The 2026-27 Federal Budget, Part 2: Trusts, Property and Why Structure Review Matters Before EOFY
- Zac Hayes
- May 14
- 13 min read
Updated: May 15
In Part 1 of this series, I explored the genuine growth opportunities the 2026 Budget introduced for small businesses, including AI grants, R&D reform, start-up cash refunds, VC incentives and several other opportunities worth paying attention to.
This article focuses on the more challenging side of the Budget announcements.
The Treasurer has announced what may become the most significant changes to property and trust taxation in Australia since the introduction of the GST in 1999. Three proposed reforms in particular are expected to reshape how many families, investors and business owners build and structure wealth moving forward.
The proposed reforms include:
• Negative gearing reform for established residential property from 1 July 2027
• Changes to the current 50% CGT discount from 1 July 2027, moving towards CPI cost base indexation combined with a proposed 30% minimum tax
• A proposed 30% minimum tax on discretionary trusts from 1 July 2028
In this article, I will walk through what these proposed changes may mean in practice, who may be impacted and, most importantly, why there is still time to plan strategically.
Some existing structures and strategies may continue to work well. Others may require adjustment under the proposed framework.
The key is understanding which approach may be most appropriate moving forward.
Negative Gearing: The Four Bucket Framework
Negative gearing for established residential property investments is expected to change under the proposed reforms.
The proposed framework is based on the purchase date of the property, with each category determining how the rules may apply.
Bucket 1: Properties held at 7:30pm AEST on 12 May 2026, being Budget night
This includes properties already owned, or properties under signed contract before this time.
These properties are expected to be fully grandfathered, meaning no changes to the current negative gearing rules are proposed. Full negative gearing treatment is expected to continue for the duration of ownership.
Bucket 2: Properties purchased between 12 May 2026 and 30 June 2027
This is considered the transitional period.
Properties acquired during this timeframe are expected to retain full negative gearing benefits until 30 June 2027. From 1 July 2027 onwards, rental losses may only be carried forward and applied against future rental income or capital gains from the property.
The announced rules are expected to apply to individuals, partnerships, companies and most trusts. Widely held trusts, such as most managed investment trusts, and superannuation funds, including SMSFs, are expected to be excluded. The final treatment should be checked once legislation and ATO guidance are released.
Bucket 3: Established residential property purchased from 1 July 2027 onwards
Under the proposed changes, rental losses from these properties may only be offset against other residential property income, not employment income.
Bucket 4: New build properties purchased from 1 July 2027 onwards
Full negative gearing treatment is currently expected to remain available for eligible new build properties.
This appears to be a deliberate policy measure aimed at encouraging investment into new housing supply.
Additional Points to Understand
• New build properties may include vacant land construction projects, off-the-plan purchases and knockdown rebuild developments that create additional dwellings.
• Subsequent investor purchases of a completed new build property may no longer qualify as a new build under the proposed framework.
• Widely held trusts and superannuation funds, including SMSFs, are currently expected to be excluded from these changes.
• Existing investors holding pre-Budget properties are expected to remain unaffected under the grandfathering provisions.
Real-Life Example: Why Timing May Matter
Tom earns a salary of $180,000 per year, while Jenny earns $110,000. On 8 May 2026, just four days before the Federal Budget announcement, they signed contracts on a $720,000 established two-bedroom investment unit in Logan.
Because they purchased the property before Budget night, their investment falls into what is expected to be Bucket 1 under the proposed rules. This means their property is likely to be fully grandfathered, allowing them to continue claiming the current full negative gearing benefits for as long as they own the property.
Their friends, Dave and Lisa, were planning to buy a very similar property in the same building during the same week. Dave earns approximately $95,000 per year, while Lisa earns around $165,000 per year and sits within a higher tax bracket.
However, Dave and Lisa waited until 15 May 2026 to submit their offer, after the Budget announcement had already taken place.
As a result, their property falls into Bucket 2, which is considered the transitional period under the proposed framework.
Under the current proposal, Dave and Lisa would still receive full negative gearing benefits until 30 June 2027. However, from FY28 onwards, any rental losses generated by the property may only be carried forward and used against future residential property income, rather than reducing Lisa’s salary income.
To simplify this further, imagine the property loses approximately $12,000 per year after interest, rates, insurance and expenses are taken into account.
Under the current system, Dave and Lisa may have previously been able to use that $12,000 loss to reduce Lisa’s taxable salary income immediately, potentially creating a meaningful tax refund because Lisa sits on a higher marginal tax rate.
Under the proposed rules from FY28 onwards, that same loss may no longer reduce Lisa’s salary tax. Instead, the loss may need to sit there and only be used against future rental income from investment properties.
In practical terms, this means the property may become more expensive to hold each year because the immediate tax benefit is reduced.
Even though both couples purchased almost identical properties in the same building, a difference of just four days may ultimately create a very different long-term tax outcome.
What This Means for Property Investors Moving Forward
I want to be transparent about my view on this.
A few months ago, I wrote an article discussing why investment strategies built entirely around a specific tax concession can become fragile when legislation changes. The core principle was simple: positive cash flow investing generally creates stronger long-term outcomes than relying heavily on tax losses to justify a purchase.
The proposed Budget changes appear to reinforce that position.
Established residential property purchased from 1 July 2027 onwards may increasingly need to stand on its own financial performance, rather than relying heavily on negative gearing benefits to justify the investment.
In simple terms, properties that generate enough rental income to largely cover their own repayments and holding costs may continue to perform well under the proposed framework. Properties relying heavily on ongoing tax losses to make the numbers work may become less attractive moving forward.
Importantly, eligible new build properties are still expected to retain full negative gearing treatment.
This appears to be a deliberate policy decision aimed at encouraging investment into new housing supply.
For investors willing to focus on new build opportunities, the overall tax structure may remain largely unchanged.
For many other investors, the focus may increasingly shift towards purchasing assets that generate sustainable income and long-term financial strength, while using the right ownership structure to support tax efficiency.
The broader message is simple: focus on investments that can support themselves financially, rather than relying solely on tax benefits to justify the purchase.
That approach was relevant before the Budget, and it remains relevant now.
Capital Gains Tax: Proposed Changes to the 50% CGT Discount
The second major proposed reform relates to capital gains tax for property and investment assets.
From 1 July 2027, the current 50% CGT discount is proposed to be replaced with a framework based on CPI cost base indexation combined with a proposed 30% minimum tax on real, inflation-adjusted capital gains.
Key Points Currently Proposed
• The changes are expected to apply to individuals, partnerships and trusts, while companies are currently expected to remain unaffected.
• The main residence exemption is expected to remain unchanged.
• Small business CGT concessions are also expected to remain available.
• Assets already held before 1 July 2027 may receive split treatment, with the portion of the gain relating to the pre-1 July 2027 period potentially assessed under the current 50% discount rules, and future growth assessed under the proposed indexed framework.
• Investors may potentially have access to either a formal valuation method or an ATO apportionment formula.
• Eligible new build properties may potentially allow investors to choose between the current 50% CGT discount or the proposed new framework.
• The proposed 30% minimum tax is expected to exclude Age Pension and JobSeeker recipients in years where a gain is realised.
The Government’s position is that investors should pay tax on their real capital gain after inflation, rather than on inflated nominal growth over time.
In simple terms, the proposed system attempts to tax the actual increase in value after inflation has been considered, rather than applying a flat 50% discount to the total gain.
Whether the proposed changes create a better or worse outcome will ultimately depend on factors such as inflation levels, holding periods and the investor’s personal tax position.
For many investors holding assets over a typical 5 to 10 year period, Treasury modelling suggests the proposed framework may be modestly less favourable than the current 50% discount system.
What May Still Work Well
Importantly, the current 50% CGT discount is expected to remain available until 30 June 2027.
This means assets sold before that date may still access the existing rules on the full capital gain.
For investors already considering the sale of a property or share portfolio within the next few years, FY27 may become a more favourable tax window compared to FY28 onwards.
This does not mean investors should rush to sell quality assets unnecessarily. In many cases, transaction costs, future growth potential and long-term investment objectives may outweigh any immediate tax benefit.
However, where a sale was already likely within the next few years, bringing that sale forward into FY27 may become a valuable strategic consideration.
Importantly, the main residence exemption, small business CGT concessions and the 12 month holding rules are all currently expected to remain in place under the proposed framework.
The Proposed 30% Minimum Tax on Discretionary Trusts
This is expected to be one of the most significant proposed changes for many family groups and business structures currently using discretionary trusts.
From 1 July 2028, discretionary trusts may become subject to a proposed minimum 30% tax on taxable trust income, paid at the trustee level. Where distributions are made to beneficiaries on higher marginal tax rates, additional tax may still apply, meaning the 30% rate effectively acts as a minimum floor rather than a final cap.
Under the proposed framework, beneficiaries may receive non-refundable credits for tax already paid by the trust.
Importantly, corporate beneficiaries are currently not expected to receive those credits. This is the proposed anti-bucket company measure, designed to limit the ability for discretionary trusts to distribute income to corporate beneficiaries while retaining the tax benefit at the company level.
What This May Mean for Income Streaming Strategies
Under the current rules, a typical family trust structure may operate like this:
A discretionary trust earns $400,000.
The trust distributes:
• $50,000 to one spouse
• $50,000 to the other spouse
• $50,000 to an adult child at university on a lower marginal tax rate
• $250,000 to an investment company beneficiary taxed at 30%
Under the current framework, the combined family group tax outcome may be significantly lower due to income splitting and the use of a bucket company structure.
Under the proposed FY29 framework, the same structure may operate very differently.
The trust may first pay the proposed 30% minimum tax at the trust level before distributions are made. Beneficiaries may then receive non-refundable credits attached to those distributions.
While spouses and adult children may still receive credits for tax already paid by the trust, the corporate beneficiary is currently not expected to receive equivalent credits under the proposed anti-bucket company rules.
In practice, this may materially reduce the effectiveness of traditional trust income streaming strategies.
For example, beneficiaries on lower marginal tax rates may no longer be able to claim back excess credits in the same way they currently benefit from refundable franking credits.
The result is that distributing trust income to lower income family members may no longer produce the same tax savings outcomes under the proposed framework, while the traditional bucket company strategy may also become significantly less effective.
What Is Not Changing
Before anyone panics, it is important to understand what these proposed changes are not expected to impact.
• Discretionary trusts are not being abolished and are still expected to continue operating as valid legal structures.
• Fixed trusts and widely held trusts are currently expected to remain excluded from the proposed changes.
• Superannuation funds, deceased estates, charitable trusts, special disability trusts and existing testamentary trusts are also expected to remain outside the proposed framework.
• Primary production income, income distributed to vulnerable minors and certain non-resident withholding amounts are currently expected to remain excluded.
• The asset protection benefits of trust structures are not expected to change. Trusts may still continue to provide protection between trading activities and long-term wealth ownership.
• The proposed changes are directed at trust taxation, not company tax rates. However, the tax outcome for a corporate beneficiary or bucket company should still be reviewed, because the applicable company tax rate and franking outcomes can depend on the company’s income profile and circumstances.
• Companies are still expected to remain highly effective structures for retaining profits and building franking credit balances.
There Is Still Time to Review Your Structure
This is one of the most important aspects of the announcement for many families and business owners.
The Government has proposed rollover relief from income tax and CGT for certain restructures out of discretionary trusts, available during a proposed three-year period from 1 July 2027 through to 30 June 2030.
In practical terms, this may allow families and business owners to move assets out of discretionary trust structures and into alternative ownership vehicles, such as companies, fixed unit trusts or personal ownership structures, without triggering the CGT and stamp duty consequences that would normally apply.
This is expected to become a significant planning opportunity for families holding investment properties, businesses or substantial investment portfolios within discretionary trusts.
Importantly, the proposed rollover relief period is limited, meaning planning and modelling may need to begin well before the closing date.
The Australian Small Business and Family Enterprise Ombudsman is also expected to provide support around small business restructure decisions from 1 January 2027, providing additional guidance for business owners navigating these proposed reforms.
Before EOFY, Structure Review Becomes the Priority
For families, investors and business owners operating through discretionary trusts, companies, bucket company arrangements or layered entity structures, the key question is no longer simply whether the proposed changes will pass.
The more important question is whether your current structure is still suitable if they do.
The Business and Wealth Collective’s Post-Budget Trust and Company Structure Strategy Session has been designed to help you review your current position, understand where the proposed reforms may create pressure, and identify what may need attention before EOFY.
What This Means for Investors, Families and Business Owners
Stepping back from the detail, several broader themes are becoming clearer.
For Property Investors
• Existing properties are expected to remain grandfathered under the current rules.
• Eligible new build properties are still expected to retain full negative gearing treatment.
• Positive cash flow investment strategies may become increasingly important regardless of future tax settings.
• FY27 may become a more favourable tax timing window for investors already considering the sale of assets with significant unrealised gains.
For Families Currently Using Discretionary Trust Structures
• Traditional discretionary trust income streaming strategies may become less effective under the proposed FY29 framework.
• Asset protection benefits are expected to remain unchanged.
• Companies and fixed structures may become increasingly important as part of future wealth planning strategies.
• Importantly, there is still time to plan, with the proposed trust changes not expected to commence until 1 July 2028, and the proposed rollover relief period extending until 30 June 2030.
For Business Owners
• Trading entities operating through Pty Ltd company structures are not currently expected to be directly impacted.
• Companies are still expected to remain strong operational and profit retention vehicles.
• The way trust income flows to corporate beneficiaries may require significant restructuring under the proposed framework.
• Small business CGT concessions on business sale or exit are currently expected to remain available.
The Broader Strategy Principles Remain Largely Unchanged
The underlying reasons families and business owners use structures have not disappeared.
• Asset protection still matters.
• Moderate income splitting opportunities may still exist.
• Companies may continue to provide effective profit retention opportunities at the corporate tax rate.
• For many higher income earners, retaining profits within company structures may still produce more favourable outcomes than personal marginal tax rates.
What is changing is the pathway income takes between the operating business and the long-term wealth structure.
The discretionary trust may become less effective as a flexible income streaming vehicle, while companies, fixed structures and direct ownership arrangements may become relatively more important moving forward.
However, the broader long-term wealth strategy remains familiar: earning through the appropriate structure, retaining profits tax effectively, compounding wealth over time and ultimately drawing income in retirement at lower marginal tax rates.
The components may evolve, but the underlying strategy itself remains largely intact.
What Should You Review Before EOFY?
Importantly, there is still time to plan strategically.
This is not a fire sale situation. However, planning should begin early, particularly because the proposed rollover relief period is generous but limited, and the most effective structure moving forward will depend heavily on individual circumstances.
For many investors, families and business owners, the immediate priority is not to make rushed decisions. It is to understand whether the structure they are currently operating through is still appropriate under the proposed framework.
That may include reviewing:
• Whether your discretionary trust is still the right vehicle for income distribution
• How your bucket company or corporate beneficiary arrangements may be impacted
• Whether your trading company, family trust and investment entities are still working together efficiently
• Whether share class structures may become relevant for future income flow planning
• Whether assets held inside trusts may need to be reviewed before the proposed rollover relief window opens
• Whether FY26, FY27 and FY28 create important timing considerations for tax, CGT or restructure planning
The key is to review your position before decisions become urgent.
If you operate through a family trust, receive trust distributions, use a bucket company, hold investment assets through a trust, or are unsure whether your current structure is still the right fit, this is the right time to seek structured advice.
The Business and Wealth Collective’s Post-Budget Trust and Company Structure Strategy Session is designed to help business owners, investors and family groups understand what the proposed changes may mean for their current structure, what may need attention before EOFY, and whether a deeper restructure blueprint may be required.
Book your Post-Budget Trust and Company Structure Strategy Session before EOFY.
What’s Next in the Series
Part 3 of this series will focus on practical next steps for different client types, including business owners, property investors and families currently operating through discretionary trust structures.
It will cover the key decisions, planning timeframes and strategic considerations expected across FY26 through to FY30.
For readers who have not yet reviewed Part 1 of the series, that article explores the growth opportunities introduced through the 2026 Budget, including AI grants, R&D reform, start-up cash refundability, VC incentives and other measures expected to impact small businesses.
Review Your Structure Before the Rules Change
The proposed reforms are not yet law, and details may change.
However, the direction is clear enough for many families, investors and business owners to begin reviewing their current arrangements now.
If your business, investment assets or family wealth strategy currently involves a discretionary trust, bucket company, company structure or property investment strategy, now is the time to understand where you stand.
Book a Post-Budget Trust and Company Structure Strategy Session with The Business and Wealth Collective.
General Information Disclaimer
This article provides general information only and does not take into account your personal circumstances, objectives, financial situation, tax position or legal structure. It is not personal tax, financial, legal or investment advice.
The Federal Budget measures discussed in this article were announced on 12 May 2026 and many require legislation, regulations, ATO guidance or further program detail before they take effect. The final rules, eligibility criteria, thresholds, timing and practical outcomes may change.
Before making decisions about tax, superannuation, property, trusts, business structures, investments, asset sales or contributions, you should obtain advice based on your specific circumstances.
The Business & Wealth Collective can help you review your position and identify which areas may require further advice before EOFY.
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