Last night’s Federal Budget has created debate and discussion and much has been published regarding this budget which contains significant changes.
Last night’s Federal Budget has created debate and discussion and much has been published regarding this budget which contains significant changes.
Below is an extract of the key points, taken from Netwealth’s Budget Update, that we consider are most relevant to some of our clients regarding structures and strategies. We will be assessing the implications of these changes for impacted clients and will be in contact with them in due course. It is important to be aware of the dates mentioned below and the timeframes in which to consider any suitable strategic moves.
The Government has proposed that, subject to the passage of legislation, from 1 July 2027 the current 50% CGT discount would be replaced by cost base indexation for assets held for more than 12 months, together with a proposed 30% minimum tax on net capital gains. These changes would apply, subject to legislation, to all CGT assets, including pre-1985 CGT assets, held by individuals, trusts and partnerships. However, capital gains on pre 1985 assets arising before 1 July 2027 will remain exempt from CGT. Income support payment recipients, including Age Pension recipients, will be exempt from the minimum tax.
The proposed changes only apply to gains arising on or after 1 July 2027. The 50% CGT discount will continue to apply to gains arising before 1 July 2027. Investors in new residential properties will be able to choose either the 50% CGT discount, or cost base indexation and the minimum tax. Further, the proposed changes do not include any changes to the existing CGT concessions for the main residence exemption or the small business CGT concessions.
The Government has announced a proposal to limit negative gearing for residential property to new builds only from 1 July 2027, if the measure is legislated. The final design, timing and application of these measures may change as part of the legislative process.
From 1 July 2027, losses related to existing residential investment properties purchased from 7:30pm AEST 12 May 2026 will only be deductible against other income from residential properties, including capital gains. However, when an investor has excess losses, they will be able to carry forward that excess to offset residential property income in future years.
Properties acquired prior to the Budget announcement (including contracts entered into but not yet settled) will be exempt from the changes until disposed of.
Eligible new builds will be exempt from the changes, as will properties in widely held trusts and superannuation funds. There will also be targeted exemptions for build-to-rent developments and private investors supporting government housing programs.
Proposed from 1 July 2028, that trustees will pay a minimum tax of 30% on the taxable income of discretionary trusts. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee. The minimum tax will not apply to other types of trusts such as fixed and widely held trusts (including fixed testamentary trusts), complying superannuation funds, special disability trusts, deceased estates and charitable trusts.
Some types of income such as primary production income, certain income relating to vulnerable minors, amounts to which non-resident withholding tax applies, and income from assets of discretionary testamentary trusts existing at announcement will also be excluded.
For those wishing to restructure out of discretionary trusts, the Government proposes to provide expanded rollover relief for three years starting 1 July 2027 which will facilitate transitions into other entity types, such as companies or fixed trusts.
As always, please don’t hesitate to contact us if you would like to discuss your specific situation or have any questions.
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