This Budget reaches further into the finances of ordinary investors than most. It touches directly on how property investors are taxed, how capital gains are treated, and how much room the RBA has to cut interest rates. Here’s what you need to know.
Negative gearing
The biggest shift affects negative gearing. From 2027-28, new investors in established residential property will no longer be able to offset rental losses against their other income. Losses can still be carried forward and used against future property income, but the ability to reduce a wage or salary tax bill through a loss-making investment property is being wound back. New builds are exempt, so the tax concession remains intact for those investing in newly constructed homes.
Capital Gains Tax
The capital gains tax (CGT) discount is also changing. The current 50% discount will be replaced by a system that taxes “real” gains only (i.e. gains above inflation) at a minimum rate of 30%. This applies to assets purchased from now, with the new rules taking effect from 2027-28. The change applies to all assets owned by individuals, trusts and partnerships, including shares, property and pre-1985 assets.
Electric Vehicle tax pull-back
Electric vehicles have also lost some of their tax appeal. The fringe benefits tax exemption that made novated leases on EVs particularly attractive to employees is being phased out. If you were considering an EV through a salary packaging arrangement, the numbers will look different going forward, and it’s worth running them again before committing.
Discouraging discretionary trusts
Discretionary trust distributions will be subject to a minimum 30% tax rate. If you use a discretionary family trust as part of your wealth or estate planning structure, the implications depend on your specific circumstances.
Personal income tax
On the positive side, the bottom income tax rate is being cut by 1 percentage point (worth around $5.15 per week), a $1,000 standard deduction is being introduced, and there’s a $250 tax offset for work-related income coming in 2027-28. This applies to salary and wages, and, where eligible, business income from sole trader activities.
Pension Supplement changes for people travelling overseas
The rules for the Pension Supplement will change for people who are travelling overseas. The maximum Pension Supplement will continue for up to 12 weeks when the person is temporarily overseas, instead of the current 6-week arrangement. After 12 weeks, the Pension Supplement will stop.
The bigger economic picture
The budget remains in deficit for the foreseeable future, with the government now projecting a return to surplus by 2036. The revenue windfall from higher commodity prices has been allocated to reducing fiscal debt.
Government spending as a share of GDP is projected to be around 26.5% over the next decade, well above the pre-Covid average of 24.8%. More spending in the near term adds to inflationary pressure, which makes the RBA’s job harder. Many economists still expect more than one rate hike in 2026, with cuts likely only at some point next year.
The budget is unlikely to resolve Australia’s housing affordability problem. The government’s own figures project the tax changes will reduce housing supply by around 35,000 homes over the next decade, which is the opposite of what’s needed in a market already running 60,000 homes per year short of its 240,000-home annual target.
A quick note on legislation
These Budget announcements generally require legislation to take effect. Although given the majority Labor holds in parliament, this is likely to pass with little opposition.
What does it mean for you?
Tax and budget changes rarely affect everyone the same way. Whether you own investment property, hold growth assets, benefit from a family trust structure, or are simply trying to understand what the income tax cuts mean for your take-home pay, the details matter. It is important that you reach out to your financial adviser and accountant, who can help you make sense of the changes and tailor a plan that best suits your circumstances.