The 2026-27 Federal Budget introduced substantial changes to Australia’s capital gains tax (CGT) regime, alongside reforms to negative gearing, discretionary trust taxation and the foreign resident CGT rules. In addition, on 18 June 2026, the government announced further implementation details, including expanded small business CGT concessions, a new CGT concession for innovative businesses and confirmation of testamentary trust exemptions. While public debate has focused on residential housing, the implications extend well beyond that sector, affecting commercial property investors, trust structures and foreign investment. With staggered commencement dates from now until mid-2028, there is a limited but useful planning window available to those who act promptly.
CGT discount replaced by inflation-based model
From 1 July 2027, the existing 50% CGT discount will be replaced with an inflation-based discount. A minimum 30% tax on real capital gains will also apply across all CGT assets held by individuals, trusts and partnerships. Under the new indexation model, a CGT asset’s cost base will be adjusted by reference to a formula designed to broadly reflect inflation, calculated using the Consumer Price Index (CPI). Whether this produces a better or worse outcome than the former 50% discount will depend on the holding period, rate of return and prevailing inflation, and the answer will differ from transaction to transaction.
The transitional arrangements warrant careful attention. For assets held prior to 1 July 2027 but sold after that date, the 50% CGT discount will apply to gains accrued up to 1 July 2027, with indexation and the minimum tax applying only to gains accruing from that date onwards. Taxpayers can either obtain a valuation or use a specified apportionment formula (supported by Australian Tax Office (ATO) tools) to determine the asset’s value as at 1 July 2027. Investors with existing property holdings should consider whether obtaining a market valuation as at 1 July 2027 will produce a more favourable outcome than relying on an ATO formula.
There will be an increase to the turnover threshold for the existing small business 50% active asset CGT reduction from $2 million to $10 million. This brings eligibility for the concession into line with the turnover threshold for the instant asset write-off. Investors disposing of active business assets (including commercial property used in a business) should consider whether this expanded concession applies to their circumstances.
The government has also released a consultation paper on the design of a new Innovative Business CGT Concession. This would provide a 50% CGT discount to early-stage investors, including founders and employee share scheme participants, in innovative startup businesses. Subject to further consultation, eligible shares must be new equity issued by a company that is an active business, under 10 years old (or potentially 15 years in certain sectors such as biotech), with turnover under $50 million and meeting principles-based innovation criteria. The shares must be held for at least five years before disposal to qualify. A lifetime cap of $10m will apply to the total capital gain. While this concession is directed primarily at venture capital and startup investment rather than real estate, investors with diversified portfolios should be aware of its potential interaction with the broader CGT reform package. Consultation on this measure closes on 10 July 2026.
Negative gearing changes limited to established residential property
The negative gearing changes apply to investments in established residential properties. Investors in commercial property, as well as those investing in shares and other asset classes, are unaffected. For those acquiring residential property in their portfolios, the changes are material. Net rental losses derived from established residential properties will no longer be deductible against other forms of assessable income (such as salary or business income) and may instead only be offset against rental income or capital gains from other residential property investments.
Investors with mixed portfolios containing both residential and commercial assets will need to assess how the ring-fencing of residential losses interacts with their broader investment position. Grandfathering applies to properties purchased or already held before 7:30pm (AEST) on 12 May 2026, which are exempt from the new measures until disposed of. This includes properties in respect of which a binding contract had been entered into before that time.
On 18 June, the government confirmed that the definition of “new builds” eligible to access the 50% CGT discount on gains accrued from 1 July 2027, and the definition of the types of housing investment exempt from limits on negative gearing will be embedded in primary legislation to be introduced later this year, rather than determined by ministerial instrument. A consultation paper on the treatment of certain types of accommodation and housing investment is expected later in 2026.
New 30% minimum tax for discretionary trusts
Many property investors hold assets through discretionary (family) trusts for tax and estate planning purposes. The government will introduce a minimum tax of 30% on discretionary trusts from 1 July 2028, with some exceptions. Fixed trusts, complying superannuation funds, charitable trusts, deceased estates and special disability trusts are excluded. It has also been confirmed that income from all types of discretionary testamentary trusts will be exempt from the minimum tax, provided they are established for genuine testamentary purposes. For discretionary testamentary trusts established on or after 1 July 2028, the exclusion will only apply to trusts that can only benefit individuals and income tax exempt entities. This exemption is intended to put beyond doubt that there is no tax on inheritances or deceased estates.
A consultation paper on the minimum tax on discretionary trusts is expected in the coming weeks.
Qualifying widely-held unit trust structures, commonly used in commercial property investment and managed investment schemes, are not caught by the new 30% minimum tax. Rollover relief will be provided for three years from 1 July 2027 to assist small businesses and others that wish to restructure. Those currently holding commercial assets through discretionary trust structures should review their arrangements well in advance of 1 July 2028.
Foreign resident CGT reforms and the extended purchase ban
The government has confirmed its proposed overhaul of the foreign resident CGT regime. Key changes include a broad new statutory definition of “real property” that expressly captures infrastructure assets, renewable energy installations, water entitlements and heavy machinery. Certain amendments will operate retrospectively to 12 December 2006, with no limitation period where the foreign investor failed to lodge an Australian tax return. The principal asset test will shift from a point-in-time assessment to a rolling 365-day lookback, broadening the circumstances in which an entity interest constitutes an indirect Australian real property interest (IARPI). For transactions valued at $50 million or more, a failure to notify the ATO prior to completion will invalidate the vendor’s non-IARPI declaration, triggering mandatory 15% withholding and minimum penalties of $7.5 million.
The practical consequences for foreign property investors are significant: assets previously outside the CGT net may now be caught; historical unreported disposals are exposed to reassessment without time limit; and the compliance burden on high-value live transactions has materially increased. Investors holding interests in Australian entities with real property exposure should reassess their tax positions ahead of the anticipated commencement date.
The government has also extended the temporary ban on foreign purchases of established residential dwellings through to 30 June 2029. While this measure is directed at the residential market, foreign investors in the commercial sector should note the broader tightening of regulatory settings affecting foreign investment in Australian property.
What should investors be doing now?
The budget measures have staggered commencement dates through to mid-2028, providing a window for planning. Investors should consider the following steps:
- Obtain valuations of commercial property assets as at 1 July 2027 to establish a defensible cost base under the new CGT regime.
- Review trust structures (particularly discretionary trusts) to assess whether restructuring is appropriate in light of the 30% minimum tax and the availability of rollover relief.
- Model the CGT impact of proposed disposals with and without the new indexation regime, especially for assets with higher returns or shorter projected holding periods.
- For foreign investors, urgently review existing and historical positions given the retrospective scope of the foreign resident CGT changes.
For more information, please contact Seema Sandhu or Mark Payne.
