Key Announcements for Property Investors
Capital Gains Tax (CGT) Overhaul
The government has announced a significant reform to CGT arrangements, effective from 1 July 2027. This measure will replace the long-standing 50% CGT discount with a system of cost base indexation for assets held for more than 12 months. Additionally, a new 30% minimum tax will be applied to net capital gains as indicated in the 2026-2027 Budget.
These changes will apply broadly to individuals, trusts, and partnerships. Notably, the exemption for pre-1985 CGT assets will effectively end, meaning gains accruing on these assets from 1 July 2027 will now be subject to CGT. However, investors in new residential property will retain the flexibility to choose between the existing 50% CGT discount and the new indexation and minimum tax approach. Income support payment recipients, such as Age Pensioners, will be exempt from the 30% minimum tax.
Negative Gearing Restrictions for Established Properties
In a move aimed at redirecting investment towards new housing supply, the government will limit negative gearing for residential property to new builds, effective from 1 July 2027. This applies to established residential properties purchased from 7:30 PM (AEST) on 12 May 2026.
Under the new rules, losses from established residential properties will only be deductible against rental income or future capital gains derived from residential property. Any excess losses can be carried forward to offset residential property income in subsequent years.
Existing investments (established properties acquired before 12 May 2026) will be grandfathered, meaning they will continue to be eligible for the current negative gearing rules until disposed of. New residential properties will remain fully eligible for negative gearing. Certain entities, such as properties held in widely held trusts, superannuation funds, and specific build-to-rent developments, will be excluded from these changes.
Minimum Tax on Discretionary Trusts
To enhance the fairness of the tax system, the government will introduce a 30% minimum tax on the taxable income of discretionary trusts, commencing 1 July 2028.
Trustees will be subject to this minimum tax rate, with individual beneficiaries receiving non-refundable credits for tax paid at the trustee level. This measure will not apply to other trust structures, including fixed and widely held trusts, complying superannuation funds, deceased estates, charitable trusts, and certain testamentary trusts.
Specific income categories, such as primary production income and income related to vulnerable individuals, will also be excluded. To assist with compliance, the government will provide expanded rollover relief for three years from 1 July 2027, facilitating restructuring from discretionary trusts into alternative entity structures.
Personal Income Tax & Medicare Levy Adjustments
While not directly property-specific, changes to personal income tax rates and Medicare levy thresholds can indirectly affect property investors’ overall financial position.
Tax Rate Cuts:
- From 1 July 2026, the 16% tax rate on taxable income between $18,201 and $45,000 will be reduced to 15%.
- From 1 July 2027, this rate will see a further reduction to 14%.
Business Measures (Indirectly Relevant to Investors)
For property investors operating through small business entities, the following measure is relevant:
- Instant Asset Write-Off: The $20,000 instant asset write-off threshold for small businesses (with a turnover of less than $10 million) has been made permanent from 1 July 2026. This can be beneficial for investors who use a business structure to manage their property portfolio and acquire new equipment or assets for their properties.
Final Summary
The 2026-27 Federal Budget signals a clear intent from the government to reshape the investment landscape, particularly within the property sector. The reforms to Capital Gains Tax and negative gearing, alongside changes to discretionary trusts, necessitate a thorough review of existing investment strategies and future acquisition plans for property investors.
These measures are likely to:
- Reduce after-tax returns on certain investments
- Increase the importance of structure and tax planning
- Create stronger incentives to invest in new residential developments
While some measures aim to stimulate new housing supply, others introduce complexities and potentially reduce the after-tax returns on established properties. It is imperative for property investors to seek professional advice to understand the specific impacts of these changes on their individual circumstances and to adapt their strategies accordingly.
For professional guidance on how these budget measures may impact your property investments, please contact AFP Accounting, Tax and Advisory.
