Federal Budget 2026: What investors need to know

The Federal Budget handed down on 12 May 2026 marks one of the most significant shifts in Australia’s tax landscape in decades, particularly for investors.

With sweeping reforms to capital gains tax (CGT), negative gearing and the taxation of trusts, the Government has reshaped the incentives that have underpinned wealth creation strategies for many Australians.

“This is a Budget with enormous investment implications for clients,” said Malcolm Wood, Head of Asset Allocation and Philanthropic Services at Ord Minnett.

“Capital gains, property, trusts and investment structuring are all significantly affected. Portfolio construction, asset allocation – superannuation versus non superannuation – trust usage, and property exposure will all require reassessment under a materially higher after-tax hurdle,” he said.

Below, we outline the three key points and what they mean from an investment perspective.

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1. Capital Gains Tax

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The centre piece of the Budget is the overhaul of the capital gains tax regime. The long-standing 50% CGT discount for assets held longer than 12 months will be replaced with an inflation indexation model, combined with a minimum 30% tax rate on gains from 1 July 2027.

Under the current system, investors benefit from taxing only half of any capital gain. The new framework instead adjusts an asset’s cost base for inflation, meaning tax is applied to “real” gains – but with a floor that ensures a minimum level of taxation.

Investment implications:

• Higher effective tax rates: In periods of low inflation, investors are likely to pay more tax compared to the previous 50% discount system.
• Asset allocation shifts: The removal of a flat discount across all asset classes (including shares and ETFs) may reduce the relative attractiveness of growth assets held outside superannuation.
• Greater complexity: Transitional rules will require investors to track gains pre- and post-1 July 2027, adding administrative burden.

Simon Kent-Jones, Head of Private Wealth Research at Ord Minnett, said the Government’s capital gains tax framework will significantly impact investment strategies for investors.

“The change to capital gains tax fundamentally alters how after-tax returns are calculated. Investors will need to be far more deliberate in balancing growth versus income strategies going forward.”

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2. Scrapping negative gearing (for existing properties)

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The Budget introduces a major change to negative gearing by restricting its use to newly built residential properties from 1 July 2027.

In practical terms, investors purchasing established properties after Budget night will no longer be able to offset rental losses against their broader income. Existing property holdings are “grandfathered”, meaning current investors retain their existing arrangements.

Investment implications:

• Reduced appeal of existing property: Property investors may find established dwellings less attractive due to the loss of tax efficiency.
• Shift toward new developments: Capital may increasingly flow into new housing supply, aligning with government policy goals.
• Portfolio rebalancing: Investors heavily concentrated in property may reassess diversification into equities or other asset classes.

Treasury modelling suggests these changes are designed to redirect investment and improve housing affordability, though they may also influence rental markets and supply dynamics.

Malcolm Wood said it will be intriguing to see how Australia’s property market responds, particularly in comparison to when Labor cut negative gearing in the 1980s.

“The Hawke-Keating Government cut negative gearing in 1985, which resulted in increased rents and low vacancy rates before the decision was reversed two years later,” he said.

“Limiting negative gearing to new builds changes the investment attractiveness significantly. We may see a structural shift in how clients think about property within a diversified portfolio.”

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3. Changes to Trusts: A new minimum tax
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The Budget also targets trust structures, introducing a 30% minimum tax on discretionary trust income from 1 July 2028.

Traditionally, discretionary trusts have been widely used as a tax-effective vehicle for distributing income among family members. The new regime moves closer to a corporate-style tax treatment, reducing the flexibility that has historically made trusts attractive.

Investment implications:

• Reduced tax arbitrage: Income splitting strategies will be less effective, particularly for high-income families.
• Structural reconsideration: Investors operating through family trusts may need to evaluate alternative structures, such as companies or fixed trusts.

“The trust reforms are likely to prompt a wave of restructuring,” said Simon Kent-Jones.

“For many clients, the question will be whether the benefits of existing structures still outweigh the added complexity and tax burden.”

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The bigger picture for investors

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These reforms represent a decisive shift in the taxation of investment income and capital in Australia. The Government says they are designed to rebalance the system toward wage earners and first-home buyers, while reducing tax concessions that have historically favoured investors.

However, for investors, the message is clear:

• Tax efficiency will become more nuanced – and potentially less favourable.
• Diversification and long-term strategy will remain critical.
• Professional advice will be more important than ever as structures and strategies are reassessed.

“While the immediate reaction may be uncertainty, disciplined investors should focus on long-term fundamentals,” said Simon Kent-Jones.

“It is important to note, while 1 July 2026 will see the introduction of Division 296 on superannuation balances exceeding $3 million, the Budget did not make any further tax changes to superannuation, particularly regarding capital gains tax.

“I encourage any investor to be strategic and discuss their investment decisions with their private wealth adviser.

“Policy settings will evolve – but sound investment principles endure,” he said.
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Important information: This webpage provides general information only and does not constitute financial, investment, or tax advice, and should not be relied on to make make financial, investment or taxation decisions. Individuals should seek professional advice tailored to their specific circumstances before making any decisions.