Foreword
I’ve let the dust settle a little on the 2026 federal budget, in the hope that pragmatism would prevail. It hasn’t, to date. So, please treat this note as an interim observation.
The Key Investment Updates
Essentially, as far as investors are concerned, it was all about tax: the taxation of Capital Gains, and the taxation of Discretionary Trusts.
I’ve come to refer to the annual federal budget as legislation via media release. The Treasurer and Treasury make their announcements, but until all the detail is presented, debated, altered and subsequently agreed it is imperative not to act prematurely. Investors shouldn’t make an investment decision based on a media release, to do so is to risk detriment.
Moreover, given there are several transitional arrangements, there is little if anything to be gained from rushing into action in any case.
What are the Key Proposed Changes To FY26 Budget?
For those who either missed it, or intentionally side stepped the noise to date (a fine effort considering the media storm), there are several key components worth knowing at this time:
Capital Gains Tax
The taxation of capital gains will change. And revert, in part, to a pre-1999 setting, for individuals, trusts and partnerships, across all asset types whereby the cost base of an asset held for longer than 6 months will be indexed with CPI and the taxpayer will pay tax on the amount of the “real” gain.
There will be some exceptions to this including superannuation funds, which continue their existing arrangements, and for new build residential properties, which can opt between the new approach and the previous 50% CGT discount upon disposal.
Pre-CGT Assets
The taxation of ‘Pre-CGT assets’ (i.e. those purchased before 20 September 1985) will change. These are currently not subject to capital gains tax, but will have future accrued gains subject to the new taxation arrangements.
Minimum Tax Rate on Capital Gains
All capital gains will be subject to a minimum taxation rate of 30%, some exemptions apply such as for people in receipt of a social security pension.
Negative Gearing Changes
Negative gearing will be abolished for residential properties acquired after 7.30pm on 12th May 2026, effective from 1 July 2027. Net rental losses are proposed to be accrued and quarantined to be carried forward against any future rental income and/or capital gains, they are also able to be used to offset a secondary residential property’s income.
Discretionary Trust Taxation
Taxation of discretionary trusts (including discretionary testamentary trusts) will change – a 30% minimum tax will be payable by the trustee. Beneficiaries, other than corporate beneficiaries, will be entitled to a non-refundable tax offset for the tax paid for the year in which the distribution is received.
Fixed trusts and some other specific purpose trusts such as superannuation, special disability trusts and charitable trusts will not be subject to the minimum tax rate, nor will primary production income of farms, and certain types of income relating to vulnerable minors.
The new minimum will not apply to assets of testamentary trusts existing at announcement (read that how you will).
Small businesses that are currently structured via a discretionary trust will be given a three-year window from 1 July 2028 to restructure to another entity type. This allows assets to be moved without triggering CGT (i.e. rollover relief) but does not extend to the proposed minimum 30% tax rate during the ‘transition period’.
What to do from here then?
Firstly, wait until the legislation is finalised.
Secondly, do not take action on your own. There is complexity. It is also clear from all of the analysis that we have so far done that there are many aspects of the changes that affect different investors in different ways. Your circumstances may, on a deeper dive, not be like examples presented in media or accountants’ examples.
Solutions will not be the same for everyone. There is no one size that fits all ‘of the rules’. Take advice.
For First Samuel clients, your Private Client Adviser will contact you in due course. If you are not a First Samuel client, become one. Book an obligation free consultation today.
Chat with our Head of Advice today – Braith Morrow
* “Too soon to tell.” Allegedly the response from Zhou Enlai (Premier of China from 1949 to 1976),
when asked by Henry Kissinger, Nixon’s Secretary of State: “What do you think about the outcome of
the French Revolution.”ssential assurance, in addition to the benefits of the opportunity captured. So should all investors.
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The information in this article is of a general nature and does not take into consideration your personal objectives, financial situation or needs. Before acting on any of this information, you should consider whether it is appropriate for your personal circumstances and seek personal financial advice.