Treasurer Jim Chalmers handed down the 2026-27 Federal Budget on 12 May against one of the more demanding backdrops in recent memory. A global oil shock, inflation pressures remain elevated, a slowing economy and a housing crisis all shaped what ended up being the most significant tax reform budget Australia has seen in recent years. If you have investments, a business, a family trust or are thinking about property, this one affects you.
The Fiscal Position
The deficit for 2025-26 comes in at $28.3 billion, which is actually $8.5 billion better than expected at MYEFO in December. Over five years, the budget position has improved by $44.8 billion, driven by stronger tax receipts and $63.8 billion in savings. Growth, however, is forecast to slow to 1.75% in 2026-27, and the extra $18.3 billion being injected into the economy this year will keep inflation elevated for longer, which means the RBA's next move is far from straightforward.
Responding to the Oil Shock
Energy security and fuel resilience were a significant focus of the Budget. The government announced a multi-billion dollar package aimed at strengthening Australia’s fuel reserves, supporting domestic supply chains and improving resilience across critical industries including transport, logistics and manufacturing.
The measures include additional strategic fuel storage capacity, financing support for businesses impacted by higher energy and freight costs, and policies designed to improve domestic energy availability. The package reflects growing concern around Australia’s exposure to global supply disruptions and the broader economic impact of sustained energy volatility.
The Three Tax Changes That Will Reshape Investment Decisions
Capital Gains Tax.
From 1 July 2027, the current 50% CGT discount that has existed since 1999 would be replaced. It will be replaced by cost base indexation, which adjusts your cost base for inflation, with a 30% minimum tax applying to any net capital gain above that. This applies to all assets held by individuals, trusts and partnerships. The key point: gains accrued before 1 July 2027 are still taxed under the old rules. If you are sitting on significant unrealised gains, now is the time to model what that means for you.
Negative Gearing.
From 1 July 2027, negative gearing on established residential investment properties purchased after budget night is restricted. You can still deduct rental losses, but only against rental income, not your salary or other income. Properties bought before budget night are fully grandfathered. New builds are exempt. Importantly, commercial property and shares are completely unaffected. This creates a clear shift in the relative attractiveness of different asset classes, which we discuss below.
Discretionary Trusts.
From 1 July 2028, a proposed 30% minimum tax applies to the taxable income of discretionary trusts, paid at the trustee level. Australia has more than one million discretionary trusts. The measure targets income splitting, the strategy of distributing trust income to lower-income family members to reduce the overall tax bill. The government estimates it will raise $4.5 billion over five years.
The biggest immediate casualty is the bucket company. Right now, many trusts distribute income to a corporate beneficiary, which pays tax at 25% or 30%, far below the top individual rate of 47%. Under the new rules, that corporate beneficiary gets no credit for the tax already paid by the trustee. The result is effective double taxation on the same income, potentially reducing the effectiveness of bucket company structures for many groups. Three years of rollover relief from 1 July 2027 will allow restructuring into companies or fixed trusts without income tax consequences, though stamp duty relief will depend on your state.
The BPC View
The combined effect of the CGT, negative gearing and trust changes represents a meaningful shift in the investment landscape, particularly for those holding residential property through trust structures. The overlap of three layers of adverse tax treatment on new residential property acquired through a discretionary trust after budget night is significant: negative gearing is quarantined, capital gains after 1 July 2027 are subject to indexation and a 30% minimum tax, and trust income itself attracts a 30% minimum tax from 1 July 2028.
The unintended beneficiary of these changes is commercial property. Because the negative gearing and CGT reforms apply only to residential assets, commercial classes including industrial, logistics, convenience retail and healthcare property retain their existing tax treatment. Investors redirecting capital away from established residential investment toward income-producing commercial assets will find the relative attractiveness of those classes has increased materially. Industrial and logistics property, already supported by structural tailwinds from e-commerce and supply chain investment, is the most likely immediate beneficiary of that rotation.
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