The Federal Budget handed down on 12 May 2026 contains several significant proposed tax and investment changes that may affect property investors, business owners, SMSFs, family trusts and individual taxpayers.
It is important to note that these measures are proposals only at this stage and are not yet law. Further detail and draft legislation are still to come.
Negative Gearing Changes
The Government has proposed significant changes to negative gearing rules for residential investment properties.
Proposed Changes
- Existing investment properties purchased before Budget night (7:30pm AEST on 12 May 2026) are expected to be grandfathered, i.e. the current rules are expected to continue applying to that property and you will not be affected by these changes.
- Current negative gearing rules are proposed to continue until 30 June 2027.
- From 1 July 2027, losses from affected established residential investment properties may no longer be deductible against salary, business income or other non property income.
- Instead, losses may only be offset against residential property income, including future rental income and capital gains.
- Excess losses are expected to be carried forward to future years.
- Negative gearing is proposed to continue for new residential builds.
What This Means
Property investors may increasingly turn their attention to:
- cash flow positive assets
- new residential developments
- long term holding structures
- overall portfolio tax efficiency rather than relying on annual tax losses
Capital Gains Tax Changes
The Budget also proposes major changes to the current capital gains tax (CGT) discount system.
Current Rules
The existing 50% CGT discount is proposed to continue until 30 June 2027.
Proposed Changes From 1 July 2027
The Government proposes replacing the 50% CGT discount with an inflation based system where tax applies only to the real gain after inflation, with a minimum tax rate of 30% applying to assets held for more than 12 months.
Transitional Rules
At this stage, two possible approaches appear to be under consideration:
- a valuation method as at 30 June 2027, or
- a time apportionment method, where the gain is split based on how long the asset was held before and after 30 June 2027.
This means valuations around 30 June 2027 may become important for investors holding significant unrealised capital gains.
New Residential Property
Investors in eligible new residential properties may have the option of applying either:
- the existing 50% CGT discount, or
- the proposed inflation based indexation method
This is intended to preserve incentives for investment into new housing supply.
Further detail is still required to determine:
- what qualifies as a new residential property
- whether the choice is irrevocable
- how the transitional rules will operate
What This Means
Clients holding investment assets should avoid rushed decisions. The eventual outcome may depend heavily on ownership structure, acquisition timing, unrealised gains and the final legislative detail.
Discretionary Trust Changes
The Budget proposes a new 30% minimum tax on discretionary trust distributions from 1 July 2028.
Current Understanding
- The proposed tax is expected to apply at the trustee level.
- SMSFs, fixed trusts and charitable trusts are proposed to be excluded.
- Further detail is still pending.
What This Means
Clients using family trusts may eventually need to review trust distribution strategies, beneficiary structures and long term asset ownership arrangements. That said, no restructuring should occur until the legislation becomes clearer.
Small Business Measures
Instant Asset Write Off
The $20,000 instant asset write off is proposed to become permanent for eligible small businesses.
Potential Benefits
This may assist businesses with equipment purchases, technology upgrades, cash flow management and year end tax planning. Eligibility rules and turnover thresholds will still apply.
Individual Tax Measures
The Budget includes several proposed personal tax relief measures:
- Further personal tax cuts proposed from 1 July 2026 and 1 July 2027
- A proposed simplified $1,000 instant deduction for eligible work related expenses
- Proposed worker tax offset measures
Further detail is expected once legislation is released.
Superannuation and SMSFs
No major new SMSF specific measures were announced in this Budget.
SMSF trustees should continue monitoring:
- Further detail, regulations and ATO guidance regarding the additional tax on super balances above $3 million
- Payday Super changes from July 2026, where employers will be required to pay super at the same time as wages
- Broader superannuation reform discussions
At this stage, there are no announced changes to pension phase tax exemptions, contribution caps or standard SMSF compliance rules.
Final Thoughts
These proposed changes represent one of the more significant proposed tax reform packages in recent years, with particular implications for property investors, high income earners, family trust structures and long term wealth planning.
A few important things to keep in mind:
- These changes are not yet law, so nothing is set in stone.
- The final legislation may look different from what has been announced.
- The transition between the existing and proposed rules may have a significant impact on future planning and timing decisions.
- Many details are still to come once draft legislation is released.
With so much still to be confirmed, here are a few practical steps worth considering in the meantime:
- Review your current position. It is worth understanding where you stand today, particularly around investment properties, trust distributions and super balances, so you are ready to act when the time is right.
- Consider your cash flow position. Some of these changes may affect the after tax returns on your investments. Now is a good time to consider whether your portfolio remains well positioned.
- Keep an eye on key dates. The proposed changes have several important commencement dates including 1 July 2026, 1 July 2027 and 1 July 2028. Understanding which measures affect you and when will be important.
- Seek advice before disposing of assets. If you are considering selling an investment property or other asset, it is important to obtain advice first. The CGT transitional rules in particular may have a significant impact on your outcome.
As always, we will continue to monitor developments closely and share updates as draft legislation becomes available. In the meantime, if you have any questions or would like to discuss how any of these proposals may affect you, please do not hesitate to get in touch.
A Quick Note
The content in this article is general in nature. Please speak with us or your adviser before acting on any of the information above, as individual circumstances vary. Arithma Accountants does not hold an Australian Financial Services Licence.