What’s Changing?
After announcing the changes on budget night on the 12th of May, the government has moved quickly to implement the new measures with most having now passed Parliament in the last fortnight, including:
- Ending negative gearing for residential investment properties bought after 12 May 2026 [and applying from 1 July 2027]
- New tax rules for Discretionary Trusts from 1 July 2028
- A complete overhaul of the Capital Gains Tax (CGT) system
- A standard $1,000 deduction for work-related expenses
- Updates to small business tax incentives
Across the board, the government is moving toward a minimum 30% tax rate on most investment income, trust distributions and capital gains. New-build residential properties remain the main exception.
A Broader Shake-Up Than Expected
While many expected changes to property tax settings, the reforms reach much further. All investments - not just housing - will be taxed under a new, higher regime. Even collectibles and hobby assets may be caught under the updated rules.
The return of indexation for CGT (adjusting the cost base for inflation) is also a shift from the old 1990s system. Notably:
- Indexation won’t apply to capital losses
- There’s no longer a 5‑year averaging mechanism to smooth out large one-off gains
At the end of the day the changes will mean a higher average taxation rate on capital gains.
Who’s Exempt?
Whilst the new measures are quite broad, there are some investments and taxpayers who won’t be fully affected by the new rules including those on a government pension and self-managed superannuation funds:
- Existing residential properties (held before 12 May 2026)
• Negative gearing stays in place and continue to be claimed
• But any value increase after 1 July 2027 will be taxed under the new CGT system - New-build residential properties can still be negatively geared
- Testamentary Trusts [created under a will] will not be subject to the 30% minimum tax rate on distributions
- Self-managed super funds can continue to utilise the CGT discount, however the legislation has been updated to disallow SMSFs from borrowing monies to invest in residential properties
- Full or part pension recipients, who are exempt from the 30% minimum tax rate.
When Do the New Rules Kick In?
Whilst the changes have been announced and implemented quite quickly, they will only come into effect in 12 months time, and there is a transition period:
- New CGT rules apply to gains made after 1 July 2027
- New trust tax rules begin 1 July 2028, with the ability to restructure into companies or other structures with rollover relief
Capital Gains Tax Changes From 1 July 2027
For the taxation to capital gains there have been a number of significant changes, including:
- The 50% CGT discount is removed (except for certain startup investments)
- It’s replaced with indexation of the cost base
- A minimum 30% tax rate applies to capital gains
- Pre‑CGT assets (purchased before 20 September 1985) will no longer be fully exempt
What Does This Mean for Australian Households?
Investment portfolios will likely shift with financial advisers expecting a move toward blue‑chip, dividend‑paying shares, which tend to grow steadily with inflation and away from high‑growth investments that relied heavily on an attractive capital gains tax regime.
Auction clearance rates and investor loan enquiries have already softened. With negative gearing removed for new purchases, residential property becomes less appealing for many investors.
Many Australians operate businesses or hold investments through discretionary trusts. From 2028, the tax benefits reduce, and more people will consider holding investments in their personal names as well as via an investment company.
We are already starting to see the changes in residential property values as a result of the budget measures combined with recent interest rate rises which were already delivered before the budget announcements. For investments these will require a confirmation of market values at 30 June 2027, and moving forward we are likely to see more investments recommended into managed funds holding a portfolio of chosen stocks and less high-growth investments.
