changes like this affect their specific structure. Not sure where you currently sit? Our Wealth Management Risk Assessment takes a few minutes and gives you a clear starting point.
Schedule a Meeting to speak with our team.
You can also listen to the full conversation with Aden Wilkins and Nick Menegola in Episode 75 of The Purposeful Investor Podcast.
This article contains general information only and does not constitute personal financial advice. Your circumstances are unique. Speak to a qualified adviser before making financial decisions.
