Section 1 — Negative Gearing & Property

FAQ 1: My client bought their home before budget night and now wants to rent it out. Does the grandfathering protect them?

Short answer:

Almost certainly yes — the grandfathering is based on acquisition date, not the property's use. The budget papers state the changes apply to established residential properties 'acquired from 7:30pm (AEST) on 12 May 2026.' Properties acquired before that time are exempt until disposed of.

Analysis:

On a plain reading, a pre-budget PPOR converted to an investment property retains the grandfathered negative gearing treatment. The trigger is the date of acquisition, not whether the property was initially owner-occupied or an investment.

Practical reality:

This is only likely to matter for a narrow cohort — clients who:

• Purchased relatively recently (so the loan is still large relative to value)
• Have a high LVR (80%+) meaning genuine negative gearing is possible from day one of rental
• Move out and rent the property rather than sell

The typical long-held PPOR with low debt will almost certainly be positively geared from the outset and the grandfathering is moot.

⚠ Awaiting legislation / consultation: The budget papers do not explicitly address the PPOR-to-IP conversion scenario. The legislation may clarify or close this. Anti-avoidance risk increases if a pattern of deliberate conversion emerges. Monitor the exposure draft.

 

FAQ 2: Does the new build exemption apply to a house-and-land package, or just a completed dwelling? What about vacant land?

Short answer:

We don’t know yet. The budget papers use the terms ‘eligible new builds’ and ‘established residential properties’ throughout but provide no definition of either.

What the papers say:

‘Eligible new builds will be exempt from the changes, ensuring the benefits of negative gearing are directed to investment that increases the housing stock.’ No further detail is given on what constitutes a ‘new build’ for this purpose.

Likely intent:

The policy goal is to encourage new housing supply. On that basis, it would be logical for house-and-land packages to qualify (the build adds supply), but it is far less clear whether vacant land alone would qualify — particularly if the land sits unused for years before construction commences. (or Knockdown rebuilds, or substantially renovated, which are all classed as new dwellings from a Stamp duty perspective)

⚠ Awaiting legislation / consultation: The definition of ‘eligible new build’ is not contained in the budget papers and is subject to consultation and the exposure draft legislation. Do not advise clients to commit to structures on this assumption until the law is settled.

 

Section 2 — Discretionary Trusts & Family Trusts

FAQ 3: My client operates a small business via a family trust and receives franked dividends from a company. Will they still get the benefit of franking credits under the new 30% minimum trust tax?

Short answer:

Possibly not in full — and this is explicitly unresolved. The budget papers confirm: (1) the trustee pays 30% minimum tax on trust taxable income from 1 July 2028; and (2) credits given to individual beneficiaries for that tax are non-refundable.

The specific problem with franked dividends:

When a company pays a franked dividend into the trust, the dividend carries attached franking credits (representing corporate tax already paid, at 25% for small companies or 30% for large). Those credits flow to beneficiaries. If the minimum trust tax is already 30%, the interaction with existing company-level franking credits is unclear — specifically:

• Does the 30% minimum trust tax run independently of the franking credit system?
• Can excess franking credits (e.g. from a 30% franked dividend into a trust that then pays 30% minimum tax) produce a refund or offset?
• What happens for beneficiaries on low tax rates who would previously have received excess franking credits as a cash refund?

 

⚠ Awaiting legislation / consultation: The budget papers explicitly state: ‘The Government will consult with stakeholders on key details of this policy, including... how trustees use excess franking credits.’ This is an unresolved policy question. Do not advise on the franking credit treatment of family trust distributions until consultation concludes and legislation is released.

 

What we do know:

• Non-refundable credits: Beneficiaries (other than corporate beneficiaries) receive non-refundable credits for the trustee's minimum tax. This is worse than the current refundable franking credit position for low-income beneficiaries.
• Trustee pays the tax: It is not withheld from beneficiaries — but beneficiaries must still declare income and can use credits to offset their current year tax liability only.
• Rollover relief available: 3 years from 1 July 2027 for those who want to restructure into a company or fixed trust.

 

Section 3 — Capital Gains Tax

FAQ 4: What is the minimum tax I will pay when I sell my investment property under the new rules?

Short answer:

From 1 July 2027, the tax on the real (inflation-adjusted) capital gain is the higher of your marginal tax rate or 30% — with a full exemption if you are receiving an income support payment such as the Age Pension at the time of sale.

How it works:

The new CGT regime has two components that work together:

• Indexation replaces the 50% discount: Your cost base is adjusted for CPI each year, so only the real gain above inflation is taxed — not the full nominal gain.
• 30% minimum tax floor: Whatever your real gain is, tax cannot be less than 30% of it, regardless of your other income. If your marginal rate is already above 30% (i.e. taxable income above $135,000), the minimum tax is irrelevant — you already pay more.

Who the 30% floor actually bites:

It is specifically designed to catch retirees who sell investment assets in a low-income year — the classic strategy of deferring a sale until retirement when the marginal rate drops to 0–19%. That benefit is now largely gone for post-July 2027 gains.

 

Scenario	Tax rate on real gain
Income > $135,000 (marginal rate 45%+)	45% (marginal rate applies, minimum irrelevant)
Income $45,000–$135,000 (marginal rate 30–37%)	30–37% (marginal rate applies, at or above floor)
Income < $45,000 (marginal rate 0–19%)	30% minimum tax applies
Retired, low income, no pension	30% minimum tax applies
Receiving Age Pension or other income support	Exempt from the 30% minimum tax
SMSF (accumulation phase)	15%, reduced to 10% after 12 months — unchanged
SMSF (pension phase)	0% — unchanged
Company	30% flat — no CGT discount or indexation change

 

The Age Pension exemption — planning implications:

This is the one relief valve for retirees on low incomes. If a client is receiving the Age Pension (or another qualifying income support payment) at the time of sale, they are fully exempt from the 30% minimum tax. Their real gain is then taxed at their actual marginal rate — which, combined with the pension, may still be low.

This creates a planning window: timing the sale of an IP to a period when the client is on the pension could still produce a low effective tax rate. However, the interaction with the pension income and assets test on the sale proceeds is a separate consideration.

 

Worked example:

Client sells an IP in 2031. Purchase price $600,000 (2027). Sale price $780,000. Cumulative CPI over 4 years: 12%.

• Indexed cost base: $600,000 × 1.12 = $672,000
• Real capital gain: $780,000 − $672,000 = $108,000
• If client has $30,000 other income (retired, no pension): marginal rate on gain is ~19%, but 30% minimum applies — tax = $32,400
• If client is on Age Pension: 30% floor does not apply — tax at actual marginal rate, potentially much lower
• If client earns $120,000 salary in same year: marginal rate 37% — tax = $39,960 (minimum irrelevant)

 

For pre-existing properties (purchased before 1 July 2027):

Only gains accruing from 1 July 2027 are subject to the new rules. Gains up to that date are calculated under the old 50% discount rules. A valuation (or ATO apportionment formula) will be needed to split the gain at that date.

 

⚠ Awaiting legislation / consultation: The precise mechanics of how the 30% minimum tax interacts with carried-forward quarantined losses (from the new negative gearing rules) on the same property sale are not detailed in the budget papers. Legislation will need to clarify the sequencing — i.e. whether accumulated losses reduce the real gain before the 30% floor is applied.

 

Section 4 — Death, Estate & Succession Implications

Australia has no formal death tax. However, several measures in this budget create significant tax consequences at or following death that function as de facto death taxes. The following FAQs map those implications. Note: the existing CGT death rollover (s128-15 ITAA97) is not changed by this budget, but its value is substantially reduced in several scenarios below.

FAQ 5: My client holds pre-1985 (pre-CGT) assets — a business, shares or property. They planned to leave them to their children tax-free. Is that still the case?

Short answer:

No — not for gains accruing after 1 July 2027. This is arguably the most significant hidden death tax in the entire package for older wealthy clients. Pre-CGT assets lose their tax-free status for all future gains from that date.

What the budget papers say:

'The same approach will apply to assets acquired before the beginning of CGT in 1985. Bringing assets held before 1985 into the CGT regime will improve horizontal equity and enhance the intergenerational equity objectives of the package... Gains on pre-1985 assets earned from 1 July 2027 will be taxed under the new arrangements upon realisation.'

How this plays out on death:

Under existing law, when a person dies holding a pre-CGT asset, the beneficiary inherits it and the CGT death rollover applies — no CGT is triggered at death. The beneficiary takes a cost base equal to the market value at date of death. Under the new regime:

• The asset's 1 July 2027 market value becomes the effective cost base for post-2027 gains
• When the beneficiary eventually sells, they pay indexation + 30% minimum tax on gains above that 2027 value
• The decades of pre-2027 appreciation remain exempt (protected by the transitional rules)
• But all future appreciation from 2027 onwards is now taxable — permanently

Practical example:

Client owns a commercial property purchased 1983 for $200,000. Value at 1 July 2027: $3,000,000. Value at death in 2033: $3,800,000. Beneficiary sells in 2034 for $4,000,000. Under old rules: entire $3.8M gain was tax-free. Under new rules: $3M-$200K gain (pre-2027) still tax-free; $1M gain (post-2027) is taxable at indexation + 30% minimum.

⚠ Awaiting legislation / consultation: The budget papers do not address whether the CGT death rollover mechanism under s128-15 ITAA97 is modified. On a plain reading it survives unchanged, but the value of the rollover is materially reduced because the 'free' cost base step-up the beneficiary receives only covers gains to 1 July 2027 — not all future gains. Estates holding pre-85 assets should obtain a formal valuation as at 1 July 2027.

 

FAQ 6: If my client inherits an investment property post-2027, do they inherit the grandfathered negative gearing treatment too?

Short answer:

Almost certainly not — but the budget papers are silent on this. This is a material gap in the policy as announced.

The problem:

The grandfathering for negative gearing is expressed as properties 'acquired prior to 7:30pm 12 May 2026' being exempt 'until disposed of.' Under existing CGT law (s128-15), a beneficiary inheriting a property is generally not treated as acquiring it — they step into the deceased's shoes for cost base purposes. But the negative gearing rules are not CGT rules — they are income tax deductibility rules, and the interaction is untested.

Two possible readings:

• Grandfathering survives: The property was 'acquired' before budget night and has never been disposed of — the beneficiary just continues the grandfathered treatment as the new owner.
• Grandfathering is lost: The beneficiary is a new taxpayer and the deductibility rules look at their own position — they 'received' the property after the cut-off date and therefore cannot negatively gear against ordinary income.

 

⚠ Awaiting legislation / consultation: The budget papers make no mention of how inheritance interacts with the negative gearing grandfathering. This must be clarified in the exposure draft legislation. In the interim, do not plan around grandfathering surviving to a beneficiary.

 

FAQ 7: My client dies with a negatively geared IP. The estate sells it — is the 30% minimum CGT tax a problem?

Short answer:

Potentially yes — and this depends on who is selling and when. A deceased estate is not a natural person and does not receive the Age Pension exemption. It also cannot claim income support recipient status. The 30% minimum tax on the real capital gain therefore applies to the estate on post-2027 gains unless the beneficiary has already received the asset and qualifies for an exemption themselves.

The Age Pension exemption is personal:

The budget papers exempt 'income support recipients, including pensioners' from the 30% minimum tax. This exemption attaches to the individual taxpayer — not to the asset or the estate. A deceased estate selling an IP does not qualify. Nor does a trustee of a testamentary trust unless the distribution ultimately flows to a pension recipient and the legislation passes through the exemption (currently unclear).

Timing matters enormously:

If the estate sells the IP quickly (e.g. within 2 years of death under the existing 2-year main residence exemption rules for the PPOR — not applicable to IPs), the gain and tax crystallise in the estate. If instead the IP is transferred to a beneficiary who is a pensioner before sale, that beneficiary may qualify for the exemption personally when they sell.

⚠ Awaiting legislation / consultation: The budget papers do not address how the 30% minimum tax applies to deceased estates or whether pension-exempt status of a beneficiary can be leveraged before the asset is formally transferred. This is a consultation gap. The legislation will need to address estate administration scenarios explicitly.

 

FAQ 8: My client runs their family business through a discretionary trust. When they die, does the 30% minimum trust tax continue?

Short answer:

Yes — unless the trust is restructured or wound up. The 30% minimum trust tax attaches to the discretionary trust as an entity, not to the individual founder. Death does not reset or exempt the trust.

What is and isn't protected:

The budget papers provide the following exemptions relevant to death and succession:

• Deceased estates: Exempt from the minimum tax — but only while assets are being administered through the deceased estate itself. Once assets are distributed to a discretionary trust (even a testamentary discretionary trust), the minimum tax applies.
• Fixed testamentary trusts: Exempt from the minimum tax. A testamentary trust structured as a fixed trust (where beneficiaries have defined, non-discretionary entitlements) does not attract the minimum tax.
• Discretionary testamentary trusts existing at announcement: Income from assets of discretionary testamentary trusts in existence at budget night (12 May 2026) is exempt. This is a narrow, locked carve-out — new discretionary testamentary trusts created via a will written after budget night do NOT qualify.
• Existing family discretionary trust: No exemption at or after death. The trust continues and pays 30% minimum tax from 1 July 2028.

The will-drafting implication:

Any will written after 12 May 2026 that creates a new discretionary testamentary trust will NOT benefit from the announcement-date carve-out. The only protected path for a new testamentary structure is a fixed testamentary trust. This is a fundamental change to standard estate planning involving testamentary trusts and needs to flow through to any estate planning advice.

Rollover relief window:

The 3-year rollover relief (1 July 2027 to 30 June 2030) allows restructuring of a discretionary trust into a company or fixed trust with CGT and income tax relief. For a family business trust, restructuring into a company (at 25% small business rate) or a fixed trust before the minimum tax commences in July 2028 may be preferable to leaving the trust in place for the next generation to inherit.

⚠ Awaiting legislation / consultation: The budget papers confirm the carve-out for discretionary testamentary trusts 'existing at announcement' but do not define what assets must be in the trust at that date, or whether assets added after announcement are protected. This is a critical detail for estate planning — monitor the exposure draft.

 

FAQ 9: Summary: what does this budget mean for clients planning to leave wealth to the next generation?

Overview:

While Australia still has no formal death tax, this budget introduces a suite of measures that collectively increase the tax cost of intergenerational wealth transfer. The table below summarises the key impacts:

 

Asset / Structure	Previous treatment at death	Post-budget treatment
Pre-1985 asset (IP, business, shares)	All gains CGT-free forever via death rollover	Pre-2027 gains still exempt; post-2027 gains taxable at indexation + 30% min tax when beneficiary sells
Grandfathered IP (acquired pre-12 May 2026)	Negative gearing carries to beneficiary (assumed)	Unclear — grandfathering may be lost on inheritance. Exposure draft must clarify
IP sold by deceased estate	50% CGT discount available to estate	30% minimum tax on post-2027 real gains; Age Pension exemption does NOT apply to estates
Existing discretionary family trust	Trust continues, distributions taxed at beneficiary MTR	30% minimum trust tax from 1 July 2028 regardless of who controls the trust after death
New discretionary testamentary trust (post-budget will)	Standard testamentary trust tax concessions applied	30% minimum tax applies — announcement-date carve-out does NOT cover new trusts
Fixed testamentary trust	Standard tax treatment	EXEMPT from 30% minimum trust tax — now the preferred testamentary vehicle
SMSF assets (accumulation)	Paid to dependants tax-free or taxed at 15-17% for non-dependants	No change — super tax arrangements explicitly excluded from CGT reforms

 

Key action items for estate planning reviews:

• Review all wills that establish discretionary testamentary trusts — consider converting to fixed testamentary trusts
• Obtain formal valuations of pre-1985 assets as at 1 July 2027
• Model whether the rollover relief window (to 30 June 2030) should be used to restructure existing discretionary trusts
• Consider whether IP held in estate should be transferred to a pension-age beneficiary before sale rather than sold by the estate
• Flag the negative gearing grandfathering uncertainty for clients planning to leave IPs to beneficiaries who intend to continue renting them

 

Section 5 — Trusts — Bucket Companies

FAQ 10: My client distributes from their family trust to a bucket company each year. Will the 30% minimum trust tax be doubled up with the company tax?

Short answer:

Potentially yes, based on the budget papers as written — and this is a genuine risk that is unresolved. The mechanics as announced create a plausible double tax scenario for distributions to corporate beneficiaries. However, the Government has flagged consultation on related issues and it is widely expected that the legislation will include some form of relief. Do not change client structures on this assumption alone — wait for the exposure draft.

How the double tax arises:

Under the new minimum trust tax, the trustee pays 30% on the trust’s taxable income from 1 July 2028. The budget papers then describe how beneficiaries are compensated:

Beneficiary type	Treatment of the 30% minimum tax already paid by trustee
Individual beneficiaries	Receive a non-refundable credit for the trustee’s minimum tax — can offset against their own current year income tax liability
Corporate beneficiaries (bucket companies)	No credit mechanism described. Budget papers explicitly carve out corporate beneficiaries from the credit: 'beneficiaries, other than corporate beneficiaries, will receive non-refundable credits'

 

The result as written: the trustee pays 30% minimum tax on $100 of income. The distribution of $100 flows to the bucket company. The bucket company includes that $100 in its assessable income and pays 25-30% company tax on it. No credit or offset for the 30% already paid by the trustee is described in the budget papers.

The worked example:

Step	Amount
Trust taxable income	$100,000
Minimum tax paid by trustee (30%)	$30,000
Distribution to bucket company	$100,000
Company tax on distribution at 25% (small business rate)	$25,000
Total tax on the $100,000 if no relief	$55,000 — effective rate 55%
Compare: direct company income with no trust	$25,000 — effective rate 25%

 

This 55% effective rate is obviously punitive and almost certainly unintended. For context, even under the old system the bucket company strategy worked precisely because the tax burden was minimised — a 55% rate destroys the entire rationale.

Why this is likely to be fixed in legislation:

The Government flagged in the budget papers that consultation will cover 'how trustees use excess franking credits' — which, while not identical to the bucket company credit problem, signals that the mechanics of credit flow between the trust and its beneficiaries are unresolved and subject to design. There are several technical solutions available to Treasury:

• Frankable distribution mechanism: The trustee’s minimum tax payment could be treated as a tax paid on behalf of the company beneficiary, with a corresponding franking credit attached to the trust distribution — similar to how company tax generates franking credits.
• Gross-up and credit: The distribution to the corporate beneficiary could be grossed up and a tax offset provided, mirroring the non-refundable credit given to individuals.
• Reduced assessable income: The trust distribution to a corporate beneficiary could be reduced by the minimum tax already paid, so only the after-tax amount is assessable to the company.
• Carve-out of corporate distributions from the minimum tax base: Distributions to corporate beneficiaries could simply be excluded from the minimum tax base entirely, with the company paying its own tax directly.

 

⚠ Awaiting legislation / consultation: The budget papers create a double tax scenario for bucket company distributions but do not provide a resolution. The consultation process and exposure draft legislation must address this. Until that clarity is provided, the economic case for continuing to distribute to a bucket company from a discretionary trust is materially uncertain. Do not advise clients to change their structure based on the current gap — the legislation will almost certainly provide relief.

 

What this means right now for clients:

There are two distinct populations of clients to consider:

• Clients currently distributing to a bucket company each June 30: The minimum trust tax does not commence until 1 July 2028. Their 2026 and 2027 distributions are unaffected. They have time to wait for the exposure draft before making any structural decisions.
• Clients considering setting up a bucket company now: The setup cost is unlikely to be wasted — the bucket company itself remains a valid structure. The question is whether the trust-to-company distribution leg will carry a double tax cost from 2028. Wait for legislation before committing to a strategy that relies on that distribution being efficient.

The bigger picture — is the bucket company strategy still viable at all?

Even if double tax relief is provided, the bucket company strategy is diminished by the minimum trust tax. Under the old regime the attraction was: distribute to a company at 25-30% rather than to a high-income individual at 45-47%, retaining the spread as working capital. Under the new regime:

• The trust already pays 30% minimum tax before the distribution leaves
• If relief is provided (e.g. a tax credit to the company), the company receives a credit for the 30% but pays no additional tax if it is a small business company at 25% — so the distribution is effectively taxed at the higher of 25% and 30%, being 30%
• The spread between 30% (bucket company via trust) and 45% (individual at top marginal rate) still exists — the strategy retains some value
• But the gap narrows materially compared to the old world where trust income reached the company at an effective 25-30% with no prior minimum tax