The 2026 Federal Budget has generated more noise than we have seen in some time – and understandably so. Sweeping proposals touching capital gains tax, negative gearing, family trust distributions, and small business tax settings have left many business owners and investors trying to separate the headlines from the reality. We are going to walk through the key proposals, what they could mean in practice, and how we are thinking about them from a lending and structuring perspective.
But first, an important framing point: nothing here is law yet. These are proposals, and the legislative detail is still emerging. No action is required today. What matters right now is awareness – and making sure that when the rules do crystallise, you are positioned to move quickly and confidently.
The Labour Market: Early Signs of Softening
Before we dive into the budget, it is worth touching on the broader economic backdrop, because it shapes how the Reserve Bank of Australia is likely to respond in the months ahead.
April’s employment data came in weaker than expected, with total employment falling by 18,600 jobs for the month (ABS, April 2026) – well below market forecasts. The result was unusual in composition: male employment held up reasonably well, while female employment dropped sharply, with women aged 15-24 recording one of the largest monthly falls on record outside the pandemic period. Adding to the complexity, total hours worked actually increased over the same period – suggesting workers are putting in more hours even as headcount declines.
The headline unemployment rate climbed to 4.5% – its highest point since late 2021 and above the RBA’s own forecasts for the June quarter (ABS, April 2026). Youth unemployment also spiked, reaching 11.1% for the 15-24 age group.
For business owners and borrowers, this matters because it signals that while the labour market remains broadly tight, early cracks are appearing. The weight of evidence continues to point toward the rate tightening cycle being at or very near its peak, though any further moves remain data-dependent. For businesses carrying variable rate debt, the message is cautious optimism rather than certainty – it is still too soon to assume rates have definitively peaked.
Capital Gains Tax: From Discount to Indexation
One of the most consequential budget proposals is the overhaul of how capital gains are taxed. Under the current rules, individuals, trusts, and partnerships that hold an asset for more than 12 months receive a 50% discount on any capital gain. The proposal would replace this with an inflation indexation model, where gains are first adjusted for inflation before a 30% minimum tax rate is applied to the remaining real gain.
The practical effect will depend on how much an asset has grown relative to inflation. In slower-growth environments, the indexation model may deliver a comparable outcome to the existing discount. In stronger markets where asset values have significantly outpaced inflation – as many business owners and property investors will have experienced over the past decade – the current 50% discount would generally have been more favourable.
The proposed start date is 1 July 2027, which provides meaningful planning runway. There is also a useful carve-out: investors purchasing eligible new-build properties may be able to choose between the indexation method and the existing 50% discount at the point of sale – a deliberate lever designed to continue directing investment toward housing supply.
For business owners with interests in companies, trusts, or other asset-heavy structures, now is the time to be having frank conversations with your adviser about how this proposal might interact with exit planning and long-term wealth arrangements.
Negative Gearing: A Structural Shift, Not a Death Knell
The proposed changes to negative gearing have generated the most public heat – and the most misconceptions. The core proposal is that from 1 July 2027, losses on newly acquired established residential investment properties will no longer be able to offset other income such as wages or business income. Instead, those losses will be quarantined and carried forward to offset future investment income or capital gains.
What this does not affect is equally significant. Existing investment properties held before 30 June 2027 remain fully grandfathered. New-build residential properties remain eligible for negative gearing. Commercial property and share investments are entirely unaffected.
Lenders are already adjusting. Some banks and non-banks have begun updating their servicing policies, indicating they will only recognise negative gearing tax benefits for properties purchased before 12 May 2026, eligible new-builds that add to housing supply, refinancing of existing pre-budget investment debt, and improvements to existing investment properties.
From a cash-flow perspective, removing the annual tax offset is material for the right borrower profile. One major bank’s analysis suggests the impact on highly leveraged investors can be roughly equivalent to a 90 to 155 basis point increase in their effective mortgage rate (CBA, May 2026). An investor with an $800,000 loan at 6.25% could find their after-tax holding position starting to feel more like 7.15% to 7.80% per annum – not because their rate has changed, but because the tax benefit subsidising holding costs has been removed.
Importantly, under the proposed framework, losses are expected to be quarantined rather than permanently forfeited – meaning some tax value is preserved to be applied against future rental income or capital gains events. The investors most exposed are those with high leverage, thin rental yields, and limited income buffers. Those with lower loan-to-value ratios and stronger cash flow are likely to weather the change with considerably less disruption.
Discretionary Trusts: A Structural Conversation Worth Having Now
The proposal to impose a 30% minimum tax rate on discretionary trust distributions from 1 July 2028 has attracted less public attention than the CGT and negative gearing changes – but it is generating significant discussion among business-owning families.
Family trusts have long been a cornerstone of wealth planning and income distribution in Australia. A 30% floor on distributions would reduce the flexibility of trusts as an income-splitting vehicle, particularly for higher-income families. This is not necessarily a reason to unwind existing structures today – but it is a compelling reason to review them with your accountant and understand how your current arrangements perform across a range of future policy scenarios.
Small Business: Some Genuine Good News
Amid the noise, there are real positives for small business in the budget proposals. A permanent loss carry-back rule would allow companies to offset current-year losses against prior profits, potentially generating a tax refund rather than simply carrying the loss forward. For businesses that have experienced a difficult trading year, this is a meaningful cash-flow tool that could free up working capital when it is needed most.
The $20,000 instant asset write-off is also proposed to become a permanent feature of the tax system – removing the uncertainty that has historically accompanied temporary extensions. For businesses planning equipment purchases, fleet additions, or technology upgrades, a permanent write-off creates a more stable planning environment. A refundable tax offset for qualifying startups rounds out the package, providing targeted support for early-stage ventures operating before they reach profitability.
The Broader Picture
None of this is happening in isolation. Business owners, brokers, and entrepreneurs across the finance and property sectors have been vocal in their concern that some of these proposals – particularly the CGT overhaul – could reduce the incentive to build, invest, and take meaningful risk in Australia. Roundtables have been convened in Sydney and Melbourne, with participants from finance, legal, accounting, and technology sectors warning that the reforms may dampen the long-term investment activity that drives productivity growth.
From a property market perspective, updated modelling suggests dwelling prices across Australia could be approximately 3% lower than they would otherwise have been under current policy settings (CBA, May 2026). That adjustment is expected to occur gradually over several years rather than through any sharp near-term correction. The biggest driver of softer housing conditions remains the cumulative weight of higher borrowing costs – the proposed tax reforms are expected to add pressure at the margins, particularly across investor-heavy segments like apartments and inner-city units.
Where to from Here?
The window between now and mid-2027 is your planning runway. For clients with significant investment or business assets, this means reviewing your current structures, understanding your exposure to the proposed changes, and making sure your debt arrangements are built for a slower-growth environment.
Every situation is different. Some clients will find these proposals have very little practical impact on their position. Others will want to move quickly on structure reviews and lending strategy. The only way to know which camp you are in is to model it properly – and sooner is better than later. In periods of policy uncertainty, some of the most valuable conversations are the ones focused on structure, timing, liquidity, and flexibility. Long-term wealth creation has historically adapted through multiple economic and political cycles, and the fundamentals of quality assets, manageable leverage, and disciplined strategy remain as relevant as ever.
If you would like to talk through how any of these developments might affect your current lending arrangements or future borrowing capacity, we would be happy to have that conversation. Reach out to the team at Broker.com.au.
The information in this article is general in nature and does not constitute personal financial, tax, or credit advice. Individual and business circumstances vary significantly, and nothing above should be relied upon as a substitute for tailored professional advice. We recommend speaking with your accountant, financial adviser, and mortgage broker before making any decisions based on the proposals outlined above.
