Canberra is signalling room to soften parts of its tax reset, but the biggest investor rules are still on the table.
The Albanese government’s tax reform package is already showing its first pressure cracks.
Less than two weeks after the 2026–27 Budget, Prime Minister Anthony Albanese has left open the possibility of changing how discretionary testamentary trusts, which take effect after a person dies, are treated under the proposed 30 per cent minimum tax on discretionary trusts. Independent MP Sophie Scamps has also said she expects concessions for start-ups and the technology sector amid concerns about the proposed capital gains tax changes.
That matters. But property investors should not confuse possible carve-outs with a reversal of the core plan.
The government’s stated Budget position remains substantial: from 1 July 2027 it proposes to replace the 50 per cent capital gains tax discount with an inflation-based method and introduce a minimum 30 per cent tax on gains; negative gearing would be limited to new builds; and from 1 July 2028 discretionary trusts would face a minimum 30 per cent tax, with exceptions and a three-year rollover relief window. These are proposals, not final law.
The live question is no longer whether the Budget changes investor behaviour. It is which groups will be protected before the legislation reaches the finish line.
The first concessions may be the easiest ones
The trust measure has become politically awkward because it reaches beyond wealthy families moving income between beneficiaries.
The Budget proposal captures discretionary trusts broadly. ABC reporting confirms that it includes discretionary testamentary trusts, arrangements created through wills that only operate after death. Albanese has rejected claims that the policy is intended to hurt inheritances, while saying consultation will occur before legislation is introduced later this year.
That creates an obvious place for the government to retreat. Excluding, narrowing or redesigning the treatment of testamentary trusts would remove a potent political attack without forcing Labor to abandon its broader trust-tax agenda.
Start-ups are the other pressure point. A capital gains regime designed around inflation-adjusted returns can be particularly difficult for businesses whose value comes from growth, intellectual property and founder risk rather than a large inflation-adjusted asset base. Scamps’ comments suggest crossbench concern is already being directed at that gap.
But for housing investors, here’s the catch: the most politically fixable parts of the package may not be the rules that matter most to their next purchase.
Quick take: A concession for estates or start-ups would soften the politics. It would not automatically restore the current CGT discount, reopen negative gearing for future purchases of established homes, or settle the position of investors who are deciding what to buy now.
Property investors are still facing a two-sided squeeze
Negative gearing and capital gains tax affect different stages of the same investment.
Negative gearing matters during ownership. In plain English, it allows eligible rental losses to be deducted against other income, such as wages. The Budget proposal would keep current arrangements for properties held before Budget night and for investors buying new builds, while purchasers of established homes after Budget night would not be able to use unused rental losses against salary or other non-property income.
Capital gains tax matters when the investor sells. Under the proposed changes, gains arising after 1 July 2027 would move away from the existing 50 per cent discount model to inflation-based treatment with a minimum 30 per cent tax on gains. New-build investors would be able to choose between the current discount and the proposed system.
Put those rules together and the decision becomes harder.
An investor buying an established property could face weaker annual cashflow treatment and less certainty about the after-tax result on sale. An investor buying new property may receive better tax treatment, but still carries completion risk, construction cost risk, oversupply risk and the basic question of whether the rent and price stack up.
Australian Property Review previously examined the broader tax shift in The Budget Tax Shock Now Spreading Beyond Property. The practical point is the same: investors do not make decisions on one tax rule at a time. They assess holding costs, exit value and financing together.
Grandfathering could create an accidental winner
One of the Budget’s biggest property decisions is not a new tax. It is the protection offered to existing holdings.
The official Budget site says existing negative gearing arrangements remain unchanged for properties held before Budget night. That lowers the risk of an immediate shock for current investors, but it can also make already-owned residential property more valuable relative to an established dwelling bought later under less generous treatment.
That difference could matter in a very ordinary household situation.
Consider an owner who held their home before Budget night, later buys another principal residence and rents out the first property. Whether that former home retains the protected negative gearing treatment will be one of the rule-design questions investors and advisers watch closely as legislation is drafted.
If the answer is favourable, owners with existing property may hold an advantage that future investors cannot readily reproduce. If the government tightens that outcome, it risks unsettling households that thought their existing asset was protected.
Neither outcome is simple. One favours existing owners. The other increases uncertainty for decisions already made.
For readers following the rental implications, Australian Property Review’s analysis in The Budget Tax Shock That Could Push Small Landlords Outexplains why even a reform aimed at future purchases can affect the availability of rentals before new supply catches up.
A trust carve-out will not remove the restructure risk
A change for testamentary trusts would be significant for estate planning, but many living family trusts would still face the central Budget issue: a proposed minimum 30 per cent tax from 1 July 2028.
For families holding investment property inside discretionary trusts, the risk is not only the annual tax rate. It is the cost of changing structure.
Selling or transferring property out of a trust can create capital gains tax, legal and accounting costs, refinancing complications and, depending on the state and circumstances, stamp duty. That is why a promised rollover relief window should not be treated as a free exit route until the legislation and state treatment are clear.
Australian Property Review covered this second bill in Why Labor’s Trust Tax Could Hit Property Owners Twice. A federal tax change can push a family to review its structure, but state transaction costs can determine whether moving assets makes sense at all.
Now, the part most people miss: uncertainty itself has a cost. Families may delay a sale, defer a restructure or avoid a new purchase while they wait for final rules. In property markets, fewer decisions can mean lower turnover and less rental stock changing hands, even without a rush to sell.
SMSFs may look better by comparison, not because they got simpler
The Budget tax reset has also created a relative advantage for superannuation structures.
Australian Property Review has reported that SMSFs in accumulation phase generally pay 15 per cent tax on earnings, with an effective 10 per cent CGT rate for eligible assets held longer than 12 months because of the superannuation CGT discount. The proposed Budget changes outside super make that existing treatment look more attractive by comparison.
That does not mean an SMSF is a clean workaround.
Buying property through super involves borrowing limits, liquidity needs, compliance costs, diversification risk and restrictions on personal use. A low tax rate cannot rescue a property with weak rent, excessive debt or poor long-term demand.
Readers weighing that structure should start with The Budget Twist Giving SMSF Investors a Tax Edge, then obtain licensed advice before moving assets or establishing a fund.
The next fight is over who gets protected
The government has room to adjust parts of its Budget package. It has already built in exceptions and transition support, including the proposed three-year rollover relief for people and small businesses considering restructuring discretionary trust arrangements.
The base case is that Labor offers targeted concessions where political or economic damage is hardest to defend, particularly around testamentary trusts and start-ups, while holding onto much of its broader CGT, negative gearing and discretionary trust agenda.
The upside case for investors is a wider rewrite that improves certainty, protects ordinary estate structures and removes the most distortionary outcomes for portfolios and future property decisions.
The downside case is a patchwork policy: enough exemptions to make the system more complex, but not enough clarity to restore confidence before investors, landlords and family businesses start changing behaviour.
That is why the sensible move is not to restructure on rumour or race to purchase purely for a tax treatment that is not yet legislated.
Start here: map every property, share portfolio and trust-held asset against three questions: how it is taxed while held, how it is taxed when sold, and what it would cost to change ownership structure. Take that map to a licensed tax adviser before making a move.
