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Australian Federal Budget 2026: the key points

Wed, 13 May 2026 12:48:48 +0800

No doubt the jungle drums are beating hard after last nights Australian Federal Budget was presented by Treasurer Jim Chalmers.

The changes announced are going to have a profound effect on us all, as it is throwing caution to the wind with major changes on Capital Gains Tax & property investment.

We will be releasing our full Annual Budget Review later this week, but I wanted to share some key points prior to ensure you feel less stressed.

At SMATS we have been formally reviewing Australian Federal Budgets for over 20 years and always look at legislative changes and how we can find ways to turn adversity into opportunity. This Budget is no different.

Property Negative Gearing

This will strike a chord with all of us, current and future property investors alike. Property negative gearing has been enshrined in the Australian taxation system for many decades and is the last significant tax reduction strategy available. Importantly anyone with a currently negatively geared property, owned or under contract prior to 7.30pm 12th May 2026, will still qualify for the tax offset - so be very reluctant to sell your property if you are fortunate enough to be in this position.

The key changes include:

From 12th May 2026 only newly constructed properties will be allowed to use holding losses to reduce other taxable income, such as salary, effective from 1st July 2027. This will likely force rents up if investors can not get tax relief on future established property investment.
Property losses will still be allowed to offset other property income (so that’s not too bad if you want to expand your portfolio) or carry forward losses to offset future income or capital gains on the sale of properties. This may encourage investors to renovate rather than sell, as increasing borrowing should keep the property negatively geared for longer and improve the value and rental income.
Interestingly, negative gearing is still allowed on shares and other non-property investments so that will suit our new SMATS Residential Property Investment Trust.

Although I welcome measures that will encourage new property activity, the reality is the Government has forced investors hands when new build costs are at an all time high, largely due to State Government GST collection (10% of build costs) and Stamp Duty. We will discuss some interesting strategies on this matter in our upcoming Australian Budget Review Seminar.

Capital Gains Tax

Disappointingly the Government has chosen to radically change the tax treatment on investments across the board, not just property, so all capital gains will be impacted.

Changes include:

The current 50% Capital Gains Tax discount has been removed and replaced with the original 1985 concept of an indexed, inflation-adjusted method.
A minimum tax rate of 30% on capital gains will apply to net capital gains after indexation, increasing to a maximum tax rate of 47% if your income and gains are above A$190,000 in the year of sale.
For investors that acquire newly built residential property an option to either calculate under the indexation method or the current 50% discount method will be available.
Some concessions, including Superannuation Funds, may apply so we look forward to reviewing the legislation when released.

Ironically, we currently live in a high inflation world, so getting the inflation portion tax free may prove to be similar to the current discount. Regardless of whether you consider this to be a good or bad option, the fact is we are moving to a new age of confusion after the change in 1999 from indexation to discount served well to make life simpler.

These changes will be affective from 1st July 2027, so don’t panic yet, we will wait and see what the formal rules are. It is likely you will need to arrange a valuation on your assets in June 2027 to lock in the 50% discount to that point, thereafter the indexation method will apply.

For many of our clients living abroad, you will recall that in May 2012 the current Capital Gains Tax discount was reduced to nil for any period the property was owned while living overseas. This change is no worse than that, and this indexation method should potentially benefit offshore owners as an unintended consequence.

Do not think about selling anything at the moment as a fear reaction, instead stay calm and wait for details.

Trust Taxation

In what has been a long time obsession of the Labor Party, the announcement of a minimum tax of 30% on trust incomes is not surprising. Currently Trusts are not "taxpayers" as any profits flow to beneficiaries. This has been a sensible and prudent investment option for many clients, not just the purview of the rich and famous.

We use Trusts extensively and these changes will not massively alter our strategies, but will mean a recalibration when the changes come in to effect from 1st July 2028. This allows us extensive time to review, assess and modify if required.

For most clients properly using Trusts as a holding and distribution vehicle, there will be little need for change and if there is they are likely to be small, such as:

Holding a portion of your investment assets in a private name to ensure you properly utilise the lower personal tax rates on the first A$40,000 of income prior to your personal rate aligning with the new tax in Trusts.
The use of Companies as an investment structure may become more attractive for income assets as the Company tax rate of 30% would align with the new Trust tax rate. However, unlike Trust tax, Company tax credits may be refundable if the shareholder’s actual tax rate is lower than 30%. Whereas, Trust tax is not refundable if excess tax is paid above individuals tax liability.
Superannuation becomes even more important and essential in long term tax planning, so Self-Managed Super Funds and offshore Superannuation will become far more attractive.

There is obviously more to discuss regarding the Federal Budget, but the above matters are likely to be the biggest concerns. I just wanted to help you understand that not everything is as bad as it seems.

I do feel sorry for Australian renters and those trying to save a deposit to buy or invest in property as they have been left in the lurch with this radical tax grab. As always SMATS Group will have sensible, legal, and cost effective strategies to help our valued clients understand and navigate these changes.

I hope this has helped and look forward to sharing with you my full summary shortly.

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