1. Negative Gearing: What Changed on Budget Night
The Rule Before 12 May 2026
Under the previous rules, Australian investors could use losses from negatively geared investment properties to offset income from other sources, wages, business profits, or other investments. This reduced the investor’s total taxable income, often substantially.
For property investors running businesses through companies or trusts, this was a powerful tool for managing tax across the entire income pool.
What Changed, and When
From Budget night, 12 May 2026, negative gearing is abolished for established residential investment properties purchased after that date. Any investment property purchase from 12 May 2026 onwards on an established (existing) dwelling will not be eligible for negative gearing deductions.
Property Type | Before 12 May 2026 | From 12 May 2026 |
Established residential (pre-Budget purchase) | Negative gearing is fully available | Grandfathered, negative gearing preserved |
Established residential (new purchase from 12 May 2026) | Negative gearing is fully available | Negative gearing abolished |
New builds / off-the-plan | Negative gearing is fully available | Negative gearing retained |
Commercial property | Interest deductions available | No change confirmed, monitor ATO guidance. |
What This Means for Property Investors
- Existing portfolios purchased before Budget night are fully protected under grandfathering rules; those properties retain negative gearing.
- Any established property purchased from 12 May 2026 onwards will generate losses that cannot be offset against other income; those losses generally cannot be used to reduce your other taxable income.
- New builds remain a viable, negatively geared investment option. This creates a structural shift in property investment strategy toward development and construction.
- Business owners in the construction and property sector, including developers, builders, and property managers, may see increased demand for new residential stock. Specialist advice on the financial and tax implications is worth seeking early. See our guide to accounting for construction and real estate businesses for more.
Common Mistakes to Avoid
- Assuming grandfathering is automatic, confirm the settlement date and exchange date of your purchase are both before Budget night.
- Buying an established property as an investment and expecting to claim rental losses, the rules have changed entirely for new purchases.
- Ignoring negative carry-forward losses, losses on post-Budget established properties still accumulate and can be used against future capital gains on disposal.
Watch Out: If you are currently under contract on an established property and settlement falls after 12 May 2026, seek specific advice on whether the contract date or settlement date governs your eligibility. This detail may affect your eligibility, so it’s worth checking with your adviser.
2. Capital Gains Tax on Property: The 2027 Cliff
The Old Rules, And Why They Mattered for Property
Under the previous CGT framework, assets held for more than 12 months, including investment properties, attracted a 50% CGT discount. In practice, this meant an investor selling a property after a long hold period paid tax on only half the real gain.
For investors who had owned property for 10, 20, or even 30 years, the combination of inflation-driven capital growth and the 50% discount made property one of the most tax-efficient long-term investments in Australia.
The New Framework from 1 July 2027
From 1 July 2027, the 50% CGT discount is replaced with a new indexed tax calculation method. A minimum effective tax rate of 30% will apply to all capital gains, regardless of how long you have held the asset.
Scenario | Under Old Rules | Under New Rules (from 1/7/2027) |
Property bought in 2010, sold in 2028. $500K capital gain. | 50% discount applied. Taxable gain: $250K. | 30% minimum tax. Effective tax on $500K gain is significantly higher. |
Property bought in 2022, sold in 2028. $200K capital gain. | 50% discount applied. Taxable gain: $100K. | Indexation model applies. Tax cost depends on the indexed cost base. |
Small business asset sale using active asset reduction. | Small business CGT concessions apply, 50% active asset reduction + further concessions. | Small business CGT concessions remain intact, an important planning tool. |
For business owners who hold property as part of their overall structure, understanding your full exposure across income, property, and business assets is critical. A good starting point is reviewing small business tax deductions available to you, then building out a comprehensive picture of what the CGT changes mean on top of that.
Property Investors: Should You Sell Before 1 July 2027?
This is the most pressing question for many property investors. The answer depends on your individual circumstances, cost base, holding period, income level, other investments, and whether small business concessions apply, but here are some of the key factors to consider:
Your Situation | Potential Approach | Priority |
Holding property with a large unrealised gain, planning to sell in the next 3–5 years | Model tax cost under old vs new rules; consider accelerating sale before 1/7/2027 | High |
Holding property long-term with no current sale plans | Review whether the indexation model produces a better or worse result than the old discount for your specific gain | Medium |
Business property held inside a company or trust | Assess whether the CGT discount still applies at the company level or whether restructuring is needed | High |
Property eligible for small business CGT concessions | Confirm concession eligibility remains intact; these are a critical buffer against the new rules | Monitor |
Planning Window: The period between now and 30 June 2027 is the most important CGT planning window Australian investors will have in a generation. Assets sold before 1 July 2027 are assessed under the current rules; the 50% discount still applies.
3. Discretionary Trust Tax: The 30% Minimum Rate
How Discretionary Trusts Have Been Used
Discretionary trusts, commonly called family trusts, have been a cornerstone of business and investment structuring in Australia for decades. They allow a trustee to allocate income to beneficiaries in a flexible way, typically flowing distributions to family members or related entities with lower marginal tax rates.
For many family businesses, a trust structure has delivered substantial tax savings by splitting income across multiple beneficiaries and taking advantage of the tax-free threshold, lower tax brackets, and other concessions.
What Changes from 1 July 2027
From 1 July 2027, a 30% minimum tax rate applies to all income distributed from discretionary trusts. This reduces the tax benefits many families previously received through trust distributions.
Distribution Recipient | Tax Rate Under Old Rules | Effective Rate From 1/7/2027 |
Adult child or spouse with low income (e.g. $20K taxable) | ~0–19% (below tax-free threshold + low bracket) | 30% minimum rate applies |
Beneficiary on $90K taxable income | 34.5% marginal rate | 34.5%, no change; already above the 30% floor |
Corporate beneficiary | 25–30% company tax rate | Interaction with 30% minimum rate, advice required |
Charitable or non-profit beneficiary | Exempt | Exempt status expected to remain; confirm with adviser |
The Three-Year Rollover Relief Window
- This relief window is genuinely valuable, but it does not mean you should wait until 2029. Restructuring requires legal documentation, stamp duty exemption applications, new entity establishment, and tax modelling. Most businesses will need 12 to 24 months to complete a proper restructure.
- The clock starts on 1 July 2027, not today. But preparation starts today.
Structures Most Affected
- Family businesses distributing profits to adult children, spouses, or parents.
- Professional practices (medical, legal, accounting, financial services) using service trusts.
- Property investment vehicles held inside discretionary trusts.
- Law firms and professional services firms that rely on legal trust accounting arrangements should review their position carefully. See our industry guide for law firm and legal trust accountants for context on how these changes interact with professional practice structures.
- SMSF-linked structures where trust income is directed to superannuation via related entities.
What Business Owners Should Do Now
- Map every discretionary trust in your structure, including related trust structures.
- For each trust, identify who currently receives distributions and at what tax rate.
- Quantify the annual tax cost under the 30% minimum rate, and compare it to the current effective rate.
- Assess whether a company, unit trust, or partnership structure would be more tax-efficient post-2027.
- Engage a tax adviser now to begin modelling restructure scenarios and use the rollover relief window strategically.
- Do not make any distribution decisions for FY2027 without first understanding the new rules.
4. Company vs. Trust: Which Structure Works Better After 2027?
One of the most immediate practical questions for business owners is whether to continue operating through a trust or switch to a company structure. There is no universal answer; it depends on your specific circumstances, income levels, and growth plans, but the Budget changes have shifted the calculus significantly.
Factor | Discretionary Trust (post-2027) | Company Structure |
Tax rate on retained profits | 30% minimum on distributions | 25–30% company tax rate on retained profit |
Income splitting to family members | Restricted, 30% floor applies | Not available, dividends taxed at recipient rate |
Asset protection | Strong, trust assets not owned by the individual | Moderate, depends on personal guarantees |
CGT on business sale | Small business concessions may apply, more flexible | CGT discount not available at the company level |
Franking credits | Not generated by trusts | A company can distribute franked dividends to shareholders |
Administration cost | Moderate, annual trust tax return, distribution resolutions | Higher ASIC obligations, shareholder meetings, and minutes |
Understanding how Australian company and corporate tax rates interact with your personal tax position is an essential first step before making any structural change. The 25% small company tax rate or 30% base rate creates a significant differential from the old trust strategy, but whether that differential favours a company depends heavily on your plans for profit distribution.
Strategy Note: The right answer is not the same for every business. A business that retains most profits for reinvestment has very different structural needs from one that distributes most profits to owners each year. Model both scenarios before making any decision.
5. A Practical Guide for Property Investors Right Now
Pulling it all together: if you hold investment property, here is a consolidated action plan based on the three Budget reforms above.
If You Own Established Investment Properties Bought Before Budget Night
- Confirm all properties are correctly recorded as pre-Budget purchases with evidence (contract of sale, settlement statement).
- Review your property portfolio for any planned sales in the next 1–3 years, model the CGT cost under old vs new rules.
- If properties are held inside a trust, assess the impact of the 30% minimum distribution tax on rental income flowing through the trust.
- Consider whether a strategy shift, from negative gearing to positive cash flow properties, makes sense for long-term portfolio planning.
If You are Looking at New Property Investments
- Focus new investment purchases on new builds or off-the-plan properties to retain negative gearing eligibility.
- Reassess the financial modelling on any established property purchase, as the after-tax return has materially changed.
- Reviewing entity structure before purchasing, holding a new property personally, in a company, or in an SMSF, may now produce better outcomes than a trust.
- Seek advice on whether the depreciation profile of a new build compensates for the higher purchase price relative to established properties.
If Your Investment Property Is Held Inside a Trust
This is the intersection where the Budget changes are most complex and most costly if not addressed. Rental income from a property held in a trust is subject to the 30% minimum distribution tax from 2027. Capital gains on the disposal of that property will also be taxed under the new CGT framework. Both changes compound.
For property investors using trust structures, a comprehensive review of your property accounting and investment structure is a practical first step. Understanding how your current accounts are structured and how they need to change gives you the foundation for any restructuring decision.
Key Dates for Property Owners and Trust Holders
Date | What It Means | Action |
12 May 2026 | Negative gearing abolished for new established property purchases | Act Now |
30 June 2026 | Last date to sell assets and apply the existing CGT discount under FY2026 rules | Review |
1 July 2027 | The new CGT framework and 30% minimum trust distribution tax commence | Plan Now |
30 June 2030 | End of trust restructure rollover relief window, last date to restructure CGT/stamp duty free | Don’t Wait |
What Comes Next
The 2026 Budget property and trust reforms are not abstract policy changes. They have already taken effect for negative gearing, and they will reshape the economics of every trust structure and investment property portfolio in Australia from 2027 onwards.
The businesses and investors who navigate this well will be those who start planning now, before the deadlines, not after them. That means understanding your current structure, modelling the tax cost under the new rules, and making deliberate decisions about whether and how to restructure.
BeFree Australia works with property investors, business owners, and company directors to build practical, compliant, and cost-effective tax strategies. If you want to understand exactly where you stand and what your options are, speak to our team now.
Frequently Asked Questions
My investment property was under contract before Budget night, but settled after. Do I get grandfathering?
This is one of the most urgent questions for investors currently under contract. The answer depends on whether the ATO treats the exchange date or the settlement date as the relevant date for grandfathering. At the time of writing, the ATO had not published final guidance on this specific point. Seek urgent advice from a registered tax agent if you are in this situation.
Can I still use negative gearing if I buy a new build after Budget night?
Yes. New residential builds and off-the-plan purchases retain negative gearing treatment regardless of when they are purchased. The abolition applies specifically to established (existing) residential properties purchased after 12 May 2026.
If my family trust distributes to my adult children, will they pay 30% from 2027?
Yes, if their marginal tax rate would otherwise be below 30%, the 30% minimum rate applies to their trust distributions from 1 July 2027. If their marginal tax rate is already above 30%, no additional tax applies (they simply pay their normal marginal rate).
What is the rollover relief, and how do I use it?
The rollover relief allows businesses to transfer assets out of a discretionary trust and into a company or other structure between 1 July 2027 and 30 June 2030 without triggering CGT or stamp duty on the transfer. To use it, you must meet specific eligibility criteria, and the relief must be actively applied for; it is not automatic. Begin working with a tax adviser well before July 2027.
Does the 30% trust tax apply to all trust income, including rental income from investment properties?
Yes. All income distributed from discretionary trusts, including rental income from properties held inside the trust, will be subject to the 30% minimum tax from 1 July 2027. This makes property-holding trusts significantly less efficient, particularly for long-held assets with modest ongoing income yields.
Should I wind up my family trust before 2027?
Possibly, but ‘wind up’ is not the only option and may not be the right one. In many cases, restructuring (transferring to a company or unit trust) is more efficient than dissolution. The answer depends on your specific assets, liabilities, beneficiaries, and long-term plans. This decision requires personalised legal and tax advice, not a generalised answer.