Tax Reforms: What’s Changing for CGT, Negative Gearing and Trusts

The 12 May 2026 Federal Budget included proposed changes to Capital Gains Tax (“CGT”), negative gearing and the taxation of trusts which have potentially significant implications for both Australian residents and expats. While some of these changes are in draft/consultation stage, others have already been legislated (after several revisions since their announcement) and will commence on 1 July 2027. Accordingly, now is an appropriate time to familiarise yourself and your clients with these changes and their potential implications.

Importantly, none of the measures should be viewed in isolation. While CGT reform, negative gearing changes and the proposed minimum tax on discretionary trusts each raise distinct considerations, these measures are frequently linked in various practical, economic and legal senses.

The volume of commentary surrounding these measures has prompted discussions around immediate planning opportunities and potential restructuring, for both resident and expat individuals and their families. However, as was demonstrated when the “tranches” of the new laws were introduced, there is often a considerable distance between policy announcements and enacted legislation. While it’s appropriate to take the time to review and consider current structuring, tax profiles and status (eg. residency) to prepare for these measures, care should be taken to not act in haste. Instead, take this time to comprehensively understand the changes and their implementation into law, how they may apply, and begin to plan strategies which may (or may not) eventually be acted upon once the legislation is finalised or is closer to commencement.

Tax Residency

Tax residency status is a cornerstone of Australian taxation. Although the proposed/actual reforms are not ostensibly targeted at non-residents, the relevancy of residency status is reinforced by their interplay with existing laws impacting non-residents, such as trust distributions to non-residents, the discounting/indexation of capital gains and the availability of franking credits.

An understanding of tax residency status and the impact of the reforms is critical to any cross-border structuring and strategies.

Capital Gains Tax Reform

Of the changes, those to CGT may be perceived to have the broadest and most significant implications, as they mark an end of the availability of the general CGT 50% discount for many taxpayers. Under the new regime, capital gains accruing up to 1 July 2027 will continue to be calculated using the existing general 50% discount, while those accruing thereafter will be calculated using an indexed methodology for impacted taxpayers. In addition, all assessable capital gains will be subject to a minimum tax rate of 30 per cent. Of particular note is that this change applies to all assets, irrespective of whether they were acquired before the commencement of CGT, ie. September 1985. In its current form, this measure will result in increased record-keeping requirements, particularly for assets owned before and after 1 July 2027, with their valuation as at that date likely to be required to optimise future taxation outcomes.

For expatriates, the interaction between this reform and their residency is significant. Individuals who have not yet ceased their Australian tax residency may have various potential planning considerations, including with respect to the timing of any deemed asset disposals, access to the main residence exemption and the general 50% CGT discount, as well as concessions in relation to the disposal of Australian assets that aren’t real property.

Negative Gearing

Negative gearing reforms have attracted significant public and media interest, although the practical scope of the proposals appears narrower than some early commentary may have suggested. Critically, the changes will only apply to Australian residential property investments, and will not include other assets such as equities, bonds or commercial property. The changes also contain grandfathering provisions, ensuring that residential properties acquired before budget night (12 May 2026) will be able to indefinitely entitle their owners to apply the prior negative gearing rules.

For the owners of established residential properties acquired after budget night, there is no change to the types of deductions they may claim in relation to those assets, eg. interest, insurance and repairs. However, from 1 July 2027, where those deductions are greater than the income produced by those properties, the resulting losses will be quarantined and will only be able to be applied to reduce residential rental income and capital gains. Notably, newly constructed residential properties are not affected by the new regime.

Unlike the changes to CGT, these restrictions will apply irrespective of whether a the taxpayer is an Australian tax resident or not. Accordingly, consideration of residency status with respect to this change should be secondary to an overall portfolio review for tax-efficiency.

Minimum Tax on Discretionary Trusts

The government has proposed that the trustees of discretionary trusts will become subject to a minimum tax rate of 30 per cent, from 1 July 2028. Although beneficiaries would continue to be assessed on distributions from trusts, they’ll receive a credit for the tax payable by the trustees. Importantly, that credit would not be refundable (unlike excess imputation credits) and will not be available to corporate beneficiaries at all. Within the past week, the government has proposed that this regime has no application, where trustees agree to be irrevocably bound to make “fixed” distributions to specified beneficiaries (in an apparent response to concerns that the restructuring of the ownership of certain types of assets will trigger state/territory-based transfer/stamp duties).

The proposal raises important considerations regarding the future role of discretionary trusts as business, wealth accumulation and succession planning vehicles. Historically, trusts have been valued for their flexibility, particularly the ability to distribute income among beneficiaries according to changing commercial, practical and family circumstances. As a consequence, this measure is likely to result in many seeking to restructure the ownership of their assets into other entities. To assist in this transition, the federal government has also proposed a 3-year rollover relief window from 1 July 2027 to 30 June 2030 to allow eligible discretionary trusts to restructure without any federal taxation consequences.

Distributions already subject to withholding tax, including certain interest and dividend streams, would not be affected by the proposed trustee-level tax. For expatriate families with internationally diversified investment portfolios, this may preserve some attractive tax planning opportunities. Accordingly, an examination of their tax residency, the tax residency of their trust structures, the potential for double taxation and confirmation of their sources and types of income will be important in determining whether an Australian discretionary trust is still the most appropriate vehicle for managing their wealth.

Actions

Although some of the taxation changes are in draft/consultation stage, others have already been legislated. Consequently, it is imperative to understand the precise nature of all of the measures and their impact on the current and future circumstances and objectives of each individual (and their entities). This should be done with detailed analysis, including the forecasting of economic outcomes under various scenarios.