The Federal Government has now introduced into Parliament the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, implementing several significant tax reforms announced in the 2026 Federal Budget.
These reforms are among the most substantial changes to capital gains tax and property investment taxation in decades. While many media reports have suggested that “negative gearing has been abolished”, the legislation is more nuanced and contains important exemptions and grandfathering provisions.
Below is an overview of the key changes and what they may mean for investors, business owners, and family groups.
1. Changes to the Capital Gains Tax Discount
Under the current rules, individuals and trusts generally receive a 50% discount on capital gains where assets are held for at least 12 months.
The Bill proposes major changes to this concession.
Existing Assets
For many assets already held before the commencement date, the Bill introduces a deemed disposal and reacquisition mechanism from 1 July 2027. Broadly, assets will effectively be reset for future capital gains tax calculations.
Future Capital Gains
For gains accruing on and after 1 July 2027, the Bill proposes replacing the existing 50% CGT discount for individuals, trusts and partnerships with a cost base indexation system designed to ensure that only real gains are taxed.
In addition, a new 30% minimum tax on capital gains will apply, subject to exemptions for certain income support recipients. The stated policy objective is to align the taxation of capital gains more closely with the tax rates paid by workers during their earning years.
The new arrangements will apply prospectively to gains accruing from 1 July 2027, including gains on pre-CGT assets. However, the legislation retains access to the CGT discount for certain investments intended to support housing supply and affordability, including:
- newly constructed residential dwellings;
- qualifying affordable housing investments; and
- existing small business CGT concessions.
These exemptions are expected to significantly influence future investment decisions.
2. Negative Gearing Changes
Contrary to some public commentary, negative gearing has not been entirely abolished.
Instead, the Bill quarantines deductions relating to affected residential investment properties.
What This Means
Where deductible expenses exceed rental income:
- the losses generally cannot be offset against salary, business income, or other unrelated income; and
- the losses are instead carried forward to offset future rental income or future capital gains from the same investment category.
Grandfathering Provisions
Importantly:
- residential properties acquired before 7:30pm AEST on 12 May 2026 are generally grandfathered; and
- many existing arrangements may continue under the previous rules.
Exemptions
The quarantining rules do not generally apply to:
- newly constructed residential properties;
- qualifying build-to-rent developments;
- affordable housing projects; and
- certain commercial or active business assets.
As a result, the reforms appear designed to redirect investment toward increasing housing supply rather than discouraging property investment entirely.
3. Impact on Trusts and Family Groups
Family trusts and investment structures may be significantly affected by the reforms.
In particular:
- the reduction in CGT concessions may reduce the tax effectiveness of passive investment trusts;
- trust distributions involving capital gains may produce higher effective tax outcomes; and
- existing asset protection and succession structures may need review.
Many family groups may now reconsider:
- whether assets should be held personally, through trusts, or through companies;
- whether future acquisitions should focus on new developments rather than established property; and
- whether succession planning structures remain appropriate.
4. Business Owners and Small Business CGT Concessions
The Bill does not remove the small business CGT concessions.
Accordingly, qualifying business owners may still access:
- the 15-year exemption;
- the 50% active asset reduction;
- retirement exemption; and
- rollover relief.
However, the interaction between the new CGT rules and existing concession regimes will require careful analysis.
Business owners considering:
- a sale of business;
- succession planning;
- restructures; or
- property development projects
should seek advice early to ensure transactions are structured appropriately before the reforms commence.
5. What Should Investors and Business Owners Do Now?
The reforms are complex and may substantially affect:
- investment returns;
- cash flow;
- tax planning;
- estate planning; and
- long-term asset holding structures.
Key considerations may include:
- reviewing existing investment structures;
- identifying whether assets qualify for grandfathering;
- considering development or new-build opportunities;
- reviewing trust and succession arrangements; and
- obtaining advice before acquiring or disposing of major assets.
The final legislation may still change before enactment. However, the Bill provides a strong indication of the Government’s intended direction.
How Crest Lawyers Can Assist
Crest Lawyers advises clients on:
- business structuring;
- asset protection;
- taxation and CGT;
- trust and succession planning;
- business sales and restructures; and
- property investment structuring.
If you would like advice on how the proposed reforms may affect your circumstances, please contact our office.