Two of the significant tax reforms announced in the May Federal Budget have now passed through Parliament, bringing changes to Capital Gains Tax (CGT) and Negative Gearing.
The reforms were passed by both Houses of Parliament in June 2026, with the Bills passing the Senate on 25 June 2026 and recieving Royal Assent on 26 June 2026.
These changes have attracted considerable attention across the accounting, business and investment communities, particularly due to their potential impact on investors, business owners, trusts and individuals holding capital assets. While the reforms are now law, many of the key changes will not commence until 1 July 2027, which means there is ample time to carefully review your position before making any decisions.
Capital gains tax changes
From 1 July 2027, the existing 50% CGT discount for individuals, trusts and partnerships will be replaced with a cost base indexation method, together with a minimum 30% tax rate on capital gains. These changes will apply to capital gains accruing from 1 July 2027.
One of the more significant features of the reform is that it will also apply to gains accruing on pre-CGT assets from 1 July 2027. However, capital gains accrued prior to 1 July 2027 remain exempt for pre‑CGT assets.
This is a notable change, as pre-CGT assets have historically received different treatment under the tax system. The impact of these changes will depend on the type of asset held, the ownership structure and the timeframe for any future disposal.
Exiting small business CGT concessions will be retained, with eligibility for the small business active asset 50% CGT reduction expanded by increasing the turnover threshold from $2 million to $10 million (from the income year that includes 1 July 2027).Special concessions will also apply for certain new residential builds and affordable housing, including an ability for eligible individual investors to choose between the CGT discount (including a higher discount for affordable housing) and the new indexation method (with the minimum 30% tax still relevant).
Further adjustments were also announced in response to concerns about the potential impact of the reforms on start-up businesses and investment in innovation, including measures aimed at supporting eligible innovative businesses.
Negative gearing changes
The reforms also change the treatment of negative gearing for residential property. From 1 July 2027, negative gearing be restricted for established residential properties acquired on or after 7:30pm AEST on 12 May 2026, by quarantining net rental losses so they can generally only be used against residential rental income and/or residential property capital gains (with excess losses carried forward). New builds are treated more favourably.
Existing residential investment properties held before 7:30pm AEST on 12 May 2026 will be grandfathered from these changes.
This means that, investors who already held residential investment properties before Budget night will not be subject to the new negative gearing restrictions for those existing properties. However, the rules for properties acquired after that time, and particularly established residential properties acquired after Budget night, will need to be considered carefully.
Also note that properties acquired between 7:30pm AEST on 12 May 2026 and 30 June 2027 may still be fully negatively geared for the income year ending 30 June 2027, but net rental losses are quarantined from 1 July 2027.
What this means for you
These reforms are significant and may affect people who hold investment properties, shares, business interests, trusts, pre-CGT assets or other capital assets. However, with the main CGT and negative gearing changes applying from 1 July 2027, there is still time to work through the detail and properly assess potential impact.
At this stage, we do not recommend making changes to asset ownership, investment arrangements or entity structures without first obtaining professional advice. Any restructuring should be considered carefully, particularly where trusts, companies, related-party transactions or long-held assets are involved.
Armada will be reviewing the impact of these reforms and will contact affected clients where a review may be required. In the meantime, if you are thinking about selling assets, restructuring, purchasing an investment property, changing a trust structure or making any significant investment decisions, please speak with your adviser before taking action.