2026 Federal Budget: What It Means for Investors

Last night, Treasurer Jim Chalmers handed down the Albanese Government’s fifth Federal Budget. Unlike many budgets that pass quickly from memory, this one contains some of the most significant proposed changes to investment taxation Australia has seen in more than 25 years.

The key word is proposed. Most measures still need to pass Parliament, and the final details may change. That means this Budget should be treated as a planning signal — not a reason to make rushed decisions.

For investors, the Budget reshapes the relative tax treatment of capital gains, residential property, discretionary trusts, and certain ownership structures. However, it does not change the core principle of good investing: tax matters, but it should not be the only driver of the decision.

Key Takeaways

The main points are:

• Most changes start from 1 July 2027 or later. There is time to plan carefully.
• Existing investments are largely grandfathered. In many cases, assets already held receive transitional treatment or protection from the harshest changes.
• Superannuation was largely untouched. This is a positive outcome for long-term wealth planning.
• Tax should not override the investment thesis. You did not buy an asset solely for its tax treatment, and you should not sell it solely because the tax rules change.
• The right response is to review your position, understand where you may be affected, and plan deliberately.

Capital Gains Tax Reform

From 1 July 2027, the long-standing 50% capital gains tax discount is proposed to be replaced for individuals, partnerships and trusts.

Instead of applying a flat 50% discount to eligible capital gains, gains would be calculated using an indexation method. In simple terms, the asset’s cost base would be adjusted upward for inflation, and only the real gain above inflation would be taxed.

A minimum tax rate of 30% would apply to those real capital gains, regardless of the taxpayer’s marginal rate. Recipients of means-tested payments such as the Age Pension would be exempt.

The proposed CGT changes would not apply to:

• assets held inside superannuation;
• the family home;
• the four small business CGT concessions.

Investors in genuinely new residential builds would be able to choose between the current 50% discount and the new indexation method.

Transitional Treatment for Existing Assets

For assets already owned and sold after 1 July 2027, transitional rules would apply.

The gain accrued up to 30 June 2027 would be taxed under the current rules, including the 50% CGT discount for assets held for more than 12 months.

The gain accrued from 1 July 2027 onward would be taxed under the new indexation method.

This means investors may need either:

• a valuation as at 1 July 2027; or
• to use an ATO-approved apportionment formula.

Example: Sarah’s Share Portfolio

Sarah buys $500,000 of Australian shares in July 2020. By 1 July 2027, they are worth $900,000. She sells in July 2030 for $1,050,000. Assume inflation runs at 3% per year.

Her capital gain is split into two parts.

The first component is the $400,000 gain from 2020 to 2027. This qualifies for the current 50% CGT discount, meaning Sarah includes $200,000 as an assessable capital gain.

The second component is the post-1 July 2027 growth. Her $900,000 market value cost base is indexed for inflation. At 3% per year over three years, the indexed cost base becomes $983,454. Her indexed gain is therefore $66,546.

Her total assessable gain is $266,546.

For clients already on the top marginal tax rate, the 30% minimum tax rate is less relevant because they were already paying more than 30%. The bigger effect is the loss of the 50% discount on growth after 1 July 2027, partly offset by inflation indexation.

Long holding periods and higher inflation reduce the difference between the old and new systems. Shorter holding periods and lower inflation make the new method less generous.

What Happens to Pre-CGT Assets?

This is one of the more significant but less widely discussed changes.

Assets acquired before 20 September 1985 have historically been fully exempt from capital gains tax. That treatment has applied for 40 years because CGT was introduced in 1985 without retrospective application.

Common pre-CGT assets may include:

• long-held shares;
• investment properties;
• holiday homes;
• farmland;
• business assets;
• inherited family assets.

Under the proposal, pre-1985 assets sold before 1 July 2027 would remain fully CGT-exempt.

However, pre-1985 assets sold on or after 1 July 2027 would be treated as having a cost base equal to their market value on 1 July 2027. Any gain accrued before that date would remain exempt, but any gain from 1 July 2027 onward would be taxed under the new indexation method, with the 30% minimum tax rate applying.

In effect, the long-running exemption for pre-CGT assets would be closed off prospectively. Historical gains remain protected, but future growth enters the tax system.

For clients holding pre-CGT assets, the decision is not automatically to sell. Many of these assets are held for family, succession or business reasons. But it will be important to understand the options, obtain valuations in good time, and consider whether realising gains before the rules change makes sense.

Negative Gearing Changes

From 1 July 2027, negative gearing on residential investment property is proposed to be restricted.

There are important carve-outs.

Properties already owned at 7:30pm on 12 May 2026 — Budget night — would continue to be negatively geared until sold. These properties are effectively grandfathered.

Properties purchased between Budget night and 30 June 2027 could be negatively geared during that window, but not from 1 July 2027 onward.

Properties purchased from 1 July 2027 could only be negatively geared if they are newly constructed dwellings that add to housing supply.

Losses on non-grandfathered properties could still be used against other residential property income and against capital gains when the property is sold. Unused losses would be carried forward.

These changes would not apply to commercial property, shares, or other asset classes. Superannuation funds, including SMSFs, and widely held trusts such as managed funds would also be excluded.

Example: Tom’s Investment Property

Tom buys an established investment property in August 2026. Because he buys after Budget night, the new rules apply once they commence.

In 2027–28, the property produces a $5,000 loss after interest, rates and deductions. Under the current rules, Tom could use that $5,000 loss to reduce his salary income. Under the new rules, the loss is quarantined. It cannot reduce his salary income immediately.

In 2028–29, the property produces $3,000 of positive cash flow. Tom applies $3,000 of the carried-forward loss against this income, paying no tax on the property income. The remaining $2,000 loss carries forward.

In 2029–30, Tom sells the property. The remaining $2,000 loss is added to his cost base, reducing his assessable capital gain.

For properties bought before Budget night, those same losses would continue to offset salary income immediately. This makes the grandfathering of existing properties a meaningful protection.

Discretionary Trusts

From 1 July 2028, trustees of discretionary trusts would pay a minimum 30% tax on trust taxable income.

Non-corporate beneficiaries would receive non-refundable tax credits for tax already paid by the trustee. Beneficiaries already paying tax at 30% or above would generally be no worse off overall, although timing and cash flow may change.

The measure is designed to reduce the benefit of distributing trust income to lower-income family members, such as adult children at university or a non-working spouse.

Corporate beneficiaries would not receive the non-refundable credits, closing off the obvious bucket company workaround.

Several categories would be excluded, including:

• fixed trusts;
• widely held trusts;
• complying superannuation funds;
• special disability trusts;
• deceased estates;
• charitable trusts;
• discretionary testamentary trusts existing at Budget night.

Primary production income and income from existing testamentary trust assets would also be excluded.

The Government is proposing a three-year window from 1 July 2027 with expanded rollover relief, including CGT relief, to help small businesses and others restructure out of discretionary trusts into companies or fixed trusts where appropriate.

Example: The Singh Family Trust

The Singh family trust earns $10,000 of taxable income in 2028–29. The trustee pays $3,000 of tax upfront, leaving $7,000 available for distribution.

If the income is distributed to Priya, who is on the top marginal tax rate, she includes the grossed-up $10,000 in her tax return. At a 47% marginal rate, she owes $4,700. The $3,000 trustee credit reduces this, so she pays an additional $1,700. The total tax outcome is broadly the same as today.

If the income is distributed to Arjun, an adult son at university with no other income, he includes the grossed-up $10,000 in his return. Because he is below the tax-free threshold, he owes no further tax. However, the $3,000 trustee credit is non-refundable and is lost. The family receives $7,000 net.

Under current rules, Arjun may have received the full $10,000 with no tax payable. Under the proposed rules, the family is $3,000 worse off.

This is where the change matters most. Trusts used mainly to distribute income to low-income family members lose much of that benefit. Trusts used for asset protection, estate planning or family wealth management may still remain valuable.

Personal Tax Measures

There are also several smaller personal tax measures worth noting.

From 1 July 2026, individuals would be able to claim a $1,000 instant tax deduction for work-related expenses without receipts, up to that cap. Taxpayers would still be able to itemise actual expenses if they are higher.

From 1 July 2027, the Working Australians Tax Offset would provide a $250 annual offset on income from work.

Previously legislated tax cuts would continue. The 16% marginal tax rate on income between $18,201 and $45,000 would fall to 15% from 1 July 2026 and 14% from 1 July 2027.

Superannuation

Superannuation was the positive story in this Budget. No new superannuation taxes or restrictions were announced.

Two previously legislated changes are still scheduled to begin on 1 July 2026:

Division 296 will impose an additional 15% tax on earnings attributable to total super balances above $3 million, with an additional 10% for balances above $10 million.

Payday super will require employers to pay superannuation guarantee contributions within seven business days of each payday.

Contribution caps are also set to increase from 1 July 2026. The concessional cap rises to $32,500 and the non-concessional cap rises to $130,000. The general transfer balance cap rises to $2.1 million.

For clients with capacity to contribute, the case for prioritising super has strengthened — particularly through catch-up concessional contributions, non-concessional contributions, and bring-forward strategies where eligible.

Other Measures

A few additional measures may be relevant.

The private health insurance rebate for people aged 65 and over would align with the under-65 rate from 1 April 2027.

The EV fringe benefits tax exemption would scale back from 1 April 2027. A full exemption would apply only for EVs under $75,000, with a 25% discount above that threshold. Existing leases would be unaffected.

Aged care funding would increase, including fully funded personal care through Support at Home from 1 October 2026 and 5,000 additional residential aged care beds per year. This may be relevant for clients helping ageing parents.

What This Means by Asset Class

Cash

Cash is largely unaffected. Interest income has always been taxed at marginal rates, and that does not change.

Cash and term deposits remain useful for short-term needs, emergency funds and defensive portfolio ballast. The Budget does not materially change their role.

Fixed Income

Fixed income is also largely unaffected. Interest from bonds and credit funds continues to be taxed at marginal rates.

On a relative basis, fixed income may look slightly more attractive because some growth assets held in personal names become less tax-effective. However, that is not a reason to overweight defensive assets beyond what your risk profile supports.

Income-Focused Shares

Australian income shares are one of the relative winners.

Fully franked dividends continue to flow through with imputation credits attached, and the franking system is unchanged. Franked income held inside superannuation remains particularly tax-effective.

For portfolios tilted toward Australian income-producing equities, the Budget does little to disturb the investment thesis.

Growth Shares

Growth-focused share portfolios held in personal names are more directly affected.

For growth after 1 July 2027, the 50% CGT discount would be replaced by indexation, with a 30% minimum tax rate. For top marginal-rate taxpayers, the 30% floor is less relevant. The more important comparison is between indexation and the current 50% discount.

The longer the holding period and the higher inflation is, the smaller the difference. For short holding periods in low-inflation environments, the new approach is less generous.

This does not mean abandoning growth investing. Growth assets remain central to long-term wealth creation. The strategic question is where those assets are held. Growth assets inside superannuation remain highly tax-effective.

Residential Property

Residential property is where the most concentrated changes land.

The combination of negative gearing restrictions and CGT reform would reduce the after-tax appeal of new established residential investment properties from 1 July 2027.

Existing properties are grandfathered, which is valuable. New residential builds remain more attractive because they retain negative gearing and may allow investors to choose between the old CGT discount and new indexation method.

That said, property is generally a long-term investment. The reasons for owning a rental property — capital growth, leverage, diversification and exposure to a particular location — may still hold. Tax should be considered, but it should not automatically dictate the decision to sell.

Commercial Property

Commercial property is not subject to the proposed negative gearing restrictions.

CGT changes would still apply to commercial property held in personal names, partnerships or trusts, but not to property held in superannuation or widely held vehicles.

On a relative basis, commercial property becomes more attractive compared with residential property, although it comes with different risks, including vacancy, tenant quality, liquidity and capital requirements.

What This Means by Ownership Structure

Individual Names

Assets held in personal names are most exposed to the proposed CGT and negative gearing changes.

The 50% CGT discount would be removed for post-2027 growth, the 30% minimum tax rate would apply, and negative gearing would be restricted for new established residential property purchases.

Pre-CGT assets held since before 20 September 1985 would also lose their full exemption for future growth from 1 July 2027.

However, individual ownership remains simple, flexible and cost-effective. For many clients, particularly those with straightforward share portfolios or a single investment property, it may still be appropriate.

Discretionary Trusts

Discretionary trusts lose some of their income-splitting appeal, particularly where distributions are made to family members on low marginal tax rates.

But trusts still provide other benefits, including asset protection, estate planning, control over distributions and intergenerational wealth transfer.

For trusts used primarily for income splitting, a review is warranted. For trusts used for broader family wealth or asset protection purposes, the structure may still be valuable.

Superannuation

After this Budget, superannuation is the standout structure.

Super’s 15% earnings tax, and 0% pension phase tax up to the transfer balance cap, remain unchanged. The proposed CGT reforms do not apply to assets inside superannuation, and contribution caps are rising from 1 July 2026.

For clients with the capacity to contribute, superannuation planning should be a priority over the next 12 to 18 months.

Companies

Companies are not subject to the proposed individual CGT rules. They continue to pay tax on capital gains at either 25% or 30%, depending on the company’s tax rate.

Companies have never received the 50% CGT discount, so the relative disadvantage of company ownership narrows under the proposed reforms.

For clients with active businesses, significant retained earnings or specific structuring needs, company ownership may become more attractive. However, it will not suit every investment situation.

The Bottom Line

The Government has tilted the playing field.

Established residential property and growth assets held in personal names become less attractive on an after-tax basis. Superannuation, new residential construction, franked Australian shares and, in some cases, commercial property and company structures become relatively more attractive.

But this Budget does not require immediate action.

Existing assets are largely protected, transitional rules are workable, and the final legislation may change through negotiation. The right response is to review your position carefully, not make snap decisions.

This is also a Budget where coordination matters. CGT calculations, trust restructuring decisions, asset sale timing and superannuation contribution strategies should be considered with both your financial adviser and accountant.

Clients most likely to be affected include those with:

• investment properties;
• discretionary family trusts;
• pre-CGT assets;
• significant investments outside superannuation;
• plans to buy established residential investment property after 1 July 2027.

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