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

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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. With interest rates at 4.35%, inflation sitting at 4.6%, a nationwide fuel crisis and several major compliance deadlines hitting on 1 July 2026, what Treasurer Jim Chalmers announced will directly shape your financial planning for the rest of the year.

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 — understanding the timeline is the first step in planning your response.

Date	What Changes	Who It Affects
12 May 2026	Line in the sand for negative gearing Properties held or under contract before 7:30pm AEST are fully grandfathered	All property investors
1 July 2026	$20,000 instant asset write-off made permanent Small businesses under $10M turnover can permanently deduct eligible assets under $20,000	Small business owners
1 July 2027	CGT 50% discount replaced + negative gearing restricted Cost base indexation + 30% minimum tax replaces the discount. Negative gearing quarantined for established properties bought after Budget night.	Property investors, share investors
1 July 2028	30% minimum tax on discretionary trusts All discretionary trusts pay minimum 30% tax at trustee level. No grandfathering. Rollover relief window closes 30 June 2030.	Family businesses, investors using trust structures

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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.

Your Situation	Negative Gearing	CGT Treatment
Property owned before 7:30pm 12 May 2026	✓ Fully grandfathered All negative gearing preserved until you sell	Split calculation: gains to 1 July 2027 get 50% discount; gains after 1 July 2027 subject to new rules
Under binding contract before 7:30pm 12 May 2026 (not yet settled)	✓ Fully grandfathered Contract signed counts — settlement date is irrelevant	Split calculation applies as above
Established property purchased after 7:30pm 12 May 2026	✗ Losses quarantined Can only offset against rental income or capital gains from rental properties — not wages or salary	New CGT rules apply from 1 July 2027: indexation + 30% minimum tax on all gains
New build purchased after Budget night	✓ Full negative gearing preserved New builds are fully exempt from the restriction	Choice: 50% discount OR new indexation + 30% minimum tax — whichever is more beneficial

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.

The scenario: Sarah is a nurse earning $95,000 per year. She owns a rental property bought in 2022 — before Budget night. It earns $26,000 rent per year but costs $41,000 to hold. Her friend Tom is buying an identical established rental property in July 2026 — after Budget night — at the same price under identical financial conditions.

❌ Tom — New Rules (Post-Budget)

Rental income	$26,000
Property costs	$41,000
Rental loss	$15,000
Salary income	$95,000
Loss is quarantined — cannot offset salary	Taxable income stays $95,000
Loss carried forward to future rental income	No immediate benefit

Annual tax saving from negative gearing

✅ Sarah — Grandfathered (Pre-Budget)

Rental income	$26,000
Property costs	$41,000
Rental loss	$15,000
Salary income	$95,000
Taxable income after deduction	$80,000
Tax saving at ~32% marginal rate	≈ $4,800/year

Annual tax saving from negative gearing

≈ $4,800/year

Bottom line: Sarah's existing property is completely unaffected. Tom loses approximately $4,800 per year in immediate tax savings compared to Sarah — for an identical property under identical financial conditions. The difference is purely the purchase date.

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Part 2 — Capital Gains Tax: The Biggest Change Since 1999

How CGT worked before Budget night

Under the system that applied for the past 27 years, when you sold an asset you'd owned for more than 12 months — an investment property, shares, or a business — the capital gain was simply cut in half. You then paid tax on that reduced gain at your marginal rate.

Simple example of the old system: Buy a property for $500,000. Sell for $900,000 five years later. Gain = $400,000. Apply 50% discount → taxable gain = $200,000. Pay tax at your marginal rate (e.g. 37% bracket) → tax payable = $74,000. Effective tax rate on the full $400,000 gain: 18.5%.

What changes from 1 July 2027

The 50% discount is replaced with two new elements: cost base indexation and a 30% minimum tax floor on real capital gains. These changes apply to gains accruing after 1 July 2027.

Feature	Old System (Before 1 July 2027)	New System (From 1 July 2027)
How is the gain reduced?	50% discount on the full nominal gain	Cost base indexed to inflation — only the real gain above inflation is taxed
Minimum tax rate?	None — taxed at your marginal rate, which could be very low in a planned low-income year	30% minimum on gains accruing after 1 July 2027 — even if your marginal rate is lower
Main residence	Fully exempt	✓ Still fully exempt — no change
Super fund CGT	15% rate with discount	✓ Not affected — no change
Small business CGT concessions	Available — halve or disregard gain on eligible assets	✓ Fully maintained — no change
New builds	50% discount applied on sale	Investor's choice: 50% discount OR new indexation system — whichever produces the better outcome
Existing properties (owned before Budget night)	50% discount on all gains	50% discount on gains up to 1 July 2027. Indexation + 30% minimum on gains after 1 July 2027
Who is exempt from the 30% minimum?	N/A	Pensioners and income support recipients are exempt — their gains are taxed at marginal rate only

How cost base indexation works — explained simply

Indexation adjusts your original purchase price for inflation, so you only pay tax on the real growth above inflation — not the portion of your gain that simply reflects the dollar losing value over time.

Imagine you bought something for $500,000 in 2020. By 2030, inflation means that $500,000 in 2020 dollars is equivalent to $620,000 in 2030 dollars. Indexation steps up your cost base to $620,000. If you sell for $900,000, you only pay tax on $280,000 — not the full $400,000 gain. The $120,000 that's just inflation is not taxed at all. Then the 30% minimum applies to that $280,000.

Whether you end up paying more or less tax than under the old system depends on how much inflation occurred during your holding period relative to how much the asset grew. Assets that grew significantly above inflation may face higher tax. Assets that barely kept pace with inflation may face lower tax.

The transitional rules for properties already owned

For properties owned before Budget night, the gain is split into two portions:

Period 1 — from your purchase date to 1 July 2027. This portion of the gain gets the old 50% CGT discount.

Period 2 — from 1 July 2027 to your sale date. This portion is subject to cost base indexation and the 30% minimum tax.

To determine the split, you'll need to know what your property was worth at 1 July 2027. You can either obtain a formal valuation or use the ATO's formula that estimates the value based on growth rate and holding period. Talk to LKB well before that date.

📊 Worked Example — Mark: Investment Property Owned Before Budget Night

The scenario: Mark bought an investment property for $600,000 in January 2023 — before Budget night. On 1 July 2027, the property is worth $780,000. Mark sells it in December 2028 for $900,000. He earns $80,000 salary in the year of sale.

Period 1 — Purchase to 1 July 2027 (Old Rules Apply)
Value at 1 July 2027	$780,000
Less: purchase price	$600,000
Period 1 gain	$180,000
Apply 50% CGT discount	$90,000 taxable
Period 2 — 1 July 2027 to Sale Date (New Rules Apply)
Sale price	$900,000
Less: value at 1 July 2027	$780,000
Nominal Period 2 gain	$120,000
Indexed cost base (inflation adjustment adds ~$20,000)	$800,000
Real gain after indexation	$100,000 taxable
Mark's total income: $80,000 salary + $90,000 + $100,000 = $270,000. Marginal rate exceeds 30% — minimum tax does not apply separately	Marginal rate applies
Total Result
Total taxable capital gain (Period 1 + Period 2)	$90,000 + $100,000 = $190,000
Under the old 50% discount system (for comparison)	$300,000 × 50% = $150,000

Total taxable capital gain under new split calculation

$190,000

vs. $150,000 under old system — modest increase due to split

Key insight: Mark's existing property is partially protected by grandfathering — only gains after 1 July 2027 face the new rules. Getting a property valuation as at 1 July 2027 is important to lock in the split calculation accurately. The longer you hold before selling after 2027, the more of the total gain falls under Period 2 and the new rules.

📊 Worked Example — Lisa: New Property Purchase After Budget Night

The scenario: Lisa buys an established investment property in September 2026 (after Budget night) for $700,000. She sells it in 2031 for $1,000,000. Inflation over the holding period increases her indexed cost base to $820,000. Lisa earns $90,000 salary in the year of sale.

Full Gain Calculation (No Split — All Gains Are Post-1 July 2027)
Sale price	$1,000,000
Less: purchase price	$700,000
Nominal gain	$300,000
Indexed cost base (inflation adjustment: $700k → $820k)	$820,000
Real gain after indexation	$180,000
Lisa's total income: $90,000 + $180,000 = $270,000. Marginal rate ~47% — exceeds 30% minimum	Marginal rate applies
Comparison to Old System
Old system: $300,000 × 50% discount	$150,000 taxable
New system: $180,000 after indexation	$180,000 taxable
Difference	+$30,000 more under new system

Taxable gain under new system

$180,000

vs. $150,000 under old 50% discount — modest increase

Key insight: For assets with moderate gains above inflation, indexation can produce a similar or sometimes better result than the old 50% discount. The new system is designed to tax real growth, not inflation. The biggest losers are investors with large, rapid gains well above CPI — typically assets in high-growth metropolitan markets. South West WA property with steadier growth may be less affected than Sydney or Melbourne equivalents.

The 30% minimum tax — when does it actually bite?

The 30% minimum floor only matters if your marginal tax rate is below 30% — this typically means taxable income below approximately $45,000. High-income earners already pay above 30% at their marginal rate, so the minimum adds nothing extra for them. The 30% floor is specifically targeted at investors who time capital gains realisation to lower-income years to reduce CGT. That strategy largely no longer works. Pensioners and income support recipients are exempt from the 30% minimum.

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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.

Simple example of how trusts work today: A family business earns $200,000 through a trust. Rather than one person paying 47% on the full amount, the trustee distributes $80,000 each to the husband and wife and $40,000 to an adult child. Each pays tax at their lower individual rate — significantly reducing the family's total tax bill.

What changes 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.

Distribution to Beneficiary	Before 1 July 2028	From 1 July 2028
High income earner (marginal rate 47%) e.g. spouse earning $200,000	Beneficiary pays 47% on their distribution — trustee pays nothing extra	Trustee pays 30% upfront. Beneficiary receives a non-refundable 30% credit and pays the remaining 17% themselves. Total tax unchanged.
Mid-income earner (marginal rate ~32%) e.g. spouse earning $80,000	Beneficiary pays 32% — modest income splitting benefit	Trustee pays 30%. Beneficiary's credit covers most of their liability — small top-up payment required. Minimal change.
Low income beneficiary (marginal rate 0–19%) e.g. adult child studying, non-working spouse	Beneficiary pays 0–19% — significant income splitting benefit	Trustee pays 30%. Beneficiary receives a non-refundable 30% credit — but their actual tax rate is lower. Excess credit is lost. Total tax = 30%. Income splitting advantage eliminated.
Corporate beneficiary (bucket company) e.g. trust distributes to a Pty Ltd company	Company pays 25-30% company tax — commonly used strategy to retain earnings at lower rate	Trustee pays 30% AND the company receives no credit for that tax payment. Double taxation intended by the government to discourage this structure.

No grandfathering — all existing trusts are captured

Unlike the negative gearing and CGT changes, there is no grandfathering for existing discretionary trusts. Every discretionary trust in Australia — regardless of when it was established — will be subject to the 30% minimum tax from 1 July 2028. There are no exceptions based on the age or size of the trust.

📊 Worked Example — The Thompson Family Trust

The scenario: The Thompson Family Trust earns $180,000 in taxable business income. The trustee distributes $90,000 to David (earns $110,000 salary separately, marginal rate 47%), $50,000 to Janet (part-time work, total income $50,000, marginal rate ~32%), and $40,000 to their son Luke (studying, no other income, marginal rate 0–19%).

✅ Today — Before 1 July 2028

David: $90,000 at 47% marginal rate	Tax ≈ $42,300
Janet: $50,000 at ~32% marginal rate	Tax ≈ $16,000
Luke: $40,000 at 0–19% marginal rate	Tax ≈ $4,967

Total family tax on $180,000

≈ $63,267

❌ From 1 July 2028 — New Rules

Trustee pays 30% minimum on $180,000 upfront	$54,000
David: marginal rate 47% — pays top-up 17% on $90,000	+ $15,300
Janet: marginal rate ~32% — small top-up on $50,000	+ ≈ $1,000
Luke: credit is 30% but his rate is ~0–19%	Excess credit wasted — no refund

Total family tax on $180,000

≈ $70,300+

Key insight: The biggest tax cost comes from distributions to Luke — a low-rate beneficiary. His non-refundable credit is partially wasted, effectively forcing a 30% rate on his share. The strategy of splitting income to lower-income family members is largely neutralised. The trust still provides asset protection benefits — but the income tax advantage is substantially reduced. The question for many family businesses is whether the cost of maintaining the structure outweighs its remaining benefits.

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 already in existence on 12 May 2026 — excluded

The rollover relief window — your restructuring opportunity

The government has provided a 3-year rollover relief window from 1 July 2027 to 30 June 2030. This allows 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. If the new rules will cost your trust significantly, this window is your planning opportunity. Don't leave it until 2030 — proper restructuring takes time.

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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: Don't panic — you have until 2028 and a rollover window from 2027. But start the conversation with your accountant now. Restructuring decisions take time.

If you're a primary producer: Your trust may be partially protected through the 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.

Note: These measures require legislation to pass Parliament before they become law. While expected to proceed, details may change as legislation is drafted.‍

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).

Lachie Bailey

Principal — Chartered Accountant

Chartered Accountant and Registered Tax Agent with over 10 years of experience helping Busselton and South West WA businesses and individuals get on top of their finances.