What landed on Tuesday night's federal budget, and the parts the headlines missed

For the fast version filtered to your situation, the page we shipped earlier this morning at fgofinancegroup.com.au/budget-2026-27 distils the 20+ reform measures in the budget into the ones that touch you, by persona (property investor, business owner, trust holder, owner-occupier). This newsletter is a longer read for folks who want to understand more of the nuances, the math, and the structural questions underneath.

The headlines have run hard on negative gearing and what it means for property investors. The factsheets and the budget papers have a lot more in them than that.

General information only. This article is general information and commentary only. It does not take into account your personal financial situation, tax position, or investment objectives. It is not personal financial advice, tax advice, or legal advice. Speak with a licensed financial adviser, qualified accountant, tax agent, or solicitor before acting on anything you read here.

What actually landed

Three structural changes anchor the package. The dates and the carve-outs matter more than the headlines.

(1) Negative gearing on established residential property

From 7:30pm AEST on 12 May 2026, losses on newly acquired established residential property can no longer offset salary, business, or other non-property income. Losses carry forward indefinitely against other property income or future capital gains.

Three categories now exist.

• Properties held before Budget night are fully grandfathered.
• Properties purchased between announcement and 30 June 2027 retain negative gearing inside that window before quarantining bites in full.
• Anything purchased from 1 July 2027 sits under the new regime.

New builds are exempt and remain negatively gearable indefinitely, but only for the first purchaser. The carve-out attaches to the property, not the investor. That is an important departure from the 2019 Labor proposal.

(2) Capital gains tax discount replaced

From 1 July 2027, the 50% CGT discount for individuals, trusts, and partnerships is replaced with two simultaneous changes.

• Cost base indexation by CPI, applied in the manner of the pre-1999 regime; and
• A 30% minimum tax floor on real gains which applies to all CGT assets held 12 months or longer, including property, shares, units, business assets, crypto, and founder equity.

Pre-1985 assets remain exempt. Gains accrued before 1 July 2027 are taxed under the old rules and apportioned at disposal. The owner-occupier main residence exemption survives and small business CGT concessions are retained.

(3) Discretionary trust minimum tax

From 1 July 2028, a 30% minimum tax applies to trust taxable income, payable by the trustee, with non-refundable credits passing through to beneficiaries.

• Corporate beneficiaries are excluded from the credit mechanism, which closes the bucket-company arbitrage.
• Wages paid to working family members are still treated as wages and stay outside the rule.
• A three-year rollover relief window opens 1 July 2027 to 30 June 2030, allowing full CGT and income tax rollover for businesses restructuring out of a discretionary trust into a company or fixed trust.

How the story was framed

Many probably expected the dominant frame across the first 24 hours of coverage to be: Labor restricts negative gearing on residential property to curb property investments. That is true given its weight of importance, although it's more reductive based on what has actually changed.

The CGT reset is not a property story

CPI indexation plus a 30% floor applies to every CGT asset held 12 months or longer. A founder holding vested equity in an Australian startup is in scope, a long-held share portfolio is in scope, crypto is in scope, private business assets sold to a buyer are in scope. Anything that grows above the rate of CPI now pays at least 30% on the real gain.

For a property growing at 5 to 6% across a cycle, indexation can sit ahead of the old 50% discount over very long holds, because it only taxes real gain. For a high-growth asset like founder equity in a successful startup, a small business that scales fast, or a concentrated long-held share position, the math runs in the other direction and the tax bill rises materially.

A simplified worked example

Illustration only. The actual numbers depend on the asset, the holding period, the inflation path, your marginal rate, and the structure used. Talk to a qualified accountant or registered tax agent for any real positions.

Suppose a founder acquires $200,000 of vested equity at incorporation. Seven years later, the business sells and that position is worth $2,000,000. Assume CPI inflation averaged 3% per year across the seven years.

Under the old 50% discount regime: The $1.8m nominal gain is halved to $900,000 and taxed at the top marginal rate of 47%. Tax of roughly $423,000. Effective rate on the $1.8m gain: about 23.5%.

Under the new regime: The cost base indexes by approximately 23% over the seven years at 3% inflation, lifting from $200,000 to about $246,000. The real gain is $1,754,000. Taxed at the top marginal rate of 47%, that is tax of roughly $824,000. Effective rate on the $1.8m gain: about 45.8%.

Same outcome on the asset but nearly double the tax. The 30% minimum tax floor does not bind in this case because the marginal rate is higher. The floor matters most for taxpayers who used to time disposals into low-income years to capture the 50% discount on a lower marginal rate. Those windows are now closing.

For founders, employees with vested equity, owners of fast-growing private companies, and shareholders sitting on concentrated long-held positions, this is a meaningful shift to the after-tax math. The case for building or backing a business is unchanged although the incentives for these same people have shifted. The structural conversation around the risk to reward of establishing a successful business, how to hold and dispose of assets, including corporate vehicles, employee share schemes, and fund structures, has more teeth now than it has had in twenty-five years.

The startup and venture community has been vocal pre and post budget on this point. Paul Bassat at Square Peg Capital and Ben Grabiner at Side Stage Ventures have both argued, separately and publicly, that reducing the after-tax return on the equity that funds new company formation is poorly timed against Australia's productivity backdrop. Grabiner raises the UK as one of the cautionary comparisons: reductions in entrepreneurship relief have coincided with capital and founder flight. Whether that argument lands politically is a separate question but the arithmetic underneath it is real, and changes the mental model for any business owner thinking about a future sale or capital raise.

The discretionary trust 30% minimum tax is a bigger structural change than the coverage suggests

Around 350,000 small businesses in Australia operate through a discretionary trust today, against a total population of roughly 840,000 discretionary trusts. The 30% floor effectively caps the income-splitting strategy that has been the core value proposition of the discretionary trust for the better part of two decades. Distributing $200,000 of trust income to a beneficiary on a 19% marginal rate previously delivered a real tax saving. From 1 July 2028, the trust pays 30% at the trustee level, the beneficiary receives a non-refundable credit, and the splitting benefit largely collapses unless the beneficiary's marginal rate is already at or above 30%. Around half of all discretionary trusts already distribute to beneficiaries on 30%+ rates today and will see limited change. The other half, which includes a meaningful share of the business acquisition market and a long tail of family-owned businesses, sits in the middle of a structural rethink.

The trust-versus-company conversation we have not had in twenty-five years

If the after-tax outcome inside a discretionary trust is now 30%, the structural comparison with a company looks materially different to how it has looked for two decades.

• Small business companies under $50 million turnover pay 25% on trading income today (base-rate-entity treatment), that sits below the new trust floor.
• Companies offer dividend imputation, trusts do not.
• Companies offer cleaner retained earnings handling, trusts have relied on the streaming mechanism, which now sits behind a 30% floor.
• The original value proposition of the discretionary trust, flexibility to distribute to lower-bracket beneficiaries, is muted.
• Wages paid to working family members still sit outside the rule. That is the surviving legitimate income-split mechanic.

None of this is a one-size-fits-all answer. Asset protection, estate planning, intergenerational ownership, and access to small business CGT concessions remain real reasons to use a trust in some situations. But the default structural answer for a new small business or for a business acquisition is open in a way it has not been since the late nineties. The three-year rollover relief window from 1 July 2027 to 30 June 2030 is the policy mechanism designed to support an orderly restructure of the trust setup.

How are we thinking about it?

Three lanes we are thinking through. Note: none of this constitutes financial advice. It's general information and commentary only.

Residential property buyers and investors

The 14-month window between 7:30pm 12 May 2026 and 1 July 2027 is the live planning corridor for established residential. A property purchased inside the window can still get negative gearing benefits through to the quarantining trigger, after which losses sit against the property income or future capital gain. The question worth considering is whether each investment stands on its fundamentals without the negative gearing benefit. Separately, the new build carve-out is now structurally important as investor demand is expected to rotate toward off-the-plan, house and land, small-scale developments, and townhouse projects.

Business owners, acquirers, and existing trust holders

If you operate through a discretionary trust today, the question is whether the current structure is still the right one for the next ten years, and whether the rollover window is the moment to make the change. That conversation belongs with your accountant and your lawyer, ideally well before mid-2027 so any restructure is run early in the rollover window rather than late. For business/ETA acquirers buying into a trust-held business between July 2027 and June 2030, the rollover relief is useful. The lending implications of restructuring into a company need to sit alongside the tax conversation, not after it.

Borrowers generally

The rate environment behind all of this is as important as the budget itself. Treasury has baked one additional cash rate hike into the September 2026 quarter. There is no rate-cut path inside the forward estimates window and BBSW sits elevated and might stay elevated based on industry forecasts. For anyone refinancing, restructuring, or moving on a new purchase, the serviceability buffer is wider than the consensus narrative is pricing in. Capacity quotes from six months ago will differ materially from where the lenders sit today.

Finally, the construction finance pipeline is materially larger than it was. The $2 billion Local Infrastructure Fund, the 100,000 First Home Buyers homes program, the Suburban Rail Loop East commitment, Brisbane 2032, and the public hospital uplift through the new NHRA Addendum are expected to flow through to mid-market construction lending demand over the next three to five years. For commercial property clients with development capacity, the policy backdrop is perhaps more constructive than the residential headlines suggest.

A short caveat before closing

Treasury's modelled outcomes (around 75,000 additional owner-occupiers over a decade, house prices roughly 2% lower over two years, rents up less than $2 per week) are decade-long projections sensitive to a whole range of assumptions. They sit at the low-confidence end of forecastable claims. Treat them as policy intent, not as the certain outcome.

If you want to work through how the changes affect a specific property purchase, business acquisition, trust restructure, or borrowing position, please reach out via DM or schedule time to connect via fgofinancegroup.com.au.

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