At the centre of the proposed reforms are changes to capital gains tax (CGT) and discretionary trust taxation. Together, they point to a tightening of long-standing tax advantages that many Australian families have relied on for decades, particularly when it comes to property, financial investments and intergenerational wealth planning.
The proposed CGT changes are particularly notable.
From 1 July 2027, the long-standing 50% discount on capital gains from assets held more than 12 months would be replaced with an indexation-based approach, alongside a minimum 30% tax on net capital gains1. While unrealised gains to 1 July 2027 are expected to be grandfathered to remain subject to the current rules, future growth would be taxed under new indexation rules. Further details are needed to confirm that this will be the basis for calculating assessable capital gains that will be included in draft Bills to come. For the first time, “pre-1985” assets (that is, assets purchased before CGT was introduced on 20 September 1985) will be subject to CGT from 1 July 2027.
The key concern for investors is not just the rate change itself, but the uncertainty it introduces into established investment strategies. This is likely to influence a prudent investor's decision making around whether to sell assets earlier, hold for longer, or acquire new types of investments. It will have a flow-on effect on property markets if investors act ahead of the changes.
Trust taxation is also set for a significant shift. Proposed rules introducing a minimum 30% tax on trust distributions would reduce the flexibility that discretionary trusts have traditionally provided. These structures have long been used by families and business owners to distribute income in a tax-effective way between family members and for asset protection purposes.
If implemented, the changes would significantly reduce these benefits, prompting many to reconsider how trusts are used, particularly professionals and small business owners who relied on the tax rules for income distributions not being changed.
In response to a more complex and less predictable tax environment, alternative structures such as investment bonds are gaining more attention. These vehicles offer a tax-paid framework with defined long-term outcomes, and after a 10-year holding period (and that holding has not been reset according to special rules), withdrawals made will be tax-free. They also provide flexibility for estate planning and succession planning, and can sit alongside other structures such as trusts and superannuation, depending on individual circumstances.
More broadly, the role of financial advice becomes increasingly important. As settings evolve, professional guidance is essential in helping clients reassess their strategies and help support them to decide on whether they would be better placed to maintain long-term discipline, rather than react to short-term uncertainty.
Overall, the Budget does not eliminate traditional wealth-building tools, but it does propose to reshape how they will function. For many investors, the key challenge ahead will be adapting to a more complex and less certain environment for their financial plans that continue to pursue the same long-term financial goals. While no investment decision should be made based on tax considerations alone, this uncertainly adds to the complexity of the investment landscape.
Because tax rules can be complex, it's best to speak with a tax professional if you're unsure.
You should seek tax (financial) advice from an appropriate adviser.
1 Subject to certain carve outs. These changes will cover all asset classes including shares, property, and managed funds held by individuals, most trusts and partnerships. Super funds are expected to continue to be able to access the existing 1/3rd CGT discount with clarification needed on the treatment of trust gains which flow to super funds. There will be an exception for new residential property builds for which there will be a choice to apply the CGT discount or cost base indexation.