The PTP Budget Breakdown

The full story on negative gearing, capital gains tax, and discretionary trusts written in plain language.

When we held our Budget webinar in May, a lot of things were still up in the air. The ink was barely dry and many of the technical details were unknown. Since then, the Government has introduced legislation into Parliament and many things are a lot clearer.

The 2026–27 Federal Budget contains what we consider the three most significant changes to the Australian tax system in decades. Any single one of these, changes to negative gearing, capital gains tax, or the taxation of discretionary trusts, would have been big news on its own.

All three at once is incredibly significant and so our goal is to cut through the noise and help you understand what it means in practical terms for you and your business.

The key message: don’t panic, don’t rush into anything, and please reach out before making any structural decisions.

CHANGE 01 Negative Gearing on Residential Investment Properties

This is perhaps the biggest property tax shift Australia has seen in years. If you already own residential investment properties, keep reading.  The initial headlines may have worried you unnecessarily.

What negative gearing actually is

When a rental property costs you more to hold than it earns in rent, you’ve historically been able to offset that loss against your other income (such as wages or business profits) to reduce your tax bill each year. That’s negative gearing.

What’s actually changing

From 1 July 2027, negative gearing on established (existing) residential properties will only be available to investors who already held those properties before Budget night (7:30pm AEST, 12 May 2026). New buyers of existing properties purchased after that date will no longer be able to use rental losses to offset non-rental income.

Instead, those losses will be quarantined,  meaning they won’t disappear, but can only be used to offset rental income from other investment properties, or future capital gains when you sell. New builds remain fully exempt, and investors in new residential properties can still negatively gear with no restrictions.

The three groups of investment properties:

Properties held at 7:30pm, 12 May 2026	Nothing changes. Fully grandfathered. You can continue to negatively gear for as long as you hold them. Applies to any contract signed before Budget night, even if settlement hasn’t yet occurred. The contract date is what counts.
Established properties purchased: 13 May 2026 – 30 June 2027	You can still negatively gear during this transitional period. However, from 1 July 2027, losses on these properties will be quarantined and can no longer offset your salary or business income.
Established properties purchased: from 1 July 2027 onwards	The new rules apply fully from day one. Losses are quarantined immediately and are usable only against other rental income or capital gains from rental properties.

What’s not affected

These changes apply only to established residential properties. The following continue under existing rules:

• New builds that genuinely add to housing supply, including eligible house and land packages
• Commercial property
• Shares
• Superannuation funds
• Widely held trusts
• Build-to-rent developments
• Private investors in Government housing programs

Practical example

UNDER CURRENT RULES John earns $150,000 and owns an investment property running at a $20,000 annual loss. Taxable income: $150,000 – $20,000 = $130,000 Tax payable: ~$29,252. John receives an immediate annual tax benefit.

UNDER PROPOSED RULES (FROM 1 JULY 2027) The $20,000 loss can no longer be deducted against wages. Taxable income: $150,000. Tax payable: ~$36,302. The loss is carried forward.  The deduction isn’t lost, but the immediate tax benefit is.

 

The bottom line: An extra $7,050 per year in cash flow cost. The deduction isn’t gone.  It has been deferred. But that timing difference is important.

 

The contract date is what matters Government guidance confirms the relevant date includes properties held at announcement, including where a contract had been entered into but settlement had not yet occurred. If your contract was signed before 7:30pm on 12 May 2026, you’re covered (even if you haven’t yet settled).

CHANGE 02 Capital Gains Tax (CGT)

This is the change our clients have asked about most. The Government is replacing the 50% CGT discount (which has been in place since 1999) with a different system.

The current rules

If you’ve owned a CGT asset for more than 12 months and sell it, you currently pay tax on only 50% of the gain.  The other half is tax-free. Assets purchased before 20 September 1985 (pre-CGT assets) have been completely exempt from capital gains tax.

What’s changing from 1 July 2027

The 50% discount is being replaced by cost base indexation.  This means you adjust the original cost of your asset for inflation and only pay tax on the gain above and beyond that. The ATO will provide tools to assist.

A minimum 30% tax rate will also apply to capital gains made after 1 July 2027. Even if your marginal tax rate is lower, you’ll pay at least 30% on your taxable capital gain.

The key protection The CGT reforms are prospective. Any gain that accrued before 1 July 2027 is still calculated under the 50% discount. Assets are treated as sold and reacquired at their 1 July 2027 market value, meaning you only pay under the new rules on growth that occurs after that date.

What about pre-CGT assets (purchased before 20 September 1985)?

The full exemption for pre-CGT assets ends on 1 July 2027. Any growth up to that date remains tax-free. But any further growth after that date will be subject to the new CGT rules when you sell.

Important for succession planning Many families have long assumed pre-CGT properties and business assets would transfer free of capital gains tax. That assumption needs to be revisited. Every year you delay a transfer after 1 July 2027, additional taxable gain accumulates.  You need to start having those conversations now.

Who does this apply to?

These changes apply to all CGT assets held by individuals, trusts and partnerships for more than 12 months:

• Investment properties
• Listed shares (e.g. BHP, CBA)
• Unlisted shares and units
• Business sales and business assets
• Pre-CGT assets (on gains from 1 July 2027)

Does not apply to: superannuation funds (retains existing 1/3 discount) or the family home (main residence exemption unchanged).

New builds

Investors in new residential properties will have a choice when they sell: the old 50% discount method or the new indexation method, whichever delivers the better outcome. This flexibility is designed to keep new builds attractive to investors.

Small business CGT concessions

The four existing small business CGT concessions, including the 15-year rule, retirement exemption, and active asset concessions, will remain in place. The Treasurer has confirmed these are unchanged, and the Government is separately consulting on early-stage and start-up businesses.

Case study: how the numbers work

To understand how the new rules work, let’s look at a simple example. Sarah bought an investment property in 2000 for $500,000. On 1 July 2027, it has a market value of $900,000. She sells it in 2037 for $1.5 million. The example below shows how the gain is split between the period before and after 1 July 2027 under the proposed rules.

Period	How it’s calculated	Taxable gain
2000 – 30 June 2027	$900k – $500k = $400k gain. 50% discount applies → $200,000 taxable	$200,000
1 July 2027 – Sept 2037	$900k cost base indexed by ~25% CPI = $1,125,000. $1,500k – $1,125k = $375,000 taxable	$375,000
Total (proposed rules)	Combined taxable gain	$575,000
For comparison (current rules)	50% discount applied to full $1,000,000 gain	$500,000

 

The difference: An extra $75,000 in taxable gain, taxed at a minimum of 30%. That’s at least $22,500 more in tax on this example. Actual outcomes vary based on CPI rates, asset growth, and individual circumstances.

Valuations

Because 1 July 2027 acts as a cost base reset point, getting a market valuation of significant assets around that date will be important, particularly for investment properties, private company shares, and businesses. The ATO has confirmed it will provide tools and methodologies. Acting early is wise given the volume of assets across Australia that will require valuation.

CHANGE 03 Discretionary Trusts (Family Trusts)

This is a really significant change for anyone who runs their business or holds investments through a family trust structure. The good news is that you have time on your side, and there’s a clear path to work through your options.

How discretionary trusts work today

A discretionary (or family) trust gives the trustee flexibility to decide how to distribute income each year by sharing it among a spouse, adult children, or a corporate bucket company, in a way that takes advantage of lower tax rates. The end result is often a significantly lower overall tax bill for the family group.

What’s changing from 1 July 2028

The Government will introduce a 30% minimum tax on the taxable income of discretionary trusts, applied at the trustee level. This is a fundamental shift from the current treatment, where tax is paid by beneficiaries at their individual rates.

Non-corporate beneficiaries will receive a non-refundable credit for the tax the trustee has paid on their share. If their personal rate is above 30%, they’ll pay top-up tax. If it’s below 30%, the excess credit is lost (not refunded). Corporate beneficiaries (bucket companies) will not receive any credit, which significantly changes the economics of that structure.

Case study: income splitting — before and after

CURRENT RULES Trust earns $300,000. Distributed to mum, dad and two adult children at their individual tax rates. Total family tax: approximately $58,000

PROPOSED RULES (FROM 1 JULY 2028) Trustee pays 30% minimum tax at the trust level before distribution. Minimum tax: approximately $90,000

 

The difference: An additional $32,000 per year, at a minimum. For structures using bucket companies, the impact could be significantly greater.

What’s not affected

The following are excluded from the 30% minimum tax under the current proposal:

• Fixed trusts, including most unit trusts
• Widely held trusts
• Superannuation funds
• Deceased estates
• Charitable trusts
• Special disability trusts
• Primary production income of farms
• Certain income relating to vulnerable minors
• Amounts subject to non-resident withholding tax
• Income from assets of testamentary trusts existing at announcement

Note on testamentary trusts Testamentary trusts in existence at Budget night (12 May 2026) are carved out of the 30% tax. However, testamentary trusts established after Budget night, and new assets contributed to existing testamentary trusts after that date, are not protected.

The three-year rollover relief window

Rollover relief is available for three years from 1 July 2027 (until 30 June 2030). You can transfer assets out of a discretionary trust into a company, fixed trust, or other structure without triggering capital gains tax or income tax consequences. The Australian Small Business and Family Enterprise Ombudsman will also be available from 1 January 2027 to assist.

This gives you until the end of the 2029–30 financial year to complete any restructure, a pretty decent amount of time to make considered decisions.

On bucket companies The decision to deny a tax credit to corporate beneficiaries is deliberate. Income distributed into a bucket company may now be effectively taxed twice; once at the trust level (30%) and again at the company level (25–30%). This substantially reduces the appeal of the bucket company model as currently structured. We’re watching the final legislation closely on this point.

Key Dates at a Glance

DATE	WHAT HAPPENS
12 May 2026 (7:30pm)	Budget night. Properties held, contracts signed, and trust structures in existence at this point are grandfathered or exempt under transitional arrangements.
1 July 2027	New negative gearing rules take full effect. CGT discount replaced by indexation with 30% minimum tax on new gains. Rollover relief window opens for trust restructures.
1 July 2028	30% minimum tax on discretionary trusts commences.
30 June 2030	Rollover relief window closes. Last date to restructure out of a discretionary trust without CGT or income tax consequences.

What Should You Do Right Now?

These changes are not yet law. The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 has been introduced to Parliament but may still change as it progresses. We’ll keep monitoring and update you.

Don’t panic and don’t rush. These timelines are generous for a reason. The Government has deliberately given people time to adjust. Decisions made under pressure are rarely the best ones.

If you hold a family trust, now is the time to start a conversation with us about whether your structure remains fit for purpose from 1 July 2028. We have the three-year rollover window to act once the legislation is settled.

If you own investment properties, understand which category you’re in. If you held at Budget night, you’re fully protected. If you’re planning a new purchase, factor the new rules into your cash flow modelling before you commit.

If you’re thinking about selling a business or significant assets, the 1 July 2027 valuation reset is important. Getting a defensible market valuation in place before that date will matter.  It would be a wise move to act ahead of the rush.

Seek advice before acting. This applies especially to anyone considering selling, transferring or restructuring assets. It’s far easier to plan a move before you’ve made it. Reach out. We’re ready to help.

IMPORTANT NOTICE Please note: The measures in this article are Budget announcements and are not yet law. The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 has been introduced to Parliament but is yet to pass. Details may still change. Nothing here constitutes personal advice, please always speak with your adviser before taking any action.

General Advice Warning

This article contains general information only and does not take into account your personal objectives, financial situation or needs. The Federal Budget measures discussed are proposals only and are not yet law. The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 has been introduced to Parliament but may change materially during the legislative process. Before making any financial, tax or investment decisions, please seek personalised professional advice from a qualified adviser.