A swing…and a miss

By Fornaro | 13 May 2026

Let’s take a look at the highlights of the Australian Federal Budget 2026 announced on 12 May 2026.

First, we will unpack the biggest announcements around Property & Investment.

Negative Gearing

Negative gearing is when your investment property costs more to own than it earns in rent, so you’re making a loss on paper. You can use that loss to reduce your taxable income (for example, your salary), which means you pay less tax.

The Australian Government announced the following changes to Negative Gearing as part of the Federal Budget:

WHAT HAPPENS TO EXISTING PROPERTIES?

Owned (or under contract) before 7:30pm 12 May 2026
- Continue under current rules indefinitely (grandfathered) until you sell the property
Purchased after 7.30pm 12 May 2026 to 30 June 2027
- Current rules apply until 30 June 2027
- From 1 July 2027, new restrictions apply (see below)

WHAT’S CHANGING?

From 1 July 2027:
- Negative gearing is no longer available on established properties purchased after 7:30pm 12 May 2026
- Rental losses can no longer reduce your salary or other income,
Instead:
- Losses are quarantined and can only be used against:
  - Rental income; or
  - Future capital gains
If losses are not fully used:
- They are carried forward to future years

WHAT HASN’T CHANGED?

New builds/Brand new property
- Still eligible for negative gearing as per the current structure indefinitely

Exemptions also apply to:
- Build‑to‑rent developments
- Government housing‑supported investment
- Certain large or institutional investors

2. Capital Gains Tax (CGT)

Capital Gains Tax is the tax you pay on the profit when you sell an investment (like property or shares). Under the current rules, if you hold an investment for more than 12 months, you only pay tax on half the gain (this is known as the 50% CGT discount).

The Australian Government announced the following changes to Capital Gains Tax as part of the Federal Budget:

WHAT HAPPENS TO EXISTING ASSETS?

Investment sold before 1 July 2027
- Continue under current rules
- 50% CGT discount remains fully available
Held beyond 1 July 2027
- New rules will apply from that date (see below)
- A transitional approach will split gains between “old” and “new” systems

WHAT’S CHANGING?

From 1 July 2027:
- The 50% CGT discount is removed for most investments
- It is replaced with an indexation method (adjusting the cost base for inflation)
In addition:
- A minimum 30% tax rate will apply to capital gains
- This means you can no longer rely on:
  - Lower marginal tax rates, or
  - Timing a sale to reduce tax

HOW WILL IT WORK?

For assets sold after 1 July 2027:
- Gains will be split into two parts:
  - Pre–1 July 2027 gain → taxed under old rules (50% discount)
  - Post–1 July 2027 gain → taxed under new indexed system
If the indexed gain is low (or wiped out by inflation):
- You may pay less tax
If inflation is low or the gain is large:
- You may pay more tax than under the current system

WHAT HAPPENS TO PRE-CGT ASSETS?

Assets held before 20 September 1985
- Currently exempt from CGT
From 1 July 2027:
- That exemption ends
- The asset will be treated as if it was “reset” to market value at that date
- Future gains (from that point) will be taxed under the new rules

WHAT HASN’T CHANGED?

New builds
- Remain eligible for the 50% CGT discount
- Investors can choose between:
  - The current discount method, or
  - The new indexation method

Exemptions also apply to:
- Certain lower-income taxpayers (e.g. pensioners – still taxed at marginal rates)

3. Discretionary Trusts

A discretionary trust is a structure where income is distributed to beneficiaries each year, and those beneficiaries pay tax on that income at their personal tax rates.

The Australian Government announced the following changes to discretionary trusts as part of the Federal Budget:

WHAT HAPPENS TO EXISTING TRUSTS?

All discretionary trusts (existing and new)
- No grandfathering applies
- All structures are captured by the new rules
Up to 30 June 2028
- Current rules continue to apply
- Income is distributed to beneficiaries and taxed at their marginal rates
From 1 July 2028
- New rules apply to all discretionary trusts (see below)

WHAT’S CHANGING?

From 1 July 2028:
- A minimum 30% tax will apply to trust income at the trust (trustee) level
- This applies regardless of who receives the income
For individuals receiving distributions:
- They will receive a tax credit for the 30% already paid
- If their tax rate is:
  - Above 30% → they pay additional tax
  - Below 30% → excess credits are lost
For corporate beneficiaries:
- No tax credit is expected to be available
- This may result in double taxation, reducing the benefit of using companies in trust structures

WHAT THIS MEANS IN PRACTICE

The current flexibility to:
- Distribute income to lower-tax family members (e.g. non-working spouse), and
- Use corporate “bucket” companies, will both be significantly reduced
All trust users will be impacted, with greater impact where:
- Beneficiaries are on lower tax rates
- Groups rely heavily on trust structures for tax planning

WHAT HASN’T CHANGED?

The following structures are generally excluded:
- Fixed trusts
- Superannuation funds
- Charitable trusts
- Certain deceased estates and disability trusts
However:
- Any group interacting with discretionary trusts (e.g. via ownership or distributions) will still need to review their structure

Now for the other Budget Highlights:

4. New Tax Benefits for Workers

$250 annual tax offset for workers
- Applies to over 13 million Australians
- Starts from July 2027, meaning money isn’t seen until tax time in 2028
$1,000 “no‑receipt” tax deduction
- You can automatically claim up to $1,000 in work expenses without receipts FROM 1 July 2026

5. Medicare Levy Threshold Increases

Increase in Medicare levy low-income thresholds for low-income individuals, families, seniors and pensioners by 2.9% from 1 July 2025

6. Government Spending Priorities

Major spending increases include:

Hospitals – significant additional funding. $18.1B for public hospitals
Defence – large long-term increase of $6.8B over the next four years
Fuel security – billions to secure energy supply
Housing infrastructure – funding to support new homes
NDIS reforms/savings – around $37billion in savings expected

7. Incentives for Business

$20,000 instant asset write-off for small business (up to $10M in turnover) will be permanently extended from 1 July 2026
Tax loss carry back is reintroduced from 1 July 2026, allowing businesses to carry back losses to offset prior tax paid up to two year earlier, caps apply
EV tax concession to be scaled back based on vehicle value, and will transition to a flat 25% discount for all eligible EVs by 2029