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Key takeaways
- From 1 July 2027 negative gearing for established residential properties (acquired after 7:30 PM (AEST) on 12 May 2026) will be limited, with rental losses only able to reduce residential rental income or capital gains, not salary or other income.
- From 1 July 2028, trustees of discretionary trusts will pay a 30% minimum tax on the taxable income of the trust, with non-corporate beneficiaries receiving non-refundable credits for the tax paid by the trustee.
- Expanded rollover relief will be available for three years from 1 July 2027 to support small businesses and others that wish to restructure out of a discretionary trust into another entity, such as a company or a fixed trust.
Negative gearing changes for residential property investors
The Government has announced that negative gearing for residential property will be narrowed so that, going forward, only investments in new builds will be eligible for the existing tax treatment. From 1 July 2027, rental losses on established residential properties will no longer be available to reduce salary, business or other non-property income, and will instead be quarantined so they can only offset residential rental income or capital gains on residential property. Any unused losses will be carried forward and applied against residential property income in later years. The stated policy intent is to direct the benefits of negative gearing toward investment that increases the housing stock.
The new rules apply to established residential properties acquired from 7:30 PM (AEST) on 12 May 2026. Properties acquired before that time, including contracts entered into but not yet settled, are exempt from the changes until disposal. Eligible new builds, properties held in widely held trusts and superannuation funds, eligible build-to-rent developments and private investors supporting government housing programs are also excluded.
For these purposes, a “new build” is a residential property that genuinely adds to housing supply, being either a dwelling constructed on vacant land or where existing properties are demolished and replaced with a greater number of dwellings. Knock-down rebuilds and substantial renovations that do not increase supply will not qualify.
This measure should be read alongside the announced CGT reforms, the two measures are intended to operate together to redirect investment incentives toward new housing supply, and the costings reported in the Budget Papers reflect the combined negative gearing and CGT package rather than negative gearing alone.
Legislation has not yet been released. Given the proposed 1 July 2027 commencement, exposure draft consultation is expected to be a legislative priority, particularly to further define what qualifies as an 'eligible new build' and how the build-to-rent and government housing carve-outs will operate.
For investors and their advisers, key actions include:
- identifying which properties in existing portfolios are grandfathered
- carefully documenting the timing of any contracts entered into around 12 May 2026
- modelling the after-tax economics of established versus new build acquisitions, and
- reassessing investment structures, including widely held trusts, superannuation funds and build-to-rent vehicles.
30% minimum tax to apply to discretionary trusts
The Government has announced in the 2026–27 Federal Budget that it will introduce a 30% minimum tax on discretionary trusts to “improve the fairness of the tax system and help fund new tax cuts for workers”. This is a significant change to the long-standing approach to taxing discretionary trusts, where trust net income is generally taxed in the hands of presently entitled beneficiaries at their own marginal rates. The measure is estimated to increase receipts by AU$4.5b over the five years from 2025–26, with the ATO to receive AU$66m over the same period to support implementation.
From 1 July 2028, the trustees of an in-scope discretionary trust will be required to pay a minimum tax of 30% on the taxable income of the trust. Beneficiaries (other than corporate beneficiaries) are expected to receive non-refundable credits for the tax payable by the trustee, which should generally allow individual beneficiaries on higher marginal rates to use those credits to reduce their own tax payable on the distribution.
The treatment for corporate beneficiaries appears to be different and further detail is expected as the design of the measure is settled. However, it would appear that the measures are intended to prevent the minimum tax being avoided by cycling income through a ‘bucket’ company. For example, corporate beneficiaries will not receive non-refundable credits for tax payable by the trustee, to avoid them converting these to refundable franking credits to avoid the minimum tax.
The measure is targeted, and the Budget materials confirm that a number of trust types and income categories will sit outside its scope. Excluded trust types include:
- fixed and widely-held trusts, including fixed testamentary trusts
- complying superannuation funds
- special disability trusts
- deceased estates; and
- charitable trusts.
Income categories falling outside the scope of intended operation include:
- primary production income
- certain income relating to vulnerable minors
- amounts to which non-resident withholding tax applies; and
- income from assets of discretionary testamentary trusts existing at the date of announcement.
Transition measures—Rollover relief
To assist taxpayers who decide that a discretionary trust is no longer the most appropriate vehicle for their affairs, the Government will provide expanded rollover relief for three years from 1 July 2027 to support small businesses and others that wish to restructure out of a discretionary trust into another entity type, such as a company or a fixed trust. The detail of how the expanded rollover relief will interact with the existing small business, restructure rollover and other CGT rollovers is yet to be released. Any potential overlay with state-based duty regimes and restructure relief will also need to be considered.
Where to from here?
Given the proposed start date of 1 July 2028, there is meaningful lead time for consultation, drafting and passage of the enabling legislation; however, this is a substantial reform and is expected to be a legislative priority for the Government. The lack of detailed information released means there are many questions to be answered, including:
- How distributions to corporate beneficiaries are to be taxed and implications for the franking accounts of corporate beneficiaries
- How franking credits derived by a trust exceeding the minimum tax liability are to be dealt with
- Whether small businesses currently operating via discretionary trusts may be worse off under the proposed measures given the differential in base rate entity tax rates
- The extent of any rollover relief measures, including potential relief to be offered by State Governments in respect to the transfer of dutiable property
Affected trustees, advisers and family groups will no doubt be considering what the change is likely to mean for them—including how distributions are made, who the beneficiaries are, and whether the existing structure remains the most appropriate. However, decisions about restructuring should not be rushed. It is expected that many groups will want to use the period to 1 July 2028, and the rollover relief window from 1 July 2027, to take stock and consider their options. Decisions will also likely need to take into account other measures announced in the Budget, including reforms to capital gains tax.
While the measure does not commence until 1 July 2028 and several important exclusions apply, the introduction of a 30% minimum tax fundamentally changes the tax outcome for many discretionary trusts and warrants review of existing structures.
“The 30% rate is straightforward, but how it will work in practice is still to be designed. The Government has flagged the key questions for consultation: how the tax will be collected, how excess franking credits in a trust will be handled, and how broad the rollover relief will be. That gives stakeholders a real chance to shape a workable design before trustees and small business owners have to make restructuring decisions in the three-year window opening 1 July 2027. The carve-outs, and the different rules for corporate beneficiaries, could add new complexity if they do not sit cleanly with Division 7A, unpaid present entitlements and family trust elections. Clients should treat the 1 July 2028 start date as firm and use the lead time to review their structures, look at alternatives and keep options open so they can move quickly once draft legislation is released.”
Reforms to venture capital tax incentives
The Government has announced that with effect from 1 July 2027:
- The venture capital limited partnership (VCLP) cap on the asset size of an investee at the time of investment will rise from $250m to $480m
- The early stage venture capital limited partnership (ESVCLP) investee asset cap at the time of investment will rise from $50m to $80m
- The asset size up to which ESVCLP returns can remain fully tax exempt will rise from $250m to $420m; and
- The maximum committed capital for an ESVCLP will rise from $200m to $270m.
The increases will apply to new and existing funds and to new investments (including follow-on investments in existing portfolio companies), provided the fund remains compliant with its approved investment plan or seeks a replacement plan.
The CGT exemptions for eligible venture capital investments and the registration framework under the Venture Capital Act 2002 have not been disturbed.
For start-up founders, the after-tax economics of an exit are likely to change materially for gains accruing on or after 1 July 2027. Under current settings, a founder selling shares held for more than 12 months can generally access the 50% CGT discount. From 1 July 2027, this will be replaced by an indexation regime with a minimum tax rate of 30% on the resulting real gain.
The practical concern is that founders commonly have a nominal cost base in their start ups and hence the indexed cost base regime may have limited impact.
This suggests that founders contemplating exits in the future may expect a meaningful uplift in their effective CGT rate compared with the historic 50% CGT discount.
Additionally, where founder shares are held through a discretionary trust, the proposed 30% minimum tax on discretionary trusts will need to be modelled alongside these CGT changes.
For fund managers receiving carried interest through a venture capital management partnership, the silence on CGT event K9 is itself the news. Historically, the receipt of a carried interest payment was eligible for the 50% CGT discount in the hands of the carry recipient. The Government’s 2026–27 Federal Budget announcements do not preserve the 50% CGT discount for payments of carried interests and therefore the payments of carried interest occurring on or after 1 July 2027 would seem to fall under the new indexation and 30% minimum tax regime. For fund managers, this will more closely align the effective tax rate that applies to payments of carried interests derived by ESVCLPs and VCLPs with those of MITs (i.e. effectively taxed as income).
The Eligible Venture Capital Investor program will close to new applications from 7.30 PM AEST on 12 May 2026, which will impact foreign investors who previously sought to invest in eligible businesses outside the VCLP/ESVCLP frameworks.
“Some positive news for the venture capital sector with cap uplifts that are sensible and reflect what the sector has been seeking. However, the CGT discount changes will materially impact the effective tax rate that applies to taxable gains realised from venture capital investments as well as general partners receiving carried interest.”
Samantha Vidler
Queensland Managing Partner, PwC Private Advisory Markets Leader, Brisbane, PwC Australia
Michelle Le Roux
Private, Partner - Business Tax, PwC Australia
Bruce Ellis
PwC | Private | Partner - Family Office Tax, PwC Australia
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