Words on The Federal Budget

Federal Budget Summary: The Key Changes and What They Could Mean for You

Unpacking the Changes to Capital Gains, Negative Gearing, Discretionary Trusts and More

The May 2026 Federal Budget is one of the most consequential in recent years for Australian investors and families with complex financial affairs. The key changes span capital gains tax, negative gearing, and trust taxation. Across each of these areas, the picture is more nuanced than the headlines suggest, and most changes come with meaningful transition arrangements that reward considered planning over reactive decision-making.

Watch the full webinar recording to hear from Evans and Partners Financial Planning experts Ishara Rupasinghe and Lucy Pentelow as they unpack the key items:

• Capital gains tax: a structural shift from 1 July 2027
• Negative gearing: existing properties protected, new purchases impacted
• Trust taxation: the distribution advantage narrows
• Superannuation: confirmed changes from 1 July 2026

For an extended written summary, read our latest insight: Federal Budget Summary: The Key Changes and What They Could Mean for You

Lucy Pentelow Alrighty, good afternoon everyone and welcome. I’m Lucy Pentelow, a Strategy Advisor here at Evans and Partners, and I’m delighted to be co-hosting today’s session with Ishara Rupasinghe, our Executive Director and Senior Strategy Advisor. Ishara, great to have you with us.

Ishara Rupasinghe Thanks Lucy and hello to everyone. Glad everyone could make the time. Obviously there’s been a lot of noise since last night’s budget, so we’re going to try and cut through it and give you something sort of practical and useful.

Lucy Pentelow Yeah, that’s exactly right. Last night’s federal budget delivered some of the most significant changes to wealth structures we’ve seen in a very long time. We’re talking about changes to superannuation, capital gains tax, negative gearing, trust taxation and age pension deeming rates, all shifting at the same time. So today, what we really want to do is, as Ishara mentioned, cut through the noise, give you a clear picture of what’s actually changing, what’s being protected, and most importantly, what you might need to do about it. Now, before I hand it over to you, Ishara, I’d like to acknowledge the traditional custodians of the lands that we’re all joining from today and pay my respects to elders past, present and emerging. I also have a bit of housekeeping to do. So the disclaimer on the screen is a reminder that today’s session is factual and general in nature. We haven’t taken into account any individual circumstances. So if anything we cover is relevant to you, please do reach out. And I also note that today’s session is being recorded. It will be shared today. So feel free to revisit it at any point or share it with any friends and family. Now on the screen are the seven key topics that we’ll be running through. Throughout the session, we will be deep diving into some practical examples and some action items for you all to take away with you. On that note, Ishara, I’ll hand it over to you to get started.

Ishara Rupasinghe Thanks Lucy. So look, let’s talk super first because there’s quite a bit happening from 1 July 2026. First up, we’ve got payday super. What that means is from 1 July, employers are going to have to pay your superannuation on the same day as your wages within seven business days. Now, this is really meaningful, particularly for younger workers and people in casual or part-time roles because getting super paid more frequently means it’s in your super fund and compounding sooner rather than sitting with an employer for a quarter before it arrives — that’s a real positive. The super guarantee rate is staying at 12% so no further increases scheduled so that one’s settled. But for anyone who took government funded paid parental leave in this financial year, the super attached to that leave lands in super funds in July 2026. Again, that’s the first time super has been paid on paid parental leave — worth knowing about if that applies to you or someone in your family. Now, probably the big one that affects a lot of our clients is a lot of the superannuation caps are increasing because of indexation, both concessional and non-concessional caps are going up. So are the total super balance and transfer balance caps. Now we’ll go through the actual numbers in a moment, because we think there are some real planning opportunities there. And finally, Division 296 — we know that is now law from 1 July 2026. If your super balance exceeds 3 million, you’ll be subject to an additional tax on earnings above that threshold. Now, we’re not going to focus too much on that today, given how much other stuff we need to cover. But if you haven’t already approached your advisor and you think you’re affected by Division 296, there’s certainly still time — we’ve got a special process in place for helping people with Division 296.

Lucy Pentelow Thanks, Ishara. Now on the screen, there’s quite a bit to take in and all these changes kick in from 1 July. And that timing really matters, especially if you’re doing some planning between now and the end of financial year. We’ll start with the contribution caps. So concessional contributions are increasing from 30,000 to 32,500 per year. Non-concessional contributions are usually four times the concessional cap, which means they are also increasing from 120 to 130,000. This also means the bring forward rule for non-concessional contribution rises from 360,000 to 390,000. Now, one thing to keep in mind with non-concessional contributions, to be eligible, your total super balance needs to be under a certain threshold, and that threshold is also increasing. It’s increasing from $2 million to $2.1 million. This will be measured on the 30th of June, 2026 — so it’s an important date to keep in mind. And on the pension side, the transfer balance cap is also increasing from two to 2.1 million. Now, what that means is if you haven’t started a pension yet or haven’t fully used your cap, this gives you more room to do so. In terms of what these changes actually mean: if you have unused carry forward concessional contribution amounts, it’s worth reviewing those before 30 June as any unused amounts from FY21 will expire permanently at the end of this financial year. If you’re thinking about starting a pension, waiting until 1 July means you get to take advantage of that higher cap. And if your total super balance was sitting just above $2 million, it’s worth checking where you land on 30 June, 2026, because the higher threshold may have reopened your eligibility to make non-concessional contributions. And on the Division 296 front, if your total super balance exceeds $3 million, as Ishara mentioned, you should be having this conversation now. It means reviewing your SMSF liquidity, looking at how your super is held between you and your partner, and making sure you have a clear picture of your overall position come 1 July. Balances are assessed individually, so how your super is distributed between partners can generally reduce or defer the impact. Now the interaction between all three of these things means that a holistic review before 30 June is important. So again, please reach out if you want to have specific modelling in place.

Ishara Rupasinghe Thanks, Lucy. So look, now let’s move on to capital gains tax and the changes that were announced yesterday — perhaps one of the hotter topics because it’s a substantial change that affects quite a wide range of investors and certainly Evans and Partners clients. So what’s changing? The government is replacing the current 50% tax discount on investment gains with a system that only taxes your real profit above inflation, but only on growth from 1 July 2027. So basically what that means is for investments you currently own, changes only apply to the profit you’ve built up from that date forward. But from 1 July 2027, instead of paying tax on half your gain when you sell, you’ll pay tax on the part of your gain that’s above inflation. Now, we’ll work through an example to explain what that all means, but there’s also a floor: a minimum 30% tax rate is going to apply on those gains. And that’s really designed to stop high income earners deferring the sale of their investments to retirement years when their income is low, which is certainly a very common practice in planning. This is perhaps conceptually quite fairer, but the practical outcome varies quite a bit depending on how long you’ve held that asset and what returns have looked like for you. This change is certainly going to apply across all asset classes — not just property, it’ll apply to shares, managed funds and all other investments. I should clarify though, assets held in superannuation are not in scope. So superannuation’s internal capital gains tax treatment has not changed because of this. Now for investors in newly constructed properties, they are going to get a choice between the 50% CGT discount or the cost-based indexation method. A few other key features of this policy: the family home is exempt, there’s no change there. People who are on age pension and income support are exempt from that 30% minimum tax on capital gains. And of course, tax only applies when you sell — unrealised gains are not affected by these changes. Now, let me run through an example which can help make sense of all of this. I’ve used a property in this example, but of course this could apply to any type of asset including a share portfolio. So in this case, we’ve got Sarah — she bought an investment property in 2010 for $400,000. She sells in April 2027 for $1.1 million. Now because she is selling before 1 July 2027, the old rules apply in full. Her gross capital gain is $700,000. She gets the 50% discount, so only $350,000 of that is taxable. Assuming she’s on the top marginal tax rate, she’s going to pay about $157,000 in capital gains tax. Now let’s take the same scenario, but Sarah sells her property in 2030 instead — after the new rules have fully taken effect. Because she purchased before budget night, the gains accrued before 1 July 2027 are grandfathered under the old 50% discount rules. Gains generated on or after 1 July 2027 are subject to the new indexation method and the minimum 30% tax. So effectively there are now two parts to this CGT calculation. The pre-1 July gain remains the same as before — she’s got $157,000 of CGT on that side. But for her post-July gain, we need to work out her indexed cost base first as at 2030, which we’ve calculated to be about $1.84 million. Assuming the sale price in 2030 is $1.25 million, her taxable gain after indexation is $65,300. At a 45% tax rate, this equates to $29,000 in capital gains tax. So when you add those two together, the total tax payable is the $157,500 plus the $29,000, giving $186,885 in total capital gains tax payable. One thing to note here is that the 30% minimum CGT must apply to that indexed portion, but obviously in this case, her marginal tax rate is more than this, so we use the 45% tax rate instead.

Lucy Pentelow Thanks, Ishara. Those examples really help paint a picture of what that rather complex rule looks like in practice. So what should people be thinking about if they’re impacted by this? As Ishara said, gains accrued before 1 July 2027 are protected — the old discount applies to that portion. It is only future growth that is taxed under the new indexation method. So if you’ve been holding an asset for many years with significant growth, a large portion of that gain will be grandfathered. But as time goes on, a greater proportion of any future sale will fall under the new rules. For people who are already planning to sell an investment in the next year or two, it’s worth looking at the numbers because the old rules still apply to everything you make up until 1 July 2027. But in saying all that, there’s really no need to panic and sell — the gains you’ve already built are protected. And a reminder, it’s not just for property. If you hold shares alongside an investment property, your entire portfolio will be in scope. As Ishara has touched on, it applies across all asset classes, so it’s worth looking at the full picture here. An important practical action to take now is record keeping, as it matters more than it previously has. Whilst it might not be as difficult to manage with assets like property as you often hold them for long periods of time, this change can mean more admin complexity for share portfolios given the nature of dividend reinvestments and the nature of holding them for a shorter period of time. Now I’m moving on to personal income tax. This is probably the most modest of the changes in terms of dollar impact for most of you on the line today, but it’s still worth a mention. The headline measure is a new Working Australians Tax Offset, which effectively lifts the tax-free threshold for income from work to just under $20,000. That’s a saving of nearly $1,800 for more than 13 million workers, and it kicks in on 1 July 2027. On top of that, further tax cuts for every Australian taxpayer take effect from 1 July 2026. We view these as incremental tweaks as they build on the Stage Three cuts that have been in place since FY25 — so it’s more of a same-direction update rather than a new structural reform. The Medicare Levy low income thresholds are also going up by 2.9%, which means more seniors will either be exempt or paying a reduced levy. And finally, one that we think will be a popular update from FY27: every Australian worker can claim an automatic $1,000 tax deduction for work-related expenses without needing to itemise anything. The government estimates this will save workers around $2.4 billion over four years, and for most of you, it will mean a slightly smaller tax bill at the end of return time.

Ishara Rupasinghe Thanks Lucy. So look, now to negative gearing. What’s changing here is that effectively negative gearing has been abolished for property purchases from budget night onwards. The changes will apply from 1 July 2027 and it’ll mean losses can no longer be used to offset things like wage income or other non-property related taxable income. Now, new constructions are going to be exempt from this change, as are any existing negatively geared properties purchased before budget night. For a lot of our clients who already own a negatively geared investment property, nothing changes — you can keep claiming your rental losses against salary or other taxable income as you always have. But for anyone buying an existing investment property from here on, those losses can still be claimed, just not against your wages anymore. They’re going to be quarantined only against future rental income. I should also mention that unlike the CGT rules, these negative gearing changes only apply to residential property. Let me take you through an example — this is for really anyone considering a new investment property purchase. We think it’s worth looking at how those numbers stack up under these new changes. So in this case, we’ve got David who earns $180,000 per year and is considering buying a $750,000 investment property which will be negatively geared by about $15,000 per year because the rental income is $32,000 against the costs of $47,000. So for David, if he purchases it now, the old rules will apply until 1 July 2027. The $15,000 loss offsets his salary, so his taxable income goes from $180,000 to $165,000. That results in effectively a tax saving of $7,500 for David at his marginal tax rate. Now, the new rules kick in after 1 July 2027. So what that means is the $15,000 loss is quarantined — it can’t offset his salary, so his taxable income stays at $180,000. Effectively, there’s no annual tax benefit from him negatively gearing this property. In this scenario, he’s $7,500 out of pocket per year, and over five years we’re looking at $37,500 out of pocket. Really, a new investment property purchase has to stack up on its own in terms of yield and capital growth — you really can’t do it as a sort of income tax minimising strategy. I should say excess losses may be carried forward to offset against future years’ residential property income. So this is going to apply if you’ve got multiple investment properties. I say ‘may’ because again, there’s a lot to these rules that we’re talking about today — there’s still a lot to be finalised and legislated, so keep an eye out for that.

Lucy Pentelow Yeah, so what this means practically will depend on each individual’s circumstances. If you own investment properties already, the good news is you are fully protected. Grandfathering applies indefinitely, so no action is required immediately on these holdings. Now, if you’re thinking of buying an investment property, it really has to stand on its own two feet. The annual tax saving from negative gearing is essentially gone, and you need to run the numbers on the rental yield and capital growth before committing. The one exception is new builds — newly constructed properties will still get the full negative gearing treatment, which is the government’s way of saying we want investors to help build new homes, not just buy existing ones. I should clarify here that a new construction has to be a genuine new construction. Renovations and knockdowns are not considered rebuilds and are not included in this exemption.

Ishara Rupasinghe Look, before we move on, one of the things I wanted to mention: if you hold multiple properties, it may be worth sitting down and reviewing the after-tax holding costs across the whole portfolio, especially if excess losses can be used to offset future rental income. For some of those existing properties, selling while grandfathering still applies could make sense as you’d be locking in the old CGT rules before the new ones take effect — just something worth mentioning. I think it’s worth now talking about trust taxation. Again, this is a huge policy shift that we think will potentially change what structures people choose to invest in. What’s changing is that a 30% minimum tax is going to apply on all trust distributions. This is confirmed to take effect from 1 July 2028. So really what it means is income splitting to low income family members — like adult children who are still studying, non-working spouses — is just not going to deliver the same tax benefit as it previously did. Now, of course the trust structure itself is not changing, but the tax on the distribution is. Trusts are not taxed like companies, and franking credits can still pass through to beneficiaries. But one of the changes is that excess franking credits may not be refundable anymore.

Lucy Pentelow Yeah, so really the real impact of the changes to trust structures depends on who your trust is distributing to. Low income recipients are most affected here. If your trust currently distributes to adult children or your non-working spouse, whether that’s for maternity reasons or otherwise, the income splitting benefit is largely or entirely eliminated under the 30% minimum rate. High rate beneficiaries are largely unaffected — if someone is already on that 45% marginal rate, a 30% minimum doesn’t change their position. And so in saying all this, it’s really important not to rush and wind up the trust. CGT, stamp duty and transaction costs can easily outweigh any tax saving from restructuring, and many trusts are also held for legitimate non-tax reasons — including asset protection and estate planning. So a real emphasis on not making any rushed decision to restructure without having a careful, holistic review. The real action item here is to review your distribution resolution with your accountant. And given it’s not enacted until 1 July 2028, you have plenty of time to sit down and create a plan moving forward.

Ishara Rupasinghe That’s right, Lucy. And look, we’ll take you through a very simple example to illustrate the potential impact on low income beneficiaries. So here we’ve got the Chen Family Trust. It generates $300,000 in income per year. Let’s say the trustee distributes $75,000 each to the two parents, Wei and Jun, as well as to their two adult university-aged children who have no other income. Now, under the old rules, the parents will pay about $33,750 in tax, assuming they’re on the top marginal tax rate. Each of the kids pays $16,700 in tax because they benefit from the lower tax rates as well as the tax-free threshold. Now, under the new rules, the parent situation remains unchanged, assuming the distributions are exactly the same, but the kids now pay a minimum of 30% tax on their distributions, which adds up to $22,500 each. So what that means for the Chen family is that overall they’ll pay around $12,000 in additional tax under these new changes. This is still potentially better than the parents having to share the $300,000 and pay top marginal tax rates. But as Lucy said, this means distribution strategies probably need reviewing for most people, though the trust itself remains potentially valuable for other reasons.

Lucy Pentelow Yeah, so in summary, the practical implications here are quite layered. For trusts specifically, the first thing to look at is your distributions. If your trust currently distributes to a low income adult, the tax benefit of doing that is now materially reduced or in some cases gone entirely. Again, can’t emphasise this enough — it’s not a reason to rush and wind up the family trust. The government has included a three-year rollover window from 1 July 2027 through to 30 June 2030, specifically to help people restructure out of a discretionary trust without triggering a capital gains tax liability. Now that’s a genuine concession and it gives you time to do this properly, and emphasises the importance of getting professional help in doing so. Trusts still serve genuine value purposes in terms of asset protection and estate planning — that concept hasn’t changed. So restructuring without a proper analysis could in some cases leave you worse off. The other thing to be aware of is the compounding effect. If your trust holds investment properties or shares, you’re now sitting at an intersection of three changes all at once: the trust tax rules, CGT indexation, and the removal of negative gearing. Those three things interact, and the outcome for your specific structure may not be as obvious as you might think. So again, it’s really important to sit down, model your position before making any large changes. We’d encourage speaking to a range of professionals — not only a financial planner, but your investment advisors, a property advisor, and of course your accountant when making these changes.

Ishara Rupasinghe So look, just to bring it all together with some specific action items. The first thing we’d say is have a look at your super — we’re pretty close to the end of the financial year, so this is a good window of opportunity for some to make concessional contributions before 30 June. As we mentioned, if you are eligible to use any unused carry forward concessional amounts, the unused amounts from FY21 will expire permanently, so it could be worth using those before 30 June. Second, if your total super balance exceeds $3 million, the Division 296 tax will apply from 1 July. Come and speak to us about how you might plan to manage and minimise this. Third, check your total super balance if you are nearing $2 million. As we’ve said, the non-concessional cap is increasing and with the total super balance threshold increasing to $2.1 million, that could create an opportunity for people to make non-concessional contributions. Again, check your total super balance at 30 June — that’ll help plan out contributions. Likewise, on pension commencement: if you haven’t started a pension and you were thinking of doing that this financial year, it could be worth delaying and timing this until after 1 July. And again, just overall, as we’ve kept saying, don’t make any rushed decisions or major structural or investment decisions without getting personalised advice. There’s a lot of interaction between the policies that we’ve talked about today, the different dates, and obviously a specific balance sheet and situation all matter quite enormously. And of course, one thing we haven’t really talked about too much is estate planning implications — things like your binding death nomination, reversionary pensions, and all of those kinds of things should be reviewed as part of these big policy changes, because the CGT changes and the trust changes affect how wealth passes through structures on death and transfer.

Lucy Pentelow Great, thanks, Ishara. That brings us to the end of today’s content. Whilst it was quite high level today, given the complexity of these changes, we’re still working through how they play out across different scenarios. So we won’t be taking any live questions today, but please jot down anything that comes up for you and reach out to your advisor directly or scan the QR code on the screen — we’ll be in touch and we can help you navigate these changes to your specific circumstances. A reminder that a recording of today’s webinar will be sent around to everyone, so feel free to revisit at any point and share with any of your friends and family. Thank you all so much for joining today. We really do appreciate your time.