Federal budget 2026 – What you need to know

The headline reform is the proposed replacement of the current 50 per cent Capital Gains Tax (CGT) discount. From 1 July 2027, the Government intends to remove the 50 per cent discount for assets held for more than 12 months and, instead, introduce a cost-based indexation model alongside a minimum 30 per cent tax on net capital gains. These changes are proposed to apply across a broad range of assets, including shares, investment properties, trusts and partnerships.

Importantly, the Budget includes transitional arrangements designed to protect existing investments. Gains accrued prior to 1 July 2027 will still retain access to the existing 50 per cent discount, and pre-CGT assets will remain exempt for gains generated before that date. This means valuations at 1 July 2027 may become critically important for many investors.

The Government has also attempted to preserve incentives for housing construction by allowing investors in eligible new residential properties to continue accessing the current CGT discount arrangements. This reinforces the broader policy direction of encouraging new housing supply rather than speculative investment in existing dwellings.

For investors, these changes significantly alter after-tax return calculations. Long-term investment strategies, asset ownership structures and timing considerations will all require careful review.

As many analysts predicted, the Budget reform is targeting negative gearing. From 1 July 2027, losses on established residential investment properties acquired after 7:30 pm (AEST) on 12 May 2026 will no longer be deductible against other personal income. Instead, those losses can only be offset against future rental income or capital gains from residential property investments.

Existing property owners are largely grandfathered under the current rules, which provides certainty for current investors. However, the Government is clearly redirecting tax incentives toward new housing construction. The practical impact is likely to be significant for future property investors.

Established residential property may become less tax-effective as an investment strategy, particularly for high-income earners who have historically relied on negative gearing benefits. At the same time, newly constructed property, infrastructure-related investments and concessionally taxed environments such as superannuation may become increasingly attractive.

The Budget proposes substantial changes to discretionary trusts. From 1 July 2028, trustees of discretionary trusts will face a minimum 30 per cent tax rate on trust income. Beneficiaries will continue to declare trust income personally, but the trustee will pay the tax as a credit.

The Government’s stated aim is to reduce income-splitting arrangements and simplify tax integrity rules. Importantly, several structures are excluded from the new minimum tax regime. Fixed trusts, widely held trusts, charitable trusts and complying superannuation funds are not captured by these changes. This distinction matters.

Many families and small business owners have historically used discretionary trusts as flexible wealth management vehicles. Under the proposed rules, some may now consider alternative ownership structures, including companies, fixed trusts or greater use of superannuation. The Government has acknowledged this by offering expanded rollover relief for taxpayers who choose to restructure from discretionary trusts into alternative entities.

A notable aspect of this Budget is that superannuation was largely left untouched. While speculation had existed around broader superannuation reform, the Budget did not introduce material changes to contribution caps, preservation rules or the core concessional taxation framework for most Australians. This is significant.

As taxation tightens outside the superannuation system through changes to CGT, negative gearing and discretionary trusts, the relative tax effectiveness of superannuation improves. For many Australians, superannuation may now represent one of the few remaining environments offering concessional tax treatment, long-term compounding benefits and structural certainty.

This does not mean investors should abandon diversified investment strategies outside superannuation. Liquidity, accessibility and estate planning considerations remain important. However, it does reinforce the value of maximising concessional and non-concessional contribution opportunities where appropriate. For business owners, professionals and pre-retirees in particular, this Budget may accelerate the need to reconsider how wealth is accumulated and where future investments are directed.

The 2026 Federal Budget marks a sizeable shift in Australia’s taxation framework. The Government is signalling a clear policy preference: less reliance on tax incentives tied to existing property and discretionary trust structures, and greater emphasis on productive investment, housing supply and long-term savings.

For investors and families, the key message is to avoid emotional reactions and review strategies carefully. Many existing arrangements are protected through grandfathering provisions, and there will still be opportunities to build wealth effectively under the new rules.

But the importance of strategic financial advice has never been greater. With superannuation remaining comparatively stable and concessionally taxed, it is likely to play a pivotal role in long-term wealth creation strategies for Australians in the years ahead.

The team at First Financial comprises financial experts who help hundreds of Australians retire well and make informed, intelligent financial decisions. We cover everything from retirement and financial advice, investment and wealth management, superannuation and SMSF, insurance, tax, aged care, legal and lending services. Contact us for holistic, well-rounded financial management strategies.