The government has handed down its Federal Budget for 2026-27 on Tuesday 12 May 2026, and we have several case studies to explain the changes.

The most significant changes impacting investors are those to negative gearing and Capital Gains Tax (CGT). The key proposals include:

• Replacement of the 50% CGT discount with inflation-adjusted indexation from 1 July 2027 for all asset classes- shares, property, business, including assets which were held pre-1985 before the introduction of CGT.
• The introduction of a 30% minimum capital gains tax rate commencing 1 July 2027.
• Negative gearing will be phased out and only allowed on new build residential housing.
• A 30% minimum tax will apply to 1 million discretionary trusts nationwide.

There were no changes to superannuation, and they will continue to be eligible for the 10% CGT rate on assets held for more than 12 months.

Capital Gain Tax (CGT) changes in more detail
From 1 July 2027, the 50% CGT discount will be replaced by the cost base indexation method, the method that was used before 1999. Assets held before 1 July 2027 will be treated under the old CGT system until 30 June 2027, and from 1 July 2027 will be calculated using the cost base indexation method. This means that growth above the average rate of Consumer Price Index growth will be subject to tax upon sale at your marginal tax rate, but no less than 30% tax. This means that people who are retired and own property will be affected.

This means it will be an accountant’s picnic to work out how to calculate the tax, using both methods. All assets will need to be valued as of 1 July 2027, and records kept.

Jane – The Property Investor
Jane purchased an investment property on 1 July 2022 for $800,000. She sells the asset on 1 July 2032 for $1,600,000, earning a 7.2% annual return. Using ATO tools, Jane determines that the asset was worth $1,131,371 at the commencement of the new CGT rules (1 July 2027).

Under the transitional rules, Jane calculates her taxable capital gain by adding:

• Taxable capital gains of $165,685 earned before commencement, which is equal to gross capital gains of $331,371 with the 50% CGT discount; plus
• Taxable capital gains of $319,958 earned after commencement, which is equal to the gain of $468,629 less cost base indexation.

Her total taxable capital gain is $485,643. This is more than the $400,000 capital gain that would have been calculated if a 50% discount applied to the gain overall. Assuming a 47% tax rate, the tax on her gain is $228,252 (compared to $188,000 with a 50% discount).

Negative Gearing Changes
From 1 July 2027, negative gearing will only be available for new residential builds. Losses for established residential properties will only be deductible against rental or share income received. Excess losses will be carried forward to be set off against future property income or the proceeds of sale. Properties held at commencement, including contracts entered into and not yet settled, will be exempt from the changes until the property is sold. This is the grandfathering provision.

Properties purchased between the announcement (12 May 2026) and 30 June 2027 will be negatively geared for this period only, but not from 1 July 2027.

All properties purchased from 1 July 2027 will not be able to be negatively geared.

A new build property can be negatively geared before and after 1 July 2027. New build includes dwellings constructed on vacant land or where existing properties are demolished, and a greater number of properties are constructed. This means the endorsement of more properties (cluster housing) on the same block. When sold, these properties cannot be negatively geared.

Discretionary Trusts – A New Tax
A minimum 30% tax will apply to the taxable income of discretionary trusts. The trustee of the trust will pay the tax, as the trustee controls the trust distributions. Beneficiaries will need to declare the trust income, but will receive a non-refundable tax credit for the tax payable by the trustee. Corporate Beneficiaries (Bucket Companies) will not be eligible for the non-refundable tax credit.

Worked examples of the CGT changes on different asset classes
Accessing the calculator at stockspot to look at the effect of the change of CGT on various asset classes.

John – The Investor in US shares
John is a young worker who decides to invest $100,000, then a further $ 5,000 per annum, in a portfolio of US shares using an Exchange Traded Fund. Over the 30 years of investing, he has averaged a 10% compound return. He has invested $250,000 and has accrued $2,317,410 in investment returns – total portfolio value – $2,567,410.

Under the current rules, upon sale, John would keep $1,785,469 after estimated tax of $531,941. His after-tax return is calculated at 7.2%.

Under the new rules, John would keep $1,369,850 after the estimated tax of $947,560. The after-tax return is calculated at 6.4%. The effective tax rate is 40.88%.

Rachael – The Business Founder
Rachel decides to go into business. Rachel seeds the business with $20,000 of her own savings- not an uncommon event for founder businesses. She takes very little from the business in the first five years and after ten years sells the business for $1,000,000. Under the current legislation, she would keep $762,350. Under the new legislation, she would only keep $538,053. The effective tax rate is 46.19%.

This leads me to conclude that the tax changes directly affect higher-growth investments. If you are content to invest in lower-growth investments, such as Australian banks with franking credits, the tax effect will be limited.

However, if you are seeking growth and are prepared to take risks to build wealth, and you invest in US shares, Gold, and Bitcoin – asset classes that have nothing to do with the intergenerational debate or the housing crisis – then you are penalised.

If you are starting a business, with the associated risk and sacrifice, with the idea of selling and realising wealth, the tax impost is once again punitive. There is some relief in the first three years, but after that, you’re on your own.

Is this really the consequence that this Budget is seeking?

Speak to one of our financial advisers

Contact Us Now