Frequently Asked Questions: Australian Federal Budget 2026-27 – Expert Analysis

No. The CGT changes (replacing the 50% discount with cost base indexation and the 30% minimum tax) apply to assets held by individuals, trusts and partnerships. Complying superannuation funds, including SMSFs, are not subject to the new arrangements and continue under their existing CGT regime. Note that companies are also not affected, as they have never been entitled to the 50% CGT discount.

Yes, the new CGT regime captures pre-1985 (pre-CGT) assets held by individuals, trusts and partnerships. Gains accrued before 1 July 2027 will continue to be exempt, but gains accruing from 1 July 2027 onwards will be subject to CGT under the new indexation method, with a valuation (or apportionment formula) used to establish the 1 July 2027 cost base. Pre-CGT assets held in companies are not affected as companies are not subject to these CGT changes.

The Budget papers indicate two valuation options at 1 July 2027: (1) obtaining an independent valuation (including using quoted prices for shares), or (2) using an ATO-prescribed apportionment formula that estimates the asset's value at 1 July 2027 based on its growth rate over the holding period. The exact mechanics of the apportionment formula are not yet detailed in the Budget papers.

Valuation at 1 July 2027 - You do not need to obtain a valuation by 30 June 2027. The valuation is only required when the asset is eventually sold and forms part of the tax return for the year of disposal. Taxpayers can either obtain a valuation as at 1 July 2027 or use the ATO's apportionment formula based on the asset's growth rate over the holding period. We haven't seen details of the formula yet.

On negative gearing losses indexed for CGT - the Budget papers do not explicitly state that quarantined rental losses are added to the cost base or indexed. They indicate that losses from established residential property are carried forward to offset against future residential property income or capital gains. The detailed treatment (including any cost base treatment of unused losses) will be confirmed in draft legislation.

The Budget papers do not provide detailed guidance on how brought-forward capital losses from periods before 1 July 2027 interact with a two-period gain calculation (a discounted gain to 30 June 2027 plus an indexed gain from 1 July 2027). However, I would expect losses to be applied against the gross gain before applying the discount and against the indexed gain (apportionment over periods not yet clear).

The Budget papers do not specifically mention any changes to the six-year absence rule for the main residence exemption. The main residence exemption continues to apply, and the six-year rule remains available based on existing rules.

Pre-CGT (pre-1985) assets that became investment assets - Gains accrued before 1 July 2027 remain exempt. From 1 July 2027 the asset enters the CGT net using its 1 July 2027 value (via valuation or ATO apportionment formula) as the cost base. Where a property has had mixed PPR/investment use across the holding period, it seems that the existing main residence apportionment principles continue to apply.

Grandfathering of post-CGT assets - For an asset acquired after 20 September 1985 but before 1 July 2027 and sold after 1 July 2027, the gain is split: gains accrued to 30 June 2027 are taxed under current rules (with 50% discount) while gains accrued from 1 July 2027 are taxed under indexation with the 30% minimum tax. The 1 July 2027 value forms the "boundary" between the two periods.

Sworn valuations - The Budget papers do not require a sworn valuation. They allow either a valuation (which would typically follow normal market valuation principles) or the ATO apportionment formula.

On the indexation method, from 1 July 2027 the 50% CGT discount is replaced (for assets held more than 12 months by individuals, trusts and partnerships) with cost base indexation using CPI. The cost base is increased by inflation over the holding period, reducing the real gain. A 30% minimum tax then applies to the net (indexed) gain.

No - a valuation is not required by 30 June 2027.

Valuation at 1 July 2027 - You do not need to obtain a valuation by 30 June 2027. The valuation is only required when the asset is eventually sold and forms part of the tax return for the year of disposal. Taxpayers can either obtain a valuation as at 1 July 2027 or use the ATO's apportionment formula based on the asset's growth rate over the holding period. We haven't seen details of the formula yet.

The valuation (or use of the ATO apportionment formula) is only needed when the asset is eventually sold, as it forms part of the tax return in the year of disposal. Clients planning to sell shortly after 1 July 2027 may nonetheless find it useful to obtain a contemporaneous valuation to support the cost base.

The main residence exemption continues to apply. A property that is your main residence (the home you live in) generally remains exempt from CGT. The CGT changes apply to investment assets - including investment properties, shares and other CGT assets - held by individuals, trusts and partnerships.

Correct, assets acquired before 20 September 1985 (pre-CGT assets) held by individuals, trusts and partnerships will be brought into the CGT net for gains accrued from 1 July 2027 onwards (on an indexation basis). Gains accrued before 1 July 2027 remain exempt. The asset's 1 July 2027 value (via valuation or ATO apportionment formula) becomes the cost base for calculating the post-1 July 2027 gain, which is then subject to indexation and the 30% minimum tax. Pre-CGT assets held in companies are unaffected as companies are not subject to the new CGT measures.

The ATO will provide tools and guidance to support indexation calculations. Historically, indexation under the 1985-1999 rules used the All Groups CPI published by the Australian Bureau of Statistics.

The ATO will provide tools and guidance to support indexation calculations. Historically, indexation under the 1985-1999 rules used the All Groups CPI published by the Australian Bureau of Statistics.

Independent professional valuers are typically used for property valuations supporting CGT cost base. Real estate agent appraisals may be persuasive but a professional valuer's report is more robust for ATO purposes. For shares, quoted market prices on 1 July 2027 can be used.

Gains accrued before 1 July 2027 remain exempt for pre-CGT assets. Indexation applies only to gains accruing from 1 July 2027 onwards (using the 1 July 2027 value as cost base).

Agreed, the interaction of the two-period (discount and indexation) calculation with partial main residence exemptions will create complexity.

No requirement for valuation by 30 June 2027. The valuation is only required when the asset is eventually sold and forms part of the tax return for the year of disposal. Taxpayers can either obtain a valuation as at 1 July 2027 or use the ATO's apportionment formula based on the asset's growth rate over the holding period. We haven't seen details of the formula yet.

The 1 July 2027 value is only relevant at the time of disposal of the asset, and an ATO apportionment formula is available as an alternative to a formal valuation.

The Budget papers do not specifically address section CGT event K6 (pre-CGT shares with post-CGT property). However, given pre-CGT assets are now drawn into the CGT net for gains accruing from 1 July 2027, the role and continuing operation of K6 may be limited.

Yes. The new indexation method applies to all CGT assets held for at least 12 months by individuals, trusts and partnerships, including shares and other equities. Indexation uses CPI in the same manner as for property. For listed shares, quoted market prices on 1 July 2027 can be used to establish the boundary cost base, or the ATO apportionment formula can be applied.

Yes. CPI indexation works by applying the CPI at the date of disposal divided by the CPI at acquisition (or the relevant base date such as 1 July 2027 for transitional assets).

The Budget papers exempt recipients of means-tested income support payments (such as the Age Pension or JobSeeker) from the 30% minimum tax on capital gains, provided they receive any such payment in the financial year in which the gain is realised. Indexation still applies.

The 30% minimum tax applies to the net capital gain - that is, after the indexation adjustment to the cost base. It is not applied to the gross (un-indexed) gain.

Apart from a formal valuation, the Budget papers indicate the ATO will provide an apportionment formula that estimates the asset's value at 1 July 2027 based on the asset's growth rate over the holding period (i.e. apportioning the actual sale-period gain back to 1 July 2027 using a growth-rate methodology).

The Budget papers do not provide specific guidance on offsetting an indexation-period capital loss against a discount-period gain on the same asset. I would think there must be some ability to offset capital losses against a period 1 gain.

Correct. The 1 July 2027 value (via valuation or apportionment formula) forms the cost base for the post-1 July 2027 gain calculation. Indexation applies from 1 July 2027 to the date of disposal.

The two-period structure is intended to avoid double taxation: gains to 30 June 2027 are taxed under existing rules (with 50% discount); gains from 1 July 2027 are taxed under the new rules using the 1 July 2027 value as the starting cost base. The same gain is not taxed twice.

Correct. Companies are not subject to the CGT changes (the 50% discount, indexation regime and 30% minimum tax). Pre-CGT assets held by a company therefore continue under existing rules. However, pre-CGT shares in that company held by individuals, trusts or partnerships will be drawn into the new regime for gains accruing from 1 July 2027 - which can produce an asymmetry.

Where an asset is sold years after 1 July 2027 (e.g. in 2032), a retrospective valuation as at 1 July 2027 can typically be obtained from a professional valuer using market evidence from around that date. Alternatively the ATO apportionment formula can be used (which removes the need for a valuation altogether). Practitioners may consider obtaining a contemporaneous valuation around 1 July 2027 for high-value assets to mitigate retrospective valuation risk.

A valuation is not required by 30 June 2027. It is needed only at the time of disposal. The valuation is only required when the asset is eventually sold and forms part of the tax return for the year of disposal. Taxpayers can either obtain a valuation as at 1 July 2027 or use the ATO's apportionment formula based on the asset's growth rate over the holding period. We haven't seen details of the formula yet.

For listed shares, quoted market prices at 1 July 2027 can be used. For property and unlisted shares, clients with significant holdings or an expected sale shortly after 1 July 2027 may benefit from obtaining a contemporaneous valuation as a practical risk management measure, but it is not mandatory.

Companies are not subject to the CGT changes (the 50% discount, indexation regime and 30% minimum tax). Pre-CGT assets held by a company therefore continue under existing rules. However, pre-CGT shares in that company held by individuals, trusts or partnerships will be drawn into the new regime for gains accruing from 1 July 2027 - which can produce an asymmetry.

Where the asset's 1 July 2027 value is less than its original cost base (i.e. a loss accrued to 30 June 2027), the Budget papers do not expressly explain how that pre-1 July 2027 capital loss is recognised relative to the post-1 July 2027 indexed gain. A logical reading is that the loss component is preserved and offset against the post-1 July 2027 gain in the same disposal calculation.

The Budget papers state that beneficiaries of discretionary trusts (other than corporate beneficiaries) will receive non-refundable credits for the 30% tax paid by the trustee. The detailed interaction with franking credits attached to dividends received by the trustee from a corporate shareholder is not fully specified in the Budget papers and will need to be addressed in consultation and draft legislation.

However, as an example, it may work like this - A company has $100 of income and pays corporate tax of $30. It pays a fully franked dividend of $70 to its discretionary trust shareholder. The budget papers indicate that the trust will be required to use the franking credits to pay the minimum tax such that no additional tax would be payable by the trust.

Although there is no further detail in the budget papers, presumably an individual beneficiary of the trust would include $100 in their assessable income and pay tax at marginal tax rates of up to 47% with an offset of $30 for the trustee tax.

A discretionary trust receiving a franked dividend from a base rate entity company (taxed at 25%) and being subject to the new 30% minimum tax could result in additional tax at the trustee level.

The Budget papers state non-corporate beneficiaries will receive non-refundable credits for the 30% trustee tax. The detailed mechanics of how franking credits flow through alongside the new trustee credits are not fully specified and will be addressed in consultation and draft legislation.

The Budget papers describe the 30% minimum tax as applying to 'discretionary trusts', with carve-outs for fixed and widely held trusts, complying super funds, special disability trusts, deceased estates, and charitable trusts. Hybrid trusts are not specifically addressed but my view is they won't be carved out as they are not fixed.

The Government has announced rollover relief for three years from 1 July 2027 to support restructuring out of discretionary trusts into another entity (such as a company or fixed trust). Whether to restructure depends on income type (e.g. carve-outs for primary production), beneficiary mix, and asset base - so it should be assessed case by case. It is also not clear how the rollover will work at a state or territory level, e.g. stamp duty on property.

This is difficult to tell at this stage although there has been significant negative media press on this proposed change as well as the removal of the CGT discount since budget night.

Income from assets of discretionary testamentary trusts in existence at the time of the announcement (12 May 2026) is excluded from the 30% minimum tax. Testamentary trusts coming into existence after the announcement appear to be subject to the 30% minimum tax (unless they are fixed testamentary trusts), which are excluded.

Family trust with corporate beneficiary holding shares/property - This depends on the client's specific circumstances. They could use the three-year rollover relief (from 1 July 2027) to restructure into a company or fixed trust (noting clarity required on stamp duty)., The four SBCGT concessions remain available which should assist business asset restructures.

Agree. The key point is there will be some form of double taxation where a discretionary trust distributes to a corporate beneficiary.

The Budget papers carve out from the 30% minimum tax certain income types including primary production income, certain income relating to vulnerable minors, amounts subject to non-resident withholding tax, and income from assets of discretionary testamentary trusts existing at announcement. The papers indicate income retains its character for these carve-outs although we will need to review the exact tracing rules in any draft legislation.

The Budget papers state that beneficiaries of discretionary trusts (other than corporate beneficiaries) will receive non-refundable credits for the 30% tax paid by the trustee. The detailed interaction with franking credits attached to dividends received by the trustee from a corporate shareholder is not fully specified in the Budget papers and will need to be addressed in consultation and draft legislation. However, as an example, it may work like this - A company has $100 of income and pays corporate tax of $30. It pays a fully franked dividend of $70 to its discretionary trust shareholder. The budget papers indicate that the trust will be required to use the franking credits to pay the minimum tax such that no additional tax would be payable by the trust. Although there is no further detail in the budget papers, presumably an individual beneficiary of the trust would include $100 in their assessable income and pay tax at marginal tax rates of up to 47% with an offset of $30 for the trustee tax.

The treatment of an indexation-period capital loss is not fully specified. The Budget cameo (Ben earning a 2.5% return equal to inflation) shows indexation can reduce a gain to nil ('no taxable capital gain'). The Budget papers do not explicitly state that indexation can create a capital loss. Under the historical 1985-1999 regime, indexation could not create a loss - it could only reduce a gain to nil. Final treatment will be confirmed in legislation.

The 30% minimum trustee tax (from 1 July 2028) applies to any discretionary trust holding business assets/income (other than primary production carve-outs etc). For the CGT changes, business assets held by individuals, trusts and partnerships are subject to the new indexation/30% minimum tax regime (with the four SBCGT concessions unchanged).

You do not need to obtain a valuation by 30 June 2027. The valuation is only required when the asset is eventually sold and forms part of the tax return for the year of disposal. Taxpayers can either obtain a valuation as at 1 July 2027 or use the ATO's apportionment formula based on the asset's growth rate over the holding period. We haven't seen details of the formula yet.

Companies' own assets are not subject to the CGT changes. Shares in private companies held by individuals/trusts/partnerships will need a 1 July 2027 valuation or use of the ATO apportionment formula at the time of disposal.

The Government has announced expanded rollover relief for three years from 1 July 2027 to support restructures out of discretionary trusts into companies or fixed trusts. Detailed mechanics to be released.

A move toward corporate vehicles is plausible given the relative attractiveness of the 25%/30% company rate vs 30% minimum trustee tax. Dividend access share planning continues to need to be assessed against the existing anti-avoidance and Part IVA framework.

This 'reverse' structure (company holding the asset, discretionary trust as shareholder) means the asset itself is subject to company tax (no CGT changes for company-held assets), and dividends paid up to the trust carry franking credits. The 30% minimum trustee tax (from 1 July 2028) still applies at the trust level on the trust's taxable income, and franking credits attached to those dividends should be available to reduce the trustee's primary tax liability under existing principles - though the precise interaction with the new non-refundable beneficiary credits is yet to be detailed.

I think it would work like this. Say a discretionary trust makes a $100 nominal capital gain on an asset purchased after 1 July 2027, CPI indexation (say $20) reduces the taxable gain to $80. From 1 July 2028, the trustee must pay 30% minimum tax on that $80, being $24. If the gain is distributed to an individual beneficiary, they would be taxed on the $80 gain and would receives a non-refundable credit of $24 for the trustee tax. If the beneficiary's marginal rate is below 30% , the credit simply reduces their liability to nil but cannot generate a refund.

The exclusion is for income from assets of discretionary testamentary trusts existing at announcement. The position of a testamentary trust deed established pre-announcement but with no assets transferred until later is not specifically addressed and will turn on whether the trust is treated as 'in existence' before 12 May 2026 for the purpose of the carve-out.

The combined effect of the 30% minimum trustee tax (from 1 July 2028) and loss of the 50% CGT discount (from 1 July 2027) may push some private property groups toward corporate or individual ownership. The three-year rollover relief from 1 July 2027 is intended to facilitate restructures. Whether to restructure depends on the group's profile and whether stamp duty relief will also be available.

The Government's policy intent is to direct the negative gearing and CGT benefits toward investment that increases supply (the new build exemption), with Treasury estimating the broader package places downward pressure on rents over time. Whether this materially improves affordability for first home buyers is yet to be seen.

The Budget papers do not specify a minimum employment income threshold for the $1,000 instant tax deduction. Eligibility is described as 'Australian tax residents who earn income from work’.

The Budget papers do not specifically address losses within tax consolidated groups. However, based on the previous loss carry back rules, it was not possible for tax losses within a consolidated group to be carried back and offset against taxable income of a company before it joined the consolidated group.

Thank you for attending. The negative gearing changes from the Hawke/Keating era operated differently and were reversed within two years. The 2026-27 measures differ in important ways: only established residential property is affected, new builds remain fully negatively geared, and properties held at 7:30PM AEST 12 May 2026 are grandfathered.

The Budget papers do not specifically address refinancing scenarios. Any draw down of further debt would no longer relate to the acquisition of the property. However, it may be deductible where it is used to finance a renovation or other upgrades to the property. I also note that, based on the announcement, negative gearing is preserved for properties held at 7:30PM AEST 12 May rather than the amount of debt as at that time.

The negative gearing changes apply ONLY to residential property. Commercial property, industrial property, and other asset classes such as shares and other investments will remain subject to the existing negative gearing arrangements. Losses from those assets continue to be deductible against other income in the usual way.

Yes, based on the announcement, a property owned (acquired) before 7:30PM AEST 12 May 2026 is grandfathered regardless of when it is first rented out. The exemption applies to properties 'held at announcement', so converting a pre-announcement owner-occupied property to a rental after Budget night will still permit negative gearing under the existing rules until the property is sold. It is not clear if this will be retained in the final legislation.

Where you hold two established residential properties, losses from one can be offset against rental income (and capital gains) from the other within the residential property 'bucket'. So if one property is negatively geared and the other is positively geared, the loss on the first can offset the income/gain on the second. Excess losses are carried forward to be offset against future residential property income/gains. The losses are not deductible against your other (non-residential-property) income.

Yes, based on the announcement, a property owned (acquired) before 7:30PM AEST 12 May 2026 is grandfathered regardless of when it is first rented out. The exemption applies to properties 'held at announcement', so converting a pre-announcement owner-occupied property to a rental after Budget night will still permit negative gearing under the existing rules until the property is sold. It is not clear if this will be retained in the final legislation.

A property acquired before 7:30PM AEST 12 May 2026 is grandfathered and remains eligible for negative gearing under the existing rules, regardless of when it is converted from PPR to investment, until disposed of. A PPR acquired after that date that is later converted to an IP would fall under the new rules (i.e. losses quarantined to residential property income/gains).

The Budget papers indicate quarantined residential property losses are carried forward to offset future residential rental income or capital gains. They do not explicitly state that unused losses are added to the cost base.

A simple knock-down/rebuild that replaces one dwelling with one dwelling does not qualify as a 'new build' as it does not increase housing supply. Negative gearing would not be available. If the rebuild produces a greater number of dwellings (e.g. a duplex or multi-unit replacing a single house) it would qualify as a new build and be eligible for negative gearing.

Quarantined residential property losses are carried forward to offset future residential rental income or capital gains. There is currently no proposal to add those losses to cost base.

The Budget cameo (Ben earning a 2.5% return equal to inflation) shows indexation can reduce a gain to nil ('no taxable capital gain'). The Budget papers do not explicitly state that indexation can create a capital loss. Under the historical 1985-1999 regime, indexation could not create a loss - it could only reduce a gain to nil. Final treatment will be confirmed in legislation.

Pre-CGT business assets held by individuals, trusts and partnerships will be subject to CGT on gains accruing from 1 July 2027.

Assets acquired before 20 September 1985 (pre-CGT assets) held by individuals, trusts and partnerships will be brought into the CGT net for gains accrued from 1 July 2027 onwards (on an indexation basis). Gains accrued before 1 July 2027 remain exempt. The asset's 1 July 2027 value (via valuation or ATO apportionment formula) becomes the cost base for calculating the post-1 July 2027 gain, which is then subject to indexation and the 30% minimum tax. Pre-CGT assets held in companies are unaffected as companies are not subject to the new CGT measures.

The four small business CGT concessions are unchanged in this Budget.

The four small business CGT concessions (15-year exemption, 50% active asset reduction, retirement exemption, rollover) are unchanged. The general 50% CGT discount is replaced with indexation/30% minimum tax for individuals, trusts and partnerships.

Structuring advice depends on the client's full circumstances and is beyond the scope of a Budget update. However, I note negative gearing by a company to acquire, for example, business assets is still permitted.

The Budget papers do not break down the income distribution of the impacted population in detail. Treasury modelling indicates the negative gearing changes affect a relatively small share of investors and the CGT changes are calibrated to ensure capital gains are taxed at no less than 30%, which targets higher-income taxpayers (those whose marginal rate would otherwise apply a lower effective CGT rate via the discount).

There is significant consultation occurring at the moment on various aspects of the changes. Happy to discuss.