The 2026 Federal Budget has proposed some of the most significant tax reforms this evening, targeting property investors, discretionary trusts and capital gains tax concessions, while also delivering permanent tax relief for small businesses. The reforms are aimed at improving housing affordability, simplifying the tax system and supporting productivity growth.

Negative Gearing Changes

The 2026 Federal Budget proposed significant changes to negative gearing.

Under the proposal:

• Existing investment properties held before Budget night would generally be grandfathered.
• Investors purchasing established residential properties after Budget night would no longer be able to offset rental losses against salary and wage income.
• Rental losses from affected properties would instead be carried forward and applied against future rental income or capital gains.
• Newly constructed residential properties would generally remain eligible for full negative gearing benefits.

The Government stated that the proposed changes were intended to encourage investment in new housing supply and improve housing affordability by directing investor demand towards newly built dwellings.

As these measures are proposals only, they have not been enacted into law and may change before any implementation occurs.

Capital Gains Tax (CGT) Reform

The Budget also proposes replacing the current 50% CGT discount with an inflation-based cost base indexation model from 1 July 2027.

Key proposed changes include:

• Removal of the standard 50% CGT discount for future gains.
• Introduction of inflation indexation to adjust an asset’s cost base.
• A minimum 30% tax rate applying to capital gains.

Importantly:

• Transitional rules will preserve existing treatment for gains accrued before the commencement date.
• Investors in newly built properties may choose between the current discount model or the new indexation approach.
• The reforms apply to individuals, trusts and partnerships, but generally exclude superannuation funds and some managed investment trusts.

These proposed changes could significantly alter long-term investment and property planning strategies.

Discretionary Trust Distribution Changes

Another major proposal is the introduction of a minimum 30% tax on certain discretionary trust distributions from 1 July 2028.

The Government states the measure is intended to reduce income splitting opportunities commonly used through family trust structures.

To assist with restructuring, rollover relief is proposed for three years from 1 July 2027 for eligible taxpayers and small businesses wishing to transition arrangements.

These reforms may have significant implications for:

• Family groups
• SMEs operating through trusts
• Property holding structures
• High-income investment arrangements

Permanent $20,000 Instant Asset Write-Off

The Budget also confirmed the $20,000 instant asset write-off will become permanent for eligible small businesses with turnover under $10 million.

This allows businesses to immediately deduct eligible assets costing less than $20,000 instead of depreciating them over several years.

The measure is expected to:

• Improve cash flow for SMEs
• Encourage business investment
• Reduce compliance complexity

Eligible assets may include:

• Tools and equipment
• Office technology
• Business vehicles (subject to limits)
• Machinery and operational assets

What This Means

If legislated, these reforms could substantially reshape tax planning for property investors, business owners and family groups over coming years.

While the Government has positioned the reforms around fairness and housing affordability, the proposed changes are likely to increase the importance of proactive structuring and long-term tax planning for many Australians.