Investment

Key takeaways

From 1 July 2027, the 50% capital gains tax (CGT) discount will be replaced by cost base indexation for assets held for more than 12 months, together with a 30% minimum tax on net capital gains, for individuals, trusts and partnerships.
The CGT changes will apply to all CGT assets, including pre-1985 CGT assets, but with transitional rules that will confine the changes to gains arising on or after 1 July 2027.
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.

Capital Gains Tax reforms

The 2026–27 Federal Budget announced a significant reshaping of the CGT rules for individuals, trusts and partnerships, framed by the Government as part of a broader package to “improve the fairness of the tax system, support home ownership and help fund new tax cuts for workers”. From 1 July 2027, the 50% CGT discount, which has been a feature of the personal tax system since 1999, will be replaced by cost base indexation for assets held for more than 12 months, with a 30% minimum tax applying as a floor on the net capital gain after indexation. The policy intent, as expressed in the Budget materials, is to ensure that only “real” (inflation-adjusted) capital gains are subject to tax.

A particularly significant aspect of the announcement is that the new regime extends to pre-CGT assets. Assets acquired before 20 September 1985 have been outside the CGT net for the entire life of the regime, so bringing them in for gains relevant for the ownership period from 1 July 2027 marks a fundamental change for clients holding long-standing assets, intergenerational property holdings or pre-1985 share parcels. Gains on pre-CGT assets accrued prior to 1 July 2027 will continue to remain exempt.

Transitional arrangements will limit the impact on existing investments by ensuring the new rules apply to gains applicable on or after 1 July 2027 and will be calculated on realisation of the asset. The Budget materials state that the 50% CGT discount will apply to the difference between the asset’s cost base and its value at 1 July 2027. Indexation and the minimum tax will be used to calculate the CGT on gains accruing from 1 July 2027. The asset value at 1 July 2027 will be determined by taxpayers using an ATO ‘specified apportionment formula’ or a valuation such as the use of quoted prices for assets such as shares.

The headline features of the measure are summarised below:

Feature	Detail
Start date	1 July 2027 (applies to gains arising on or after that date)
Who is affected	Individuals, trusts and partnerships holding CGT assets (including pre-CGT assets)
Replacement for the 50% CGT discount	Cost base indexation for assets held for more than 12 months, with a 30% minimum tax on net capital gains
Transitional rule	50% CGT discount continues to apply to gains arising before 1 July 2027; pre-CGT asset gains arising before that date remain exempt
New housing carve-out	Investors in new residential properties can choose either the 50% CGT discount, or cost base indexation and the 30% minimum tax
Income support exemption	Income support payment recipients, including Age Pension recipients, are exempt from the 30% minimum tax

The new housing carve-out is intended to maintain incentives for additional housing supply, with investors in newly built residential property retaining the ability to apply the 50% CGT discount as an alternative to the indexation and minimum tax regime. New builds are residential properties which genuinely add to supply, such as dwellings constructed on vacant land, or where existing properties are demolished and replaced with a greater number of dwellings. Existing residential investment property held at 1 July 2027 will fall under the general transitional rule. The impact of the CGT changes for housing should also be read in conjunction with the related negative gearing change announced in this Budget that is also applicable from 1 July 2027. Together, the two measures reinforce the policy intent of directing investor activity toward additional housing supply.

The Budget materials are silent on a number of areas where significant design detail is still to be developed, including:

the methodology in respect of the “specified apportionment formula” used to estimate an assets value at 1 July 2027, where part of the economic gain has accrued before the start date and part on or after that date
the valuation methodology for pre-1985 assets at 1 July 2027, including whether market value at that date will form the cost base for the new regime, and
the position of companies, which have never been entitled to the 50% CGT discount but were subject to indexation prior to 1999, the Budget materials do not specify whether cost base indexation will be available under the new regime.

These areas are expected to be considered as part of the consultation process which will inform the legislative design details.

It is important to note the main residence CGT exemption will continue to apply. The four small business CGT concessions will also be unchanged.

Impact for trusts and super funds

The proposed changes to the CGT discount will impact the trust sector, however it is noted that the existing 60% CGT discount for qualifying affordable housing will be fully retained, and the Government has proposed a temporary 50% CGT discount for foreign investors in certain Australian renewable assets.

The proposed measures will present a range of challenges and areas that require further clarification for trustees, fund managers and their service providers in relation to record keeping and system changes such as:

capital loss optimisation and expense allocation methodology
undertaking CGT calculations across the transition between discounted capital gains and indexed capital gains, including the impact of the 30 June 2027 valuation amount
the treatment of indexed capital gains distributed to other trusts and to superannuation funds
additional component (indexed gains) requiring recognition for fund calculations/unit registry/investor and ATO reporting
the treatment of foreign income tax offsets relating to capital gains, and
investor communication (including PDS commentary etc.).

Implementation lead time in relation to these measures will be significant and will need to be scoped at an early stage once more detail becomes available.

Trusts are a common vehicle for holding Australian assets, including real property, for foreign investors and Australian superannuation funds. Foreign investors currently do not receive the benefit of the CGT discount and therefore should be largely unaffected by these changes. Australian superannuation funds also do not appear to be impacted by the changes and their 1/3 CGT discount should continue to apply. What is unclear, however, is how these changes will impact superannuation funds that hold their assets via trusts. For example, will an Australian superannuation fund be able to choose to apply the 1/3 discount to capital gains distributed by a trust that has been calculated using the indexation method or a combination of the 50% CGT discount for pre-1 July 2027 gains and indexation for post-1 July 2027 gains.

With respect to the 30% minimum tax on capital gains earned from 1 July 2027, whilst it is noted that this will apply to assets held by trusts, there is little detail on how this will practically be implemented. It is hoped that this minimum tax will be applied at the beneficiary level rather than the trust level for fixed and widely held trusts, whilst discretionary trusts will also be subject to the minimum 30% tax at the trustee level (see below for further details). Foreign institutional investors and superannuation funds should closely monitor how the 30% minimum tax will apply in practice.

Where to from here?

In the meantime, individuals and trustees and their advisers should:

review existing CGT asset portfolios to understand the cost base, acquisition date and unrealised gain position as at the lead-up to 1 July 2027
consider how the transitional rule will apply to gains that straddle 1 July 2027, including the practical mechanics of identifying gains “arising before” and “on or after” that date
monitor the release of consultation papers and exposure draft legislation
consider personal circumstances and the interaction holistically with other Budget measures including the taxation of discretionary trusts.

The single key takeaway is that the announcement reshapes the CGT landscape that has been in place for individuals, trusts and partnerships since 1999. Those considering future investments, including the choice of investment vehicle, asset type and holding period, should seek specialist advice and make those decisions with the post-1 July 2027 regime in mind, factoring in the carve-outs.

“This year‘s Federal Budget marks a fundamental shift in the Australian tax reform agenda with significant proposed changes to negative gearing, the taxation of discretionary trusts and the taxation of capital gains—notably bringing pre-CGT assets into the regime. In contrast, superannuation and small business concessions remained largely untouched. A holistic response to these proposals will be critical to ensure broad impact is well considered.”

Alice KasePartner

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 not affected by these changes. Eligible new builds 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.

The inclusion of a wide range of exemptions and exclusions should limit the impacts for investment trusts and fund managers. Commercial properties and other asset classes, such as shares, will not be impacted by the proposed measure. Importantly, properties held by widely-held trusts (presumably including listed funds and MITs) and superannuation funds along with build-to-rent developments and government housing projects will be excluded.

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.

Where discretionary trusts form part of a broader family group structure that also holds an self-managed super fund (SMSF), consideration will need to be given to whether restructuring decisions made in response to the trust measure have flow-on consequences for the SMSF, including non-arm’s length income (NALI), in-house asset and sole purpose test considerations.

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.”

Samantha VidlerPartner

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. However, consultation with stakeholders is flagged in relation to these reforms, particularly in relation to the treatment of early-stage and start-up businesses.

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. If the Government’s 2026-27 Federal Budget announcements result in the 50% CGT discount not applying to payments of carried interests, those occurring on or after 1 July 2027 could be subject to a significantly higher effective tax rate. For fund managers, this may 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 may materially impact the effective tax rate that applies to taxable gains realised from venture capital investments as well as general partners receiving carried interest.”

Michelle Le RouxPartner

Extension of foreign buyer ban on established homes extended

The Federal Government has announced in the Budget that it will extend the temporary ban on foreign persons purchasing established dwellings in Australia by a further two years and three months, pushing the end date out from 1 April 2027 to 30 June 2029.

However, the Budget also clarifies that the existing exceptions will continue to apply. Importantly for inbound institutional investors, this should mean that the announced extension does not impact their ability to invest in new or existing dwellings which add to Australia’s housing stock. The full list of existing exceptions can be found here in FIRB’s Guidance Note 6 which was released in December 2025 and, importantly, includes existing build-to-rent developments an established dwellings intended to be redeveloped into build-to-rent developments.