28 May Post-Budget Investing: What the New Rules Could Mean for Shares and Property

Post-Budget Investing: What the New Rules Could Mean for Shares and Property

For many Australians, the Federal Budget raised a practical question: does this change how I should invest?

The answer is not as simple as “shares are better” or “property is worse”. The proposed changes may alter the after-tax return from different investments, but they do not remove the basics: quality assets, sensible gearing, diversification, cash flow and time in the market still matter.

What has changed is the need to think more carefully about where investment returns come from. Is the return mainly income? Is it mainly capital growth? Is the asset held personally, inside super, through a trust, or in another structure? And how much tax drag could apply when you eventually sell?

This article explains the key changes, what they may mean for share investors and property investors, and how to review your strategy without making rushed decisions.

What did the Budget announce?

The 2026–27 Federal Budget announced two major tax reforms affecting many investors.

First, the Government intends to replace the current 50% capital gains tax discount for individuals, trusts and partnerships with a system based on cost base indexation and a 30% minimum tax rate on capital gains. The ATO states these changes are intended to apply from 1 July 2027, but also confirms the measure is not yet law.

Second, negative gearing for residential property would be limited to new builds from 1 July 2027. Existing arrangements would remain unchanged for properties held before Budget night. Investors who buy new builds would still be able to deduct losses from other income. Investors who buy established housing after Budget night would still be able to deduct losses against residential property income and carry forward unused losses, but they would not be able to deduct those losses against other income such as wages.

The Budget papers also state that the CGT reforms will apply only to gains arising after 1 July 2027. Investors in new builds would be able to choose between the existing 50% CGT discount and the new arrangements.

That timing matters. Investors should avoid making irreversible decisions until legislation, transitional rules and practical guidance are clearer.

Why this matters: tax changes the return equation

Most investments reward you in one or both of two ways:

• Income, such as dividends, rent or interest.
• Capital growth, such as a higher share price or property value.

The current tax system has generally been favourable to long-term capital growth because eligible individuals, trusts and partnerships have been able to use the 50% CGT discount where the relevant conditions are met. Under the proposed reform, future capital gains would instead be adjusted for inflation, with a 30% minimum tax applying to capital gains.

That does not mean growth investing is “dead”. It does mean the hurdle rate is higher. A growth investment still needs to justify itself after tax, after costs and after the risk of waiting years for a payoff.

AMP’s Dr Shane Oliver has noted that the key Budget changes include a wind-back in negative gearing and the taxation of real capital gains. He also described the changes as looking more like tax hikes than broader tax reform.

For investors, the practical question is not whether tax rules are good or bad. It is whether your current mix of assets still makes sense after tax, after costs and after risk.

What could this mean for share investors?

For share investors, the Budget does not mean abandoning growth companies or piling into high-dividend stocks. It means being more deliberate about the balance between income, growth and tax.

Dividend-paying shares may become more attractive

Australian investors have long had a preference for dividend-paying companies, partly because of the dividend imputation system. Franking credits can improve the after-tax appeal of Australian dividends, especially for lower-tax investors, retirees and some investors using superannuation structures.

The Budget changes may sharpen that distinction for investors who hold assets outside superannuation, particularly those on higher marginal tax rates.

Under the current system, a high-income investor who realises a capital gain on an eligible asset held for more than 12 months may effectively include only half the gain in taxable income. For someone on the top marginal tax rate, that has made long-term capital growth particularly tax-effective compared with fully taxable income.

Under the proposed system, that advantage would be reduced. Capital gains would no longer receive the same broad 50% discount treatment. Instead, the gain would be adjusted for inflation, with a minimum 30% tax rate applying to capital gains under the announced policy settings.

That makes the comparison between income investing and growth investing more important.

A simple way to think about it is to compare two investors earning the same pre-tax return:

• One receives part of the return as franked dividend income and part as capital growth.
• The other receives most or all of the return as capital growth.

Under the current system, the growth-focused investor benefits from both tax deferral and the 50% CGT discount. Under the proposed system, the value of that capital gains discount is reduced. The income-focused investor may see less relative change, particularly where dividends are franked and the investor was already paying tax on income each year.

After-tax value of a $10,000 investment over 10 years

Income versus growth over 10 years: This chart compares a dividend strategy with a growth strategy for a top marginal tax rate investor. The dividend strategy assumes a 5% franked yield plus 5% growth. The growth strategy assumes 10% growth. The key point is that the proposed indexation regime reduces the after-tax outcome of the growth-only strategy more noticeably than the dividend-and-growth strategy.

What the chart shows

The chart is designed to make one point clear: when the tax treatment of capital gains becomes less generous, the after-tax gap between income investing and growth investing can narrow.

Under the current rules, a growth-focused investor may be rewarded for deferring tax and then applying the 50% CGT discount when the asset is sold. For a top marginal tax rate investor, this has historically made long-term capital growth attractive from a tax perspective.

Under the proposed rules, the benefit of that approach may be reduced. Inflation indexation would still recognise that some of the capital gain simply reflects inflation, but the broad 50% discount would no longer apply in the same way. That means a growth-focused investment may need to deliver a stronger pre-tax return to achieve the same after-tax outcome.

For income-focused investors, the change may be less dramatic. Dividends are generally taxed in the year they are received, and franked dividends already come with franking credits attached. The relative appeal of sustainable, franked income may therefore improve, particularly for investors holding assets in personal names outside super.

That does not mean investors should simply switch from growth shares to high-dividend shares. It means the after-tax comparison has changed.

A high-quality dividend-paying company with sustainable earnings, sensible payout ratios and franking credits may look more attractive than it did before. But a high dividend yield is not automatically a good investment. Sometimes a high yield reflects a falling share price, limited growth prospects or a dividend that may not be sustainable.

A better question is:

Is the investment producing a reliable after-tax return, or is it relying mainly on future capital growth that may now be taxed less favourably?

For investors on higher marginal tax rates, especially those investing in personal names outside super, this distinction matters. The proposed rules may make franked income relatively more competitive. But the best answer will still depend on asset quality, valuation, diversification, holding structure and time horizon.

Growth investing still has a role

The chart above does not mean growth investing is no longer useful. It shows that the tax tailwind for growth may be weaker, especially for high-income investors holding assets outside super.

A business that can reinvest capital at high rates of return may still produce strong long-term outcomes, even if the eventual capital gain is taxed less favourably. This is particularly relevant for global shares, technology, healthcare and other sectors where returns often come more from earnings growth than dividends.

The practical takeaway is not “income good, growth bad”. It is that investors may need to lift the hurdle for growth assets. If an investment offers little income today, it needs a credible path to stronger future earnings, not just a hope that the market will pay more for it later.

This is where the concept of growth alpha becomes useful.

In simple terms, growth alpha is the extra return a growth investment needs to deliver to compensate investors for receiving less income along the way.

For example, an income-focused investment may produce a reliable 6% annual return, mainly through income. A growth-focused investment may produce little income today but offer the possibility of stronger capital growth over time. If both investments produce the same total return, the income-focused option may look more competitive under the proposed tax rules. But if the growth investment can produce a materially higher total return, the benefit of compounding and tax deferral may still outweigh the eventual tax cost.

That point is important. The proposed CGT changes may reduce the tax advantage of capital growth, but they do not remove the power of compounding.

A growth asset can still make sense where:

• the expected total return is meaningfully higher than the income alternative;
• the investor has a long time horizon;
• the asset is held in a tax-effective structure, such as super;
• the investor does not need regular income from the asset;
• the business or fund has a credible ability to reinvest and grow earnings.

A growth asset may be less attractive where:

• the expected return is only marginally higher than an income alternative;
• the investor has a short holding period;
• the asset is held personally by a high marginal tax rate investor;
• the investment relies mostly on valuation expansion rather than earnings growth;
• the investor is likely to need to sell at an inconvenient time.

 

Income fund versus growth fund decision matrix

How much growth alpha is enough? This matrix compares income and growth outcomes across different tax rates and return assumptions. The key message is that growth investing can still work, but it needs to deliver enough additional return to compensate for the less favourable capital gains tax treatment.

What the decision matrix shows

The decision matrix helps avoid a common mistake: assuming that the Budget automatically makes income investing better than growth investing.

The better question is: how much extra return does the growth asset offer, and is it enough to compensate for the tax treatment and the lack of income along the way?

The matrix compares tax rates against the amount by which growth returns exceed income returns. In simple terms, the higher your tax rate, the more important growth alpha becomes.

At a low tax rate, growth investing can still compare well, because the tax drag is lower. But at higher tax rates, especially for investors on the top marginal tax rate, a growth strategy needs to deliver a stronger return advantage to justify the reduced CGT benefit.

The chart also shows why small differences in return matter. If a growth investment only produces a slightly higher pre-tax return than an income investment, the income option may be more attractive after tax. But if the growth investment can deliver meaningfully stronger returns, growth can still win.

This is the practical takeaway:

• Low growth alpha: income may be favoured, especially for high-tax investors.
• Moderate growth alpha: structure, time horizon and tax rate become critical.
• High growth alpha: growth can still be compelling, particularly over long periods.
• Inside super: growth assets may remain attractive because the tax environment can be more favourable than personal ownership.

For many investors, the answer may be a blend. Income assets can support cash flow and reduce reliance on selling assets. Growth assets can help preserve purchasing power and build long-term wealth. The right balance depends on the investor’s stage of life, tax position, risk tolerance, ownership structure and need for income.

ETFs and managed funds need closer review

Investors using ETFs or managed funds should also review how returns are generated and distributed.

Some funds are income-focused. Others are growth-focused. Some distribute realised capital gains along the way. Others are more tax-aware and have lower turnover. Australian equity funds may distribute franked income, while global equity funds generally produce different tax characteristics.

For investors holding assets personally, this may affect after-tax returns. For investors holding assets inside super, the impact may be different because superannuation structures are generally taxed under their own rules. The Government’s tax explainer states that superannuation funds, including SMSFs, will be excluded from the announced CGT changes.

Investors may want to review:

• whether the fund is income-focused, growth-focused or balanced;
• how often it realises capital gains;
• whether it distributes franked income;
• whether it holds Australian shares, global shares, property securities or alternatives;
• whether the fund is held personally, jointly or inside super.

The same investment can produce a different after-tax outcome depending on the structure used to hold it.

What could this mean for property investors?

Property is more directly affected because the Budget changes address both CGT and negative gearing.

Established investment property may be less tax-effective for new buyers

From 1 July 2027, investors who buy affected established residential property after the Budget timing would not be able to use net rental losses to reduce wage or salary income. Instead, those losses would generally be deducted against residential property income, including residential property capital gains, with excess losses carried forward to future years.

That changes the cash-flow equation.

Under the current model, an investor with a negatively geared property may receive some tax relief each year because the rental loss offsets other taxable income. Under the proposed model, that annual tax benefit may not be available for affected established properties.

This does not mean property losses disappear. It means the timing and use of deductions may change. Timing matters because investors still need to fund the cash shortfall in the meantime.

For example, an investor who previously relied on a tax refund to help cover holding costs may need to fund more of the shortfall from salary, savings or other income. That can make the strategy less comfortable, particularly if interest rates remain elevated or maintenance costs rise.

New builds may receive more support

The Budget is designed to direct tax support towards new housing supply. Negative gearing would remain available for new builds, and investors in new builds would be able to choose between the existing 50% CGT discount and the new arrangements.

This could make new dwellings more attractive relative to established dwellings, at least from a tax perspective.

But tax should not be the only driver. New property can carry risks such as developer premiums, location risk, construction delays, body corporate costs, valuation risk and oversupply in some areas. A tax concession does not fix a poor asset.

A simple way to think about it is this: tax treatment can improve the outcome of a good investment, but it rarely rescues a bad one.

Existing investors may have an incentive to hold

Because existing arrangements will remain unchanged for properties held before Budget night, some existing investors may be reluctant to sell.

That could create a “lock-in” effect. Existing investors may value the grandfathered treatment and decide to hold assets for longer than they otherwise would.

The property impact is likely to vary by location and dwelling type. A well-located house in a tightly held suburb may behave very differently from a high-rise apartment in an investor-heavy market. Cash flow, land value, supply, vacancy risk and local demand will still matter.

The broader investment backdrop

The Budget changes are only one part of the picture.

Dr Shane Oliver and AMP’s economics team noted that the 2026–27 Budget includes a wind-back in negative gearing, the taxation of real capital gains, measures to reduce regulation and modest net budget cuts over five years. They also noted that, despite lower projected deficits, the Budget does little to make the RBA’s inflation-control task easier.

For shares, higher bond yields can pressure valuations, particularly for growth companies whose expected profits sit further in the future. For property, borrowing costs affect repayments, borrowing capacity and investor cash flow.

In other words, tax is important, but it is not the only variable. A highly geared property investment can still be risky even with favourable tax treatment. A quality share portfolio can still be volatile even if its long-term return prospects are sound.

Example 1: A couple aged 58 with an investment property

Consider Mark and Helen, both aged 58. They own their home, have superannuation, and bought an investment property several years ago. The property is negatively geared, but they are comfortable with the cash flow because they are still working.

Their first question should not be, “Should we sell before the rules change?”

A better review would ask:

• Is the property likely to remain grandfathered under the proposed rules?
• Does it still fit their retirement income plan?
• Can they manage the cash flow if interest rates remain elevated?
• Would selling trigger a large capital gain?
• Would adding more to super produce a better after-tax retirement outcome?
• Are they too concentrated in one property market?

For this couple, holding may make sense if the property is high quality, cash flow is manageable and the asset still fits their retirement plan. But if the property has weak growth prospects, high maintenance costs or creates too much concentration risk, the Budget may be a prompt to reassess.

Example 2: An accumulator family choosing between shares and property

Consider a couple in their early 40s with two children, a mortgage and surplus cash flow of $1,500 per month. They are considering either buying an investment property or increasing their regular share portfolio contributions.

Before the Budget, negative gearing may have made an established investment property feel more manageable from a cash-flow perspective. Under the proposed rules, that benefit may be reduced for affected future purchases.

For this family, the decision should compare:

• deposit size and stamp duty;
• borrowing capacity;
• expected rental shortfall;
• interest rate sensitivity;
• diversification;
• liquidity;
• expected after-tax returns;
• whether investments are held personally, jointly or through super.

A diversified share portfolio may be simpler, more liquid and easier to scale gradually. Property may still suit them if they have strong cash flow, a long time horizon and can buy a quality asset without overextending.

The key is not to let tax drive the whole decision.

Example 3: A single retiree nearing Age Pension age

Consider Anne, aged 66, who owns her home and has a mix of super, cash and Australian shares. She values income and stability.

For Anne, the Budget may make dividend income and superannuation structure more relevant, but she still needs to manage:

• Age Pension means testing;
• sequencing risk;
• concentration in bank shares;
• liquidity for spending;
• inflation protection;
• estate planning.

A portfolio tilted entirely to high-dividend shares may create income, but it can also increase sector concentration. A better approach may be to combine cash reserves, diversified income assets, quality Australian shares, global exposure and super pension planning.

A simple decision framework

When reviewing your investments after the Budget, use five filters.

1. Return source

Ask whether the investment relies mainly on income, capital growth or both.

If the investment depends heavily on capital growth, the proposed CGT changes may reduce the after-tax payoff. If it produces reliable income, it may be relatively more attractive, but only if that income is sustainable.

For growth assets, go one step further and ask: does this investment offer enough growth alpha to justify the lower income and the potential tax drag when sold?

2. Ownership structure

The same asset can have different outcomes depending on whether it is held:

• in your personal name;
• jointly with a spouse;
• through a trust;
• inside super;
• through an SMSF;
• in a company structure.

Do not restructure purely for tax reasons. But do check whether your current structure still suits your income, retirement and estate planning objectives.

3. Cash flow resilience

For property, model the investment without assuming immediate tax refunds from negative gearing. For shares, consider whether dividend income could fall during weaker earnings periods.

Stress-test your position using higher interest rates, lower rent, lower dividends and unexpected expenses.

4. Concentration risk

Many Australians already have significant exposure to residential property through their home. Adding an investment property can increase wealth, but it can also create concentration in one asset class, one city and one lending environment.

Share portfolios can also be concentrated, particularly where investors hold mostly banks, miners and hybrids.

Diversification remains one of the simplest risk controls.

5. Time horizon

Tax changes matter more when an investment is sold. If you are investing for 15 or 20 years, the quality of the asset and compounding return still matter enormously.

Avoid making short-term decisions based on tax headlines alone.

Quick checklist: what to review now

For share investors

• Review the balance between growth, dividends and franking credits.
• Check whether your growth assets offer enough growth alpha.
• Check whether your ETFs or managed funds are tax-efficient.
• Avoid chasing yield without checking dividend sustainability.
• Consider whether super is a better structure for long-term investing.
• Revisit your rebalancing strategy before making large changes.

 

For property investors

• Confirm whether existing properties may be grandfathered.
• Model cash flow without relying on wage-income offsets for future established property purchases.
• Compare established property with new builds carefully.
• Review debt levels, interest rate buffers and insurance.
• Consider land tax, maintenance, vacancy risk and selling costs.

 

For pre-retirees

• Review whether assets should be held personally or inside super.
• Consider timing of capital gains before and after retirement.
• Check whether large asset sales could affect Age Pension or tax outcomes.
• Avoid triggering tax without a broader retirement plan.

 

What not to do

The biggest risk after a major Budget announcement is overreacting.

Avoid these common mistakes:

• selling a quality asset purely because tax rules may change;
• buying a new build purely because it receives better tax treatment;
• chasing high dividends without considering capital risk;
• assuming all property will perform the same way;
• ignoring superannuation as a long-term investment structure;
• making decisions before legislation is final.

Tax is a factor. It is not a strategy by itself.

The bottom line

The Budget may tilt the investment landscape. It appears likely to reduce some of the tax advantage attached to long-term capital gains, make income-producing assets relatively more attractive, and weaken the appeal of negatively geared established property for some future investors.

For share investors, this may be a prompt to review the mix between growth and income. Dividend-paying investments may look more competitive, particularly for high marginal tax rate investors. But growth investing still has a role where the expected growth alpha is strong enough, the time horizon is long enough, and the ownership structure is appropriate.

For property investors, the Budget may be a prompt to revisit cash-flow assumptions and the role of gearing. Established property may become less tax-effective for some future buyers, while new builds may receive greater support.

For pre-retirees, it is a reminder that tax, super and retirement income planning should be considered together.

The most important point is to avoid one-dimensional decisions. A good investment strategy should consider tax, but it should also consider risk, liquidity, diversification, cash flow and your long-term objectives.

Speak with an adviser

The proposed rules are complex and not yet law. Before making major investment, sale or restructuring decisions, speak with a licensed financial adviser and a registered tax adviser.

 

Important information and disclaimer

The information provided in this document is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide.

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