Federal Budget Summary: The Key Changes and What They Could Mean for You

The May 2026 Federal Budget is one of the most consequential in recent years for Australian investors and families with complex financial affairs. The key changes span capital gains tax, negative gearing, and trust taxation. Across each of these areas, the picture is more nuanced than the headlines suggest, and most changes come with meaningful transition arrangements that reward considered planning over reactive decision-making. 

Capital gains tax: a structural shift from 1 July 2027 

The 50% CGT discount for assets held longer than 12 months will be replaced with cost base indexation and a 30% minimum tax on net capital gains, effective 1 July 2027. The new rules apply to all asset classes – property, shares, and managed funds alike. 

- Gains accrued on assets purchased before Budget night (12 May 2026) are grandfathered under the old 50% discount for sales completed before 1 July 2027 

- For assets sold after that date, gains will be split: pre-2027 gains remain discounted, while post-2027 gains are subject to indexation and the minimum tax

- Good record-keeping of original acquisition costs and capital improvements will be important going forward 

- The grandfathering provisions are generous – clients with long-held assets should review their position carefully before assuming the worst.

- Superannuation assets remain unaffected and normal super tax rules apply.

Negative gearing: existing properties protected, new purchases impacted 

For residential investment properties purchased after Budget night, negative gearing losses will no longer offset other income such as salary from 1 July 2027. Newly constructed residential properties are exempt from the new rules entirely. 

- The new rules apply to residential investment property only – negative gearing on shares, commercial property, and other assets is unchanged 

- Existing negatively geared properties are fully grandfathered indefinitely – no change applies to current holdings 

- Excess losses on new properties may be carried forward to offset future residential property income 

- New investment property must now justify itself purely as an investment –  yield and capital growth must stack up alone, without help from the tax system 

- Debt recycling into shares or other investment assets remains an effective strategy and may be worth revisiting in light of these changes 

Trust taxation: the distribution advantage narrows 

Discretionary trusts are a cornerstone of many clients’ financial structures, and the Budget changes are significant but not terminal. From 1 July 2028, a 30% minimum tax will apply to all discretionary trust distributions, targeting income splitting to low-income adult family members where the benefit under current rules is largest. 

- High marginal rate beneficiaries already taxed at 37% or more are largely unaffected 

- Trusts remain a valid structure – the distribution advantage narrows, it does not disappear 

- Franking credits continue to pass through, but credits received via a discretionary trust distribution become non-refundable – excess credits that would previously have been refunded are effectively lost 

- Trusts with corporate beneficiaries are more significantly affected – corporate beneficiaries will not receive a credit for the tax paid by the trustee, making bucket company structures considerably less attractive 

- The Budget includes a three-year rollover window from 1 July 2027 to 30 June 2030 for those wishing to restructure out of a discretionary trust, with relief from income tax and CGT consequences – stamp duty and other transaction costs still apply 

- Trusts retain real value for asset protection and estate planning purposes 

Superannuation: confirmed changes from 1 July 2026 

Several confirmed super changes take effect on 1 July 2026, independently of the Budget: 

- The concessional contributions cap rises from $30,000 to $32,500 

- The non-concessional contributions cap rises from $120,000 to $130,000, with the three-year bring-forward amount increasing to $390,000 

- The Total Superannuation Balance threshold and Transfer Balance Cap both rise to $2,100,000 – clients whose balance sits just above $2,000,000 may have regained eligibility to make non-concessional contributions 

- Division 296 tax commences, applying an additional 15% tax on superannuation earnings for balances above $3m, with a further 10% tax applying where balances exceed $10m. 

- Unused carry-forward concessional contribution amounts from 2020–21 expire on 30 June 2026 and cannot be recovered 

Taking stock 

The changes announced in this Budget will affect different clients in different ways, and the detail matters. When you are ready to discuss how these changes apply to your circumstances, your adviser is available to help.