Federal Budget 2026-27: What Families and Investors Need to Know

Federal Budget 2026-27: What Families and Investors Need to Know

The 2026-27 Federal Budget introduced some of the most significant proposed tax changes for investors and family wealth structures in more than 25 years, with a strong focus on housing affordability, intergenerational equity and broader tax reform.

Importantly, these measures are proposals only at this stage and will still need to pass through the legislative process before becoming law. As further details are released and legislation debated, changes may still occur.

While the key proposed reforms may have important implications for families, business owners and investors, most measures are future-dated, meaning there is time to assess the impact and consider appropriate strategies properly.

At this stage, we believe it is important not to rush into major decisions until the final legislation and practical guidance become clearer.

Below is a summary of the key announcements that will impact families, business owners and investors.

Capital Gains Tax Discount Removed

One of the most significant announcements was the removal of the Capital Gains Tax (CGT) discount from 1 July 2027.

What are the proposed changes?

Currently, individuals and trusts that hold an investment asset for more than 12 months are generally entitled to a 50% CGT discount when they sell the asset.

Under the proposed changes:

• The 50% CGT discount would be removed for future gains from 1 July 2027
• Instead, the asset’s cost base would be indexed for inflation (CPI)
• A minimum 30% tax rate would apply to future capital gains calculated under the new system
• The changes are proposed to apply to most CGT assets held by individuals and trusts
• Transitional arrangements are expected to apply for existing assets held before 1 July 2027
• Does not apply to any Investment assets within SMSF’s

What this means for families and investors

For investors with significant unrealised gains across property, shares or business assets, these changes will alter future after-tax investment outcomes and investment strategies.

Negative Gearing Losses Quarantined to Residential Property              

The Budget also announced proposed changes to negative gearing arrangements for residential investment properties purchased after Budget night.

What is the proposed change?

From 1 July 2027, losses from established residential investment properties will no longer be deductible against salary or other personal income.

Instead:

• Rental losses will be carried forward
• Those losses will only be used against future rental income or capital gains from residential property investments

Importantly, the losses are not forgone, but the tax benefit will be deferred.

Established residential properties acquired prior to budget night will be grandfathered, meaning they are exempt from this change.

Which properties are likely to be affected?

• The proposed changes will apply to established residential investment properties acquired after 7:30 pm on 12 May 2026 (Budget night).
• New residential builds and certain development-style projects (such as duplexes) are expected to remain excluded.

What this means for property investors

For many investors, negative gearing has historically formed part of broader wealth accumulation and cash flow strategies. This change affects residential investments; commercial and agricultural investments remain unaffected at this stage.

Discretionary Trust Changes

The Budget also proposed significant changes to the taxation of discretionary trusts, commonly used by family groups and business owners for investment, asset protection and succession planning.

What is the proposed change?

From 1 July 2028, discretionary trusts will generally pay a minimum tax rate of 30% before distributions are made to beneficiaries.

Beneficiaries other than corporate beneficiaries will receive a non-refundable tax credit for the tax already paid by the trust. Where beneficiaries are on lower personal tax rates, excess tax paid by the trust will generally not be refundable.

The Government has also proposed a three-year rollover relief period from 1 July 2027 for taxpayers wishing to restructure into alternative entities such as companies or fixed trusts.

What this means for families and business owners

For many families and business owners, discretionary trusts form an important part of long-term wealth, succession and asset protection planning.

The changes may be particularly relevant for families currently distributing income to lower-income adult family members and corporate beneficiaries.

Limited Changes for Businesses

There were relatively few major announcements for businesses in this year’s Budget. Below is a summary we believe may be relevant for privately owned groups and family businesses:

• The permanent extension of the $20,000 instant asset write-off for eligible small businesses
• The reintroduction of loss carry-back rules for eligible companies
• Reduced electric vehicle tax concessions
• Optional monthly PAYG instalments for SMEs from 1 July 2027

What We’re Watching at Morrows

At this stage, many of these measures remain proposals only and will require legislation before becoming law.

Areas likely to attract significant industry and political discussion include:

• Capital gains tax reform
• Negative gearing changes
• Family trust taxation
• Transitional valuation rules
• Property market impacts

We expect further clarification from Treasury and the ATO over the coming months and will continue to keep clients informed as details evolve.

Final Thoughts from Morrows

For many families and investors, this Budget may prompt broader discussions around:

• Wealth accumulation strategies
• Investment ownership structures
• Family trust arrangements
• Succession planning
• Intergenerational wealth transfer
• Long-term tax efficiency

While these proposed changes are significant, we are concerned about their possible impact.  There is time to carefully consider the implications before making major decisions. As always, strategic planning should be based on your personal circumstances, long-term objectives, and the final legislation once enacted.

As further details unfold, we will continue to provide updates. Any questions, please reach out to your Morrows advisor.