2026–27 Federal Budget

Three changes. One decision window.

The 2026–27 Federal Budget, released on 12 May 2026, has received more attention than most budgets in recent years. 
With proposed changes to negative gearing, the CGT discount and the taxation of trusts, this is a budget that has the potential to materially impact on property investors, business owners and families using discretionary trusts. 
However, it is important to remember that the proposed changes are not yet law and we might yet see further developments with some of these key proposals. For example, even though legislation has been introduced into Parliament in relation to some of the measures, there is no guarantee that the Bills will be passed in their current form. 
While don’t yet have certainty on how this will all play out, we understand that the proposals are causing some confusion and concern and so we have set out below some comments on what we know so far. 

Negative gearing gets tighter

The Government is planning to restrict negative gearing on established residential properties purchased after 7:30pm AEST on 12 May 2026 . If you buy new, the rules that let you offset rental losses against your salary are going away.

Portfolio review is now essential. Existing assets get more favourable treatment than new purchases. The difference between buying before and after Budget night could have significant tax consequences — and the technical detail is complex enough to warrant an adviser conversation before you move.

Capital gains tax: the 50% discount is gone

The familiar 50% CGT discount can being replaced with cost base indexation and a 30% minimum tax rate — applying across all asset types.

Real-world example

Michael — property investor with gains on both sides of the cut-off

Michael owns an investment property purchased before Budget night, currently negatively geared. He continues offsetting losses against his salary under grandfathering. When he sells:

The outcome: Michael will likely pay more tax than under current rules. Higher-income earners with significant gains and longer holding periods will feel this most sharply. The earlier Michael establishes asset values at 1 July 2027, the clearer his position will be.

Discretionary trusts: 30% minimum tax on trust income

The introduction of a 30% minimum tax rate on the taxable income of discretionary trusts would represent a fundamental change to the way the tax system operates at the moment. 
The Government is indicating that the 30% tax would initially be paid by the trustee, with beneficiaries (other than companies) receiving a non-refundable tax credit for the tax paid at the trust level.
This measure is aimed at curbing income splitting to lower-taxed family members and corporate beneficiaries (often known as bucket companies).
Some exemptions would apply, including for fixed and widely held trusts, superannuation funds, special disability trusts, deceased estates, charitable trusts, primary production income and some other specific trust types. 
While the Government has indicated that existing discretionary testamentary trusts would be exempt from these changes, concerns have been raised about the application of the changes to testamentary trusts that come into existence after Budget night. However, reports in the media suggest that the Government is open to reconsidering this aspect of the changes, but we will have to wait and see how this plays out. 
To assist with transitions, three years of roll-over relief will be available for restructures into companies or fixed trusts.

example (ADAPTED FROM BUDGET MATERIALS)

Kurt — business operating through a discretionary trust, $300,000 profit

Pays himself $100,000 salary. Distributes $200,000 to four family members with no other income.

That's more than double the tax bill — but restructuring to a company (25% tax rate) or changing distribution strategies may significantly reduce the impact.

Other measures worth noting

These smaller changes apply broadly — and the instant asset write-off is now permanent.

Your next steps

What to do now

Most changes could hit in 2027 or 2028 — but the planning window is open now. Waiting for final legislation often means missing the opportunity.

Talk to Modoras

Your situation is specific.
Your plan should be too.

We can review your portfolio, model the outcomes across negative gearing, CGT and trust taxation, and help you make informed decisions before the rules change.

We'll keep you updated as legislation progresses and further details emerge.