Capital Gains Tax Reforms
Effective from 1 July 2027
This is one of the most significant changes in the Budget. From 1 July 2027, the long-standing 50% CGT discount for assets held more than 12 months will be replaced by cost base indexation using the Consumer Price Index (CPI). A minimum 30% tax rate will also apply to net capital gains.
These reforms apply to individuals, trusts, and partnerships, including pre-1985 CGT assets. Importantly, superannuation funds are not affected and will continue to receive their existing one-third CGT discount.
Transitional arrangements have been included for assets you already own:
- Gains up to 1 July 2027 will generally qualify for the current 50% discount.
- Gains after that date will use the new indexation method and minimum tax rate.
- You will need to determine the asset’s market value as at 1 July 2027 (via valuation or ATO tools).
To support new housing supply, investors in qualifying new-build residential properties can choose between the 50% CGT discount or the new rules. Age Pension recipients and other income support payment recipients will be exempt from the 30% minimum tax.
Negative Gearing Changes
Announced 12 May 2026 | Mainly effective from 1 July 2027
The Government is limiting negative gearing on residential property to new builds only. From 1 July 2027, losses on established residential properties can only be offset against rental income or capital gains from other residential properties. Any excess losses can be carried forward to future years.
Key transitional relief applies:
- Properties held at the time of the announcement (including contracts already entered into) are generally grandfathered until sold.
- Superannuation funds (including SMSFs) and widely held trusts are exempt from the restrictions.
New builds — defined as dwellings constructed on vacant land or replacements that increase the overall number of dwellings — continue to qualify for full negative gearing.
Discretionary Trusts
Minimum 30% tax from 1 July 2028
A new 30% minimum tax rate will apply to the taxable income of discretionary trusts. The trustee will pay this tax, and eligible beneficiaries (other than companies) will receive a non-refundable tax credit.
Certain types of trusts are exempt, including fixed trusts, complying superannuation funds, special disability trusts, deceased estates, and charitable trusts. The Government is also providing rollover relief for small businesses wanting to restructure out of discretionary trusts over the next three years.
Support for Working Australians
The Budget includes several measures designed to provide tax relief for people earning income from work:
- A new permanent $250 Working Australians Tax Offset (WATO) starting in the 2027–28 financial year, which will automatically increase the effective tax-free threshold for work-related income.
- A $1,000 Instant Tax Deduction for work-related expenses from 2026–27. If your claim is under $1,000, you won’t need to keep receipts or itemise.
- Already legislated tax cuts that will further reduce the lowest marginal tax rate to 15% from 1 July 2026 and 14% from 1 July 2027.
Other Notable Measures
- Small business: The $20,000 instant asset write-off has been made permanent for businesses with turnover under $10 million.
- Electric vehicles: The FBT discount transitions to a permanent 25% discount from April 2029, with transitional arrangements for cars acquired earlier.
- Aged care: Additional funding to increase residential aged care beds and improve access to home care services.
- Private Health Insurance Rebate: The age-based uplift will be removed from 1 April 2027.
- No major new announcements were made regarding superannuation beyond the already legislated Payday Super and Division 296 rules, both commencing 1 July 2026.
Next Steps
These changes represent a meaningful shift in the tax landscape for investors and business owners. Our team is carefully reviewing the full implications and will contact you if we identify any actions that may be worth considering before the key implementation dates.
Please feel free to reach out to us on 03 9852 7440 if you would like an earlier discussion about how these measures might affect your investments, tax position, retirement strategy, or any other area of your financial affairs.
