2026 Federal Budget: Negative Gearing, CGT & Trust Tax Changes Explained

2026 Federal Budget: What Busselton Businesses Need To Know

The 2026-27 Federal Budget was announced on Tuesday 12 May 2026, and for small business owners across Australia it's one of the most consequential budgets in recent years. Since then, two of the three major reforms covered in this article have passed Parliament and are now law. The third — the discretionary trust minimum tax — has not yet passed and remains a proposed measure. We've updated this article to reflect the latest status of each change.

The Three Big Changes — At a Glance

The 2026-27 Federal Budget delivered three major tax reforms that will reshape property investment, business structuring and family wealth planning in Australia. They don't all hit at once, and as of late June 2026, they don't all carry the same legal status either.

‍

Part 1 — Negative Gearing: What Changed and What Didn't

What is negative gearing?

Negative gearing occurs when the costs of owning an investment property — interest on the loan, maintenance, property management fees, depreciation — are higher than the rental income you receive. The resulting loss can currently be offset against your other income, such as your salary, reducing your overall tax bill.

What changed on Budget night?

From 1 July 2027, negative gearing for established residential properties is restricted to new builds only. If you purchase an established investment property after 7:30pm AEST on 12 May 2026, any rental losses can no longer be offset against your wages or salary. Instead, those losses are quarantined — they can only offset future rental income or capital gains from rental properties.

The critical cutoff: 7:30pm AEST, 12 May 2026

This is the most important date for existing investors. Properties purchased or under a binding contract before 7:30pm on Budget night are fully grandfathered — nothing changes for those properties until you sell them. The contract signed date counts, not the settlement date.

What does "quarantined" mean in plain English?

If you buy an established investment property after Budget night and it runs at a loss of $15,000 per year, you can no longer deduct that $15,000 against your salary. Instead, it carries forward and can only offset income from other rental properties or future capital gains when you sell. The loss doesn't disappear — but you lose the immediate tax benefit of offsetting it against your wages.

What counts as a new build?

The following qualify as new builds and retain full negative gearing:

• A newly constructed apartment purchased off-the-plan
• A duplex constructed through a knock-down rebuild replacing a single dwelling (net increase in properties)
• Any residential construction on previously vacant land
• A newly built property occupied for less than 12 months before first sale

What is not affected by the negative gearing changes?

Your main residence is not affected. Commercial properties are not affected. Shares and other investments are not affected. If you already own an investment property, nothing changes for that property until you sell it.

‍

Part 2 — Capital Gains Tax: What's Changing and What It Means For You

How it worked before

When you sold an investment you had owned for more than 12 months, the profit was simply cut in half. You paid tax on that half at your normal rate.

Sold something and made a $200,000 profit? You only paid tax on $100,000. That was it.

What changes from 1 July 2027

First, your purchase price gets adjusted for inflation. This means you only pay tax on the real profit — the growth above what inflation alone would have produced.

Second, a 30% minimum tax applies to that real profit. You cannot pay less than 30% on a capital gain, no matter what your income is that year.

A simple example of how indexation works

You buy a property for $500,000 in 2020. By 2030, inflation has pushed the equivalent value to $620,000. So your cost base is stepped up to $620,000. You sell for $900,000. You only pay tax on $280,000 — not the full $400,000 gain. The $120,000 that simply kept pace with inflation is not taxed at all.

What if you already own a property?

Properties owned before Budget night get a split treatment.

Everything you earned up to 1 July 2027 still gets the old 50% discount.

Everything earned after 1 July 2027 falls under the new rules.

To work this out properly you will need to know what your property was worth on 1 July 2027. A formal valuation now is worth considering. Talk to LKB before that date.

The 30% minimum — who does it actually affect?

For most people with a normal income, the answer is nobody. If your tax rate on the gain is already above 30%, the floor does nothing at all.

The people it targets are those who would have paid less than 30% — typically someone in a low income year who times a property sale deliberately to reduce their tax bill. That strategy no longer works.

What if your income is low in the year you sell?

This is where it gets more complicated — and where we have to be upfront about what is still unknown.

Imagine someone who is retired or between jobs. They have $15,000 of other income for the year and they sell a property making a $100,000 real capital gain. Their total income jumps to $115,000, and almost all of it is the gain.

Here is the problem. That $100,000 gain does not sit neatly in one tax bracket. It spans several at once — some of it falls in the 0% bracket, some in the 19% bracket, some in the 32.5% bracket. Each slice would normally be taxed differently.

But the 30% minimum has to apply somehow. And the legislation has not yet spelled out exactly how — whether the floor hits the gain as a whole, each slice separately, or the overall blended rate across everything. Each approach gives a different answer, and the difference matters.

Until that detail is confirmed in the final law, we cannot tell a low-income earner precisely what they will pay. What we can say is that the 30% floor was specifically designed for this scenario — someone selling in a low-income year to get a lower rate. If that sounds like it could be you, speak with us before making any decisions. We will update clients the moment the legislation is finalised.

‍

Part 3 — Discretionary Trust Minimum Tax: The Change That Hits Family Businesses

Why do people use discretionary trusts?

Discretionary trusts are one of the most common structures used by Australian family businesses and investors. The trustee distributes income to beneficiaries each year, and those beneficiaries pay tax at their own marginal rate. This allows families to legally spread income across members who may be on lower tax rates — a spouse who works part-time, adult children studying at university, or other family members.

What's proposed to change from 1 July 2028

From 1 July 2028, the trustee of every discretionary trust must pay a 30% minimum tax on the taxable income of the trust — regardless of how that income is distributed to beneficiaries.

No grandfathering — all existing trusts we be captured

Unlike the negative gearing and CGT changes, no grandfathering has been proposed for existing discretionary trusts. As announced, every discretionary trust in Australia — regardless of when it was established — would be subject to the 30% minimum tax from 1 July 2028 if the legislation passes as currently outlined.

Who is exempt from the trust minimum tax?

The following are NOT captured by the new rules:

• Fixed trusts and unit trusts — not affected
• Complying superannuation funds including SMSFs — excluded
• Charitable trusts and special disability trusts — exempt
• Deceased estates — exempt
• Primary production income — carved out (important for South West WA farming businesses)
• Discretionary testamentary trusts that were already in existence on 12 May 2026 are exempt. Testamentary trusts created after Budget night — including trusts set up under wills made after that date — are not exempt and would be subject to the 30% minimum tax if the measure becomes law.

The proposed rollover relief window

The government has proposed a 3-year rollover relief window from 1 July 2027 to 30 June 2030, intended to allow eligible taxpayers to transfer assets out of a discretionary trust into a company or fixed trust without triggering capital gains tax consequences on the transfer itself. As this measure isn't law yet, the exact conditions of this rollover are also not finalised.

‍

What should you do right now?

If you own investment properties before Budget night: Review whether to get a property valuation as at 1 July 2027 to lock in the split calculation and potentially reduce future CGT.

If you're considering buying an established investment property: Model the impact of quarantined losses before committing. The financial case for negative gearing has changed significantly for new purchases.

If you operate through a discretionary trust: The proposed changes aren't law yet, so there's no need to act immediately. But it's worth starting the conversation with us now, particularly if your will includes or might include a testamentary trust.

If you're a primary producer: Your trust may be partially protected through the proposed primary production income carve-out. Get specific advice on your situation.

If you hold your main residence: Nothing changes. The main residence exemption is fully preserved.

‍

General Advice Disclaimer

This article is prepared by LKB Accountants for general information purposes only. It does not constitute financial, tax or legal advice. The budget measures were announced on 12 May 2026 and require legislation to pass Parliament before they become law. Worked examples are illustrative only and use simplified assumptions. Individual circumstances vary significantly. Before making any financial decisions, please speak with a registered tax agent. Lachlan Bailey is a Registered Tax Agent (Tax Practitioners Board) and Chartered Accountant (CA ANZ).