The 2026 Budget: Negative Gearing Changes 2026 Australia and Discretionary Trust Tax Property Rules Explained
- Lenny Briffa
- May 12
- 6 min read
Updated: Jul 21
Navigating the new tax rules around Negative Gearing, CGT, and Trusts.
This guide breaks down the 2026 Budget's negative gearing and capital gains tax changes, plus the new discretionary trust rules, into what they actually mean for property investors.
1. Negative Gearing: The "New Build" Pivot
The Change: From 1 July 2027, the ability to negatively gear a residential investment property will be restricted exclusively to new builds. You will no longer be able to offset rental losses from an established property against your personal PAYG salary.
The Grandfather Clause: If you held an investment property prior to 7:30 PM (AEST) on 12 May 2026, it is fully exempt. You can continue to negatively gear that specific property for as long as you own it.
How it works in practice
Let's say you earn $120,000 and buy an established apartment in August 2027. The property runs at a $15,000 loss for the year after paying mortgage interest, rates, and strata.
Under the old rules: You would deduct that $15,000 from your salary, generating a substantial tax refund at the end of the year to help cover holding costs.
Under the new rules: That $15,000 loss is "trapped." You cannot deduct it from your $120,000 salary. You will pay tax on your full income, and the loss can only be carried forward to offset future profits from that specific property. However, if you had purchased a brand-new off-the-plan property instead, the old rules would still apply.
What Counts as a Residential Property Under the New Rules?
The negative gearing changes apply specifically to residential property - established houses, units and townhouses bought for rental income. It's worth being precise about what falls inside and outside this definition, since it changes your strategy:
- Established residential property bought after 12 May 2026: loses access to negative gearing (unless grandfathered)
- New build residential property(off-the-plan, house and land, newly constructed): retains full negative gearing eligibility, regardless of purchase date
- Commercial property: not affected by these changes - negative gearing rules for commercial premises remain unchanged
If your portfolio mixes residential and commercial holdings, it's worth reviewing each property against this distinction individually rather than assuming the Budget changes apply portfolio-wide.
2. Capital Gains Tax (CGT): The Split Calculation
The Change: The traditional 50% CGT discount is being abolished for capital gains arising on or after 1 July 2027. After this date the ATO will instead adjust your purchase price for inflation (the "real gain") and apply a minimum 30% tax rate to that profit.
The Transition: Existing properties are not fully grandfathered upon sale. Instead, when you sell, the ATO will split the gain. The growth achieved before 1 July 2027 gets the old 50% discount. The growth achieved after that date gets hit with the new indexation and 30% minimum tax.
Pre-September 1985 Properties: If you own a property purchased before 20 September 1985, any capital increase in the property value will be CGT free, however growth achieved after that date gets hit with the new indexation and 30% minimum tax.
How it works in practice
You bought a house in July 2023. You decide to sell it in June 2028, making a total profit of $500,000.
When calculating your tax, the ATO will assess the property's value as of 30 June 2027. Let's say $400,000 of your profit occurred before July 2027, and $100,000 of the profit occurred after.
You will apply the generous 50% discount to the first $400,000. But for the final $100,000 generated under the new rules, you will face the stricter inflation-adjusted 30% minimum tax. The longer you hold the property past 2027, the heavier the blended tax burden becomes.
3. Discretionary Trusts: The 30% Tax Floor
The Change: Starting 1 July 2028, the government is placing a minimum 30 per cent (30%) tax rate on distributions from Discretionary (Family) Trusts. This is designed to stop "income splitting"—the practice of distributing property profits to family members in lower tax brackets.
How it works in practice
Your trust holds a debt-free property generating $40,000 in pure rental profit this year. You distribute this entirely to your 18-year-old child who is studying and has no other income.
Under the old rules: Because your child's income sits mostly in the tax-free threshold and lowest brackets, they pay virtually zero tax. The family keeps the cash.
Under the new rules: Even though the child earns no other money, the ATO applies the mandatory 30% floor. That $40,000 distribution is instantly hit with a $12,000 tax bill.
Discretionary Trusts vs Unit Trusts and Fixed Trusts
The new 30 per cent minimum tax floor applies specifically to Discretionary (Family) Trusts - it's worth understanding how this compares to other trust structures property investors sometimes use.
Discretionary Trusts
The trustee has full flexibility to distribute income to beneficiaries each year, which is exactly what made income-splitting possible - and exactly what the new 30% floor is designed to close.
Unit Trusts
Income is distributed according to fixed unit holdings (similar to shares), rather than trustee discretion. Because distributions aren't discretionary in the same way, unit trusts sit outside the specific "income splitting" behaviour the 2026 changes target - though they come with their own tax and structuring considerations.
Fixed Trusts
Beneficiaries have a fixed, predetermined entitlement to trust income and capital, set out in the trust deed, rather than year-to-year trustee discretion.
Why your trust deed matters
Whichever structure you're using, the trust deed is the legal document that determines how distributions can be made and to whom. If you're considering restructuring away from a discretionary trust in response to the 30% floor, your trust deed - and the tax and legal implications of changing structures - should be reviewed with your accountant before making any changes.
Don't Forget Land Tax
The changes covered in this guide are federal tax changes. Separately, most Australian states and territories also charge an annual land tax based on the value of taxable land you own, calculated differently to these federal rules.
If you're weighing up buying an established property versus a new build in response to the negative gearing changes, it's worth factoring in land tax on the total land held across your portfolio as part of that decision - not just the federal tax treatment. Land tax thresholds and rates vary by state, so this is worth confirming with your accountant or state revenue office for your specific holdings.
The Playbook: Should you Buy, Hold, or Sell?
If you are Buying
If you intend to rely heavily on negative gearing to manage cash flow for future property purchase, your could consider pivoting toward "New Builds" (off-the-plan, house and land, new houses).
If you are Holding
Do not panic. If you secured your property before Budget Night, your existing negative gearing deductions are safely grandfathered. However, you need to monitor your capital growth closely. Any equity gained after 1 July 2027 will be taxed at a significantly higher rate when you eventually sell.
If you are Selling
Timing is now critical. If you were already planning to offload an investment property in the near future, executing the sale and settling prior to 1 July 2027 ensures that 100% of your capital gain is treated under the favourable 50% discount rules.
Whether you're buying, holding or selling, these changes don't remove property from the table as a path to long-term wealth and home ownership - they just mean the strategy needs to be more deliberate than before.
Frequently Asked Questions
What are the negative gearing changes in Australia's 2026 Budget?
From 1 July 2027, negative gearing on residential property will be restricted to new builds. Established properties purchased after 12 May 2026 will no longer allow rental losses to be offset against personal income, unless the property was held before that date, in which case it is grandfathered.
What are the CGT discount changes for property investors?
The traditional 50% CGT discount is being abolished for capital gains arising on or after 1 July 2027. After this date, gains are instead adjusted for inflation and taxed at a minimum 30 per cent rate. For properties held across the transition, the gain is split, with pre-2027 growth taxed under the old 50% discount and post-2027 growth taxed under the new rules.
How does the new discretionary trust tax on property work?
From 1 July 2028, a minimum 30 per cent tax rate applies to distributions from discretionary (family) trusts, including those holding property. This closes the income-splitting strategy of distributing profits to family members in lower tax brackets.
Does land tax change under the 2026 Federal Budget?
No. Land tax is a separate, state-based tax on the value of taxable land owned, and is unaffected by the 2026 Federal Budget's negative gearing, CGT and trust changes. Investors should still factor land tax into their overall portfolio costs alongside these federal changes.
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