Labor's 2026 Budget: CGT and Negative Gearing Changes — What They Mean for Investors
The May 12 federal budget announced the most significant tax reform in over 25 years — replacing the 50% CGT discount with cost base indexation from 1 July 2027, and limiting negative gearing on established residential property from 1 July 2027. Here's the full breakdown for share investors and those saving for a deposit.
⚠ Budget proposals — not yet law. The CGT, negative gearing, and trust changes described on this page were announced in the May 2026 Federal Budget. As of August 2026, none of these measures has been legislated — they remain exposure draft proposals subject to parliamentary passage. Details may have changed, been amended, or been dropped since this article was written. Verify the current legislative status at budget.gov.au before acting.
This is general information and an opinion piece, not tax or financial advice. Consult a registered tax agent for advice specific to your situation.
Key takeaways
- ·The 50% CGT discount is removed from 1 July 2027 and replaced with cost base indexation — you only pay tax on real gains above inflation, but a 30% minimum tax applies.
- ·Assets held before 1 July 2027 retain the 50% discount for gains accrued to that date — record your portfolio value on or before 30 June 2027.
- ·Low-income earners with a marginal rate below 30% will pay more CGT under the new system, not less.
- ·Negative gearing on established residential property is restricted for new purchases from 1 July 2027 — existing properties and new builds are fully grandfathered.
- ·Discretionary trusts face three separate blows: CGT discount removed (2027), 30% minimum income tax at trustee level (2028), and the bucket company strategy explicitly eliminated.
- ·Rollover relief is available from 1 July 2027 for three years to restructure out of discretionary trusts without tax consequences.
At a glance: what changed and what didn't
| Feature | Before 12 May 2026 | From 1 July 2027 |
|---|---|---|
| CGT discount (individuals) | 50% for assets held 12+ months | Replaced by cost base indexation |
| Minimum CGT rate | None — marginal rate applies | 30% floor on net capital gains |
| Negative gearing (established property) | Losses deductible against all income incl. wages | Losses only deductible against rental income (for NEW purchases) |
| Negative gearing on new builds | Full deductibility | Unchanged — fully retained |
| Main residence CGT exemption | Exempt | No change — still exempt |
| Super fund CGT discount | 1/3 discount | No change — 1/3 discount retained |
| Small business CGT concessions | Existing rules (15-yr exemption, active asset reduction, retirement exemption, rollover) | No changes announced — these sale-event concessions are retained |
| Business structures — trusts & bucket companies | ||
| Discretionary trust — income distributions (current) | Trust pays NO entity-level tax — it is a pass-through. Income taxed once at the beneficiary level: individuals at their marginal rate (up to 47%), or bucket company at 25–30% | NEW from 1 July 2028: 30% minimum tax paid by the trustee on all trust taxable income. Non-corporate beneficiaries receive a non-refundable credit for the trustee tax, reducing their own tax payable to their marginal rate. Income splitting to low-rate beneficiaries effectively floored at 30%. |
| Discretionary trust — CGT discount (beneficiaries) | 50% CGT discount flows through to individual beneficiaries on assets held 12+ months (same as personal holdings). Trust pays no CGT itself. | Replaced by cost base indexation + 30% minimum CGT tax from 1 July 2027, same timeline as individuals. Note: this is a separate CGT measure — different from the 30% income minimum tax above, which takes effect 1 July 2028. |
| Discretionary trust — restructure rollover | No specific CGT or income tax relief for restructuring assets out of a discretionary trust into another entity | 3-year rollover relief available from 1 July 2027. Assets can be transferred out of discretionary trusts into companies, fixed trusts, or other structures with no income tax or CGT consequences. ASIC to provide streamlined incorporation support for small businesses. |
| Bucket company (corporate beneficiary) — income | Trust distributes income to bucket company → taxed at 25% (base rate entity, turnover under $50m) or 30%. Profits retained until paid as a franked dividend. One layer of tax. | Effectively eliminated from 1 July 2028. Trust pays 30% at trustee level AND bucket company pays its own company tax — with NO credit for the trustee tax already paid. Treasury explicitly designed this to prevent the minimum tax being avoided by 'cycling income through a bucket company'. |
| Bucket company — capital gains | Companies never received the CGT discount — trust capital gains distributed to a company are taxed at the full company rate (25–30%) with no 50% discount | No change — companies remain ineligible for the CGT discount. The budget's indexation reform does not alter this. |
Two separate "30%" measures — different taxes, different dates. This budget contains two distinct 30% rates that are easy to conflate:
1. CGT minimum rate (from 1 July 2027): Applies to capital gains when individuals and trust beneficiaries sell assets. Replaces the 50% CGT discount.
2. Trust income minimum tax (from 1 July 2028): A new 30% tax paid by the trustee on all ordinary trust income — business profits, rent, dividends. Non-corporate beneficiaries get a non-refundable credit; bucket companies get no credit at all.
Currently (before 1 July 2028) trusts are still pass-through for income — no entity-level income tax. The 1 July 2028 measure is the one that fundamentally changes the trust income model.
The CGT changes: cost base indexation explained
From 1 July 2027, the 50% CGT discount — in place since September 1999 — will be replaced with cost base indexation for individuals, trusts, and partnerships. This applies to all CGT assets: shares, investment properties, and others. It is not limited to residential property.
Under indexation, your original purchase price is adjusted upward by CPI inflation. You only pay tax on the real gain above inflation — not the nominal gain. A 30% minimum tax then applies as a floor on the taxable gain. If your marginal rate is higher than 30%, you still pay at the higher rate.
Australia actually had cost base indexation from 1985 to 1999, before it was replaced by the 50% discount. The government is returning to that earlier framework.
Old system (until 30 June 2027)
50% CGT Discount
Half the capital gain is excluded from taxable income. No inflation adjustment — you're taxed on the full nominal gain, then halved.
Buy shares: $10,000
Sell shares: $30,000
Gain: $20,000
After 50% discount: $10,000 taxable
Tax at 37%: $3,700
New system (from 1 July 2027)
Cost Base Indexation + 30% Min Tax
Cost base adjusted for CPI inflation. Only the real gain above inflation is taxed. 30% minimum tax applies to that real gain.
Buy shares: $10,000
CPI-adjusted cost base: $14,000
Sell shares: $30,000
Real gain: $16,000 taxable
Tax at 37% (floor 30%): $5,920
For growth shares, the new system is generally worse. Government modelling has indicated that roughly 73% of recent Australian capital gain events would have faced higher tax under indexation than under the 50% discount (this figure was cited in government and media commentary at the time of the Budget — the underlying Treasury analysis has not been publicly released in full). Indexation is only advantageous in periods where inflation is high relative to asset growth — not the typical profile of US tech stocks or ASX growth companies.
Who's better and worse off under the new system
High-growth share investors (ASX/US stocks)
Worse off — real returns typically far exceed inflation, so the taxable gain is larger than under the 50% discount
Low-income earners (taxable income under $45,000)
Potentially worse off — the 30% minimum tax exceeds their marginal rate, so they pay more tax on capital gains than they would at their ordinary rate
Long-term holders in high-inflation environments
Better off — if inflation has significantly eroded your real return, indexation gives more relief than the 50% discount
Superannuation fund members
Unchanged — the 1/3 CGT discount inside super is retained. Superannuation remains the most tax-effective long-term investment structure
Age Pension and income support recipients
Proposed to be exempt from the 30% minimum tax floor — existing CGT rules would continue to apply on their gains (this exemption was announced but details are subject to legislation)
New build property investors
Proposed to be able to choose between the 50% discount or indexation at time of sale — this choice provision was announced in government statements but has not been confirmed in legislation
The transitional rules: what happens to shares you already own
This is the part that matters most for current investors. Assets already held are not retrospectively taxed under the new rules. The government has built in a transitional mechanism:
Gains before 1 July 2027: 50% discount applies
Any gain accrued on your existing shares up to 1 July 2027 retains the 50% CGT discount. This is worked out by valuing your asset at 1 July 2027 — for ASX shares, the quoted market price on that date is used. For US shares through Hello Stake, the USD price converted to AUD at the RBA rate on 1 July 2027.
Gains after 1 July 2027: indexation applies
Any further gains on those same shares after 1 July 2027 are subject to the new indexation regime and 30% minimum tax. Effectively, 1 July 2027 becomes a 'cost reset' date — your transition value on that day becomes the starting point for the new rules.
Assets sold before 1 July 2027: fully under old rules
If you sell your shares before 30 June 2027 and you've held them over 12 months, the full 50% CGT discount applies to the entire gain. This is the only way to have the old rules apply to your total gain without any split.
Worked example: transitional rules in practice
Bought 100 shares on 1 July 2025: $4,000 cost base
Value at 1 July 2027: $14,000
Sold 30 June 2028: $35,000 proceeds
Split at 1 July 2027:
Pre-July 2027 gain: $14,000 − $4,000 = $10,000 → after 50% discount: $5,000 taxable
Post-July 2027 gain: $35,000 − $14,000 = $21,000
CPI indexation on $14,000 ≈ $1,000 → real gain: $20,000
Subject to 30% minimum tax: $20,000 taxable at min 30%
Total taxable: $5,000 + $20,000 = $25,000
vs. $17,500 taxable under the old 50% discount on the full gain of $35,000
Simplified example. Exchange rates, inflation, and individual tax circumstances not fully modelled. Source: methodology based on Pitcher Partners analysis.
Action item: record your share prices on 1 July 2027. For ASX shares, the quoted market price on that date is your transition value. For US shares on Hello Stake, save the USD price and the RBA AUD/USD rate on that day. The ATO has said it will provide tools to help — but keeping your own records is essential.
Property investors — the negative gearing changes
From 1 July 2027, net rental losses on established residential properties acquired after budget night can only be offset against rental income or capital gains from residential property — not your salary or other income. Unused losses are not lost; they carry forward to future years.
Grandfathering: Properties held before 7:30pm AEST 12 May 2026 are fully unaffected — you can continue negative gearing as before indefinitely. Established properties bought after budget night but before 1 July 2027 can still be negatively geared until 30 June 2027; the restrictions then apply from 1 July 2027.
Commercial property (e.g., offices, warehouses, retail, industrial) and other asset classes like shares are explicitly excluded from the negative gearing changes and remain under the existing rules. Not yet law — legislation is pending.
Unaffected — existing rules continue
- Shares and share portfolios
- Commercial property
- New residential builds (any date) — fully negatively gearable
- Established property held BEFORE 7:30pm 12 May 2026 — fully grandfathered
- Contracts signed before budget night (even if unsettled)
- Some government/affordable housing programs
- Widely held trusts and super funds
Affected from 1 July 2027 — negative gearing restricted
- Established residential property purchased AFTER 7:30pm 12 May 2026
- Losses can only offset rental income or property capital gains — not wages
- Unused losses carry forward to future years (not lost)
- Applies to individuals, trusts, and partnerships
Key dates every investor needs to know
12 May 2026
Budget night
Budget announced at 7:30pm AEST — sets the grandfathering cut-off date for negative gearing. Properties held before this time are fully grandfathered. Restrictions on new established property purchases don't actually take effect until 1 July 2027. CGT changes also announced but not yet effective.
30 June 2027
Last day for 50% CGT discount (full gain)
If you sell a CGT asset before this date and have held it for 12+ months, the full 50% CGT discount applies to your entire gain. This is the last opportunity to have the old rules apply without any split-treatment.
1 July 2027
New CGT regime begins + transition valuation date
Indexation and 30% minimum tax apply to gains from this date. For assets already held, this date sets your transition value — the starting point for the new rules. Record your share prices on this day.
TBA — ATO guidance
ATO releases transition valuation tools
The ATO has committed to providing tools to help investors determine their transition value for assets held as at 1 July 2027. Monitor ato.gov.au for the release of these tools.
TBA — legislation
Parliamentary passage of CGT reform bill
The CGT changes require legislation. Until the bill passes, they are proposals — details may change. Monitor budget.gov.au and your tax adviser for updates.
The "47% silent partner" trend — what small business owners are actually reacting to
This is a widespread political criticism and meme — not an official policy or program. The concept: critics argue the government acts like an uninvited equity partner that takes a large share of business value and profit at every stage, without contributing capital, bearing risk, or doing operational work. The 2026 budget's CGT changes intensified the narrative, particularly among founders and small business owners who face a higher effective tax on exit.
The "silent partner" argument: the full government tax stack on a business
GST on sales (collected and remitted): 10%
Company tax on profits (small biz rate): 25%
PAYG withholding + payroll tax on wages: varies
Personal income tax on distributions/dividends: up to 47%
Other levies (stamp duty, fuel excise, etc.): varies
CGT on business sale (from 1 July 2027): 30% min → up to 47%
The 47% figure specifically refers to the top marginal income tax rate (45% + 2% Medicare levy) — the rate a high-income owner pays on distributions above $180,000. It's not a new budget measure, but the budget discussion prompted business owners to add up all the layers across a business lifetime.
One detailed analysis of a hypothetical manufacturing business growing to $30m revenue over 20 years and employing 50 people estimated the government captures approximately 63–64% of lifetime value created — including ~$20.5m CGT on the sale — leaving the founder with the remainder after bearing all risk, capital, and effort.
Why this primarily affects trust-structured businesses
A large share of Australian small businesses operate through a discretionary trust. Currently, a trust doesn't pay entity-level income tax — it distributes profits to beneficiaries, who each pay at their own marginal rate. This was attractive because it allowed income to be split among family members: a stay-at-home spouse, adult children, and so on — each taxed at their lower rate. From 1 July 2028 this changes fundamentally — a 30% minimum tax will be applied at the trustee level on all trust income, wiping out the income-splitting advantage.
Even before the new minimum tax, the ATO had progressively tightened anti-avoidance rules through Section 100A. Distributions to beneficiaries without a genuine entitlement — adult children who don't work in the business, a spouse with no real connection — can be unwound, with the trustee taxed at 47%. Many business owners discovered the income-splitting they thought was working was already under scrutiny.
Strip away income-splitting, and a trust with one high-income owner faces the full 47% marginal rate on every dollar above $180k. From 1 July 2028 the picture changes again: the trust pays 30% at the trustee level regardless — but the high-income owner still pays their full marginal rate (47%) after applying the non-refundable credit. The floor goes up; the ceiling for high earners doesn't come down.
Business in a company
Tax on profits: 25% (small business rate, turnover under $50m)
Dividends to shareholders carry franking credits at 25%
No individual CGT discount — company doesn't get 50% discount on asset sales
Less flexibility in timing distributions to shareholders
Business in a discretionary trust
Currently: flexibility to distribute to any beneficiary at their rate
CGT discount flows to beneficiaries (until 1 July 2027, then indexation)
Section 100A scrutiny limits genuine income splitting now
From 1 July 2028: 30% minimum tax at trustee level — income splitting advantage eliminated
Bucket company strategy explicitly targeted — corporate beneficiaries receive no credit for trustee tax
Note on our summary table: The row "Small business CGT concessions — No changes announced" refers specifically to CGT relief available when selling a business — the 15-year exemption, 50% active asset reduction, retirement exemption, and small business rollover. These are genuine and valuable concessions for exit events. They don't address the income tax rate on the business's annual profits, which is where the 47% frustration lives.
Three separate budget blows to trust-structured businesses
1. CGT discount removed for trust beneficiaries (from 1 July 2027). The 50% CGT discount that flowed through to individual beneficiaries is replaced by cost base indexation. If a trust holds business assets — property, goodwill, shares — capital gains distributed to beneficiaries will be subject to the new indexation regime and 30% minimum CGT rate.
2. 30% minimum income tax at trustee level (from 1 July 2028). The most structurally significant change. The trustee will pay 30% on all trust taxable income regardless of how it is distributed. Non-corporate beneficiaries get a non-refundable credit; they still pay their full marginal rate (e.g. 47%) but the trust has already paid 30% of that. Income splitting to low-rate beneficiaries is floored at 30% — the core advantage of the structure is gone.
3. Bucket company strategy explicitly eliminated. Treasury's own explainer names the bucket company directly: corporate beneficiaries receive no credit for the trustee's 30% tax, specifically to prevent the minimum tax being avoided "by cycling income through a bucket company." A trust distributing to a bucket company after 1 July 2028 faces the 30% trustee tax plus the company's own tax — with no offset between the two.
The counter-measure: rollover relief from 1 July 2027 (3 years) allows assets to be transferred out of discretionary trusts into companies or fixed trusts with no income tax or CGT consequences. The Australian Small Business and Family Enterprise Ombudsman will assist small businesses with understanding options from 1 January 2027.
This is genuinely complex: Whether to restructure, when, and into what entity depends on your income level, your beneficiary profile, your exit intentions, and the interaction between the 2027 CGT changes and the 2028 income tax changes. A business-focused accountant or registered tax agent is the right person to model this — and the rollover relief window means there is time to plan properly, but not indefinitely.
What the budget did do for small business
Not everything in the 2026 budget went against small business. Three positive measures were included:
Permanent $20,000 instant asset write-off
For businesses with turnover under $10m. Previously subject to annual renewals, this is now a permanent feature — allowing immediate deduction of eligible asset purchases up to $20,000 rather than depreciating over time.
Permanent 2-year loss carry-back for companies
Available to companies with up to $1 billion turnover. Allows companies to offset a current-year loss against taxable profit from the previous two years, generating a tax refund. Previously temporary; now a permanent planning tool.
Small business CGT concessions — retained in full
The 15-year exemption, 50% active asset reduction, retirement exemption, and small business rollover are all unchanged. These apply when selling a business and can significantly reduce or eliminate CGT on exit for qualifying small businesses.
The startup and tech sector backlash
The CGT changes have generated particular pushback from the startup and technology sector. Founders warn that removing the 50% CGT discount — combined with the trust minimum tax — could accelerate a trend of talent, investment, and businesses relocating to lower-tax jurisdictions. Singapore is frequently cited: it has zero CGT, a competitive corporate tax rate of 17%, and an active startup ecosystem.
The government indicated awareness of this concern at budget time, with Treasury noting possible tweaks to the CGT changes specifically for startups and venture capital. Any startup/VC carve-out had not been finalised as of the May 2026 Budget — whether such carve-outs have since been confirmed, amended, or dropped should be verified at budget.gov.au. Not yet law — all measures remain subject to legislation.
What this means if you're building shares while saving for a deposit
If you're in my position — building a share portfolio through Hello Stake while also saving towards a first home — these changes have a specific set of implications that are actually more nuanced than the headlines suggest.
Your existing share gains are grandfathered to 1 July 2027
Any unrealised gains on shares you already hold are protected by the transitional rules. The 50% discount applies to gains accrued up to 1 July 2027. You're not being asked to pay more tax on growth that happened under the old rules — only on growth after the transition date.
Consider whether to realise large gains before 30 June 2027
If you have shares with substantial unrealised gains that you were planning to sell anyway — for a house deposit, for example — selling before 30 June 2027 means the entire gain is taxed under the old 50% discount. This is a genuine and legitimate planning consideration, not panic selling. Run the numbers with a tax agent.
New share purchases after 1 July 2027: keep meticulous records
For shares bought after 1 July 2027, your cost base tracking needs to include the CPI-indexed value at the time of each purchase. The ATO will provide guidance, but Hello Stake's annual tax report will be a critical starting point. Save every transaction statement.
Using shares as home loan security: unaffected by these changes
The ability to pledge a share portfolio as additional security for a home loan is not a CGT or negative gearing issue — it's a lending policy matter unaffected by these budget proposals. Some lenders accept listed shares as collateral; LVR policies vary by lender and are subject to change — verify with individual lenders before relying on this for loan planning.
Investment bonds: significantly more compelling after this budget
Before this budget, investment bonds (offered by companies like Generation Life) were already a useful structure: earnings taxed at 30% internally, and after 10 years, withdrawals completely tax-free. They were attractive for high-rate taxpayers (37%+) who had maxed their super contributions.
If these proposals are legislated as announced, investment bonds could become more compelling for a broader group. The reasoning: from 1 July 2027 (if enacted), the proposed minimum CGT rate for individuals would be 30% — the same rate investment bonds already pay internally — while the bond's exit after 10 years would remain tax-free. Whether this makes investment bonds "superior" depends on your personal tax situation, the specific bond's investment options and fees, and whether the legislation passes in its proposed form. This is an analytical observation about the potential tax interaction, not a product recommendation.
Note: This comparison is illustrative. Investment bond tax treatment is complex and fee structures vary by provider. Consult a tax adviser before making decisions based on this analysis.
Investment bond key rules (unchanged by 2026 budget)
One limitation: you can't hold individual stocks (like your Stake US shares) inside an investment bond — you invest into managed fund options within the bond structure. But for the portion of your wealth going into diversified index funds, the tax treatment after 10 years is now harder to beat than ever.
My take: keep building, adjust the structure
The worst thing you can do after a budget like this is make panicked decisions. Selling everything before 30 June 2027 might make sense for some people with very large accrued gains — but for most people still in the accumulation phase, it makes little sense. You'd be paying tax now to avoid paying tax later on growth that hasn't happened yet.
The honest framing: the new system is less generous, but long-term investing is still the right strategy. You'll pay more tax on future gains than you would have under the old rules — particularly on high-growth assets like US and ASX growth stocks. But you'll still compound over decades and come out well ahead of not investing at all. The math changes; the direction of travel doesn't.
What I am actually doing differently:
- Modelling whether to crystallise any large accrued gains before 30 June 2027 — this is worth a conversation with a tax agent for anyone with meaningful unrealised gains
- Taking investment bonds more seriously — the sooner you start one, the sooner the 10-year clock runs and the earlier you reach the tax-free withdrawal point. The bond's tax treatment (30% internal, tax-free after 10 years) isn't changing under the 2026 reforms — but outside-of-bond CGT rates are rising, which makes the bond's tax-free exit comparatively more attractive
- Continuing regular contributions into Stake for long-term US stock exposure — low brokerage, compounding returns, shares still excluded from the NG changes
- Making sure I'll have my share portfolio values recorded on 1 July 2027 for transition valuation purposes
- Not touching super strategy — the 1/3 discount inside super is unchanged, making it still the most tax-effective long-term structure
The post-election picture matters too. These reforms require legislation — they aren't law yet. A future government could modify or repeal them. But planning as if they'll pass is prudent. The announced effective dates give investors over a year to adjust, which is more runway than most major tax reforms provide.
Building a low-cost share portfolio?
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