Australian Government Proposes Comprehensive Tax Reform Package Targeting Housing Affordability and Investment

"The reforms are expected to help an additional 75,000 Australians into home ownership over the next decade."

Australia’s Tax Overhaul: A Deep Dive into Negative Gearing, CGT, and Trust Changes

The Australian federal government has announced a significant overhaul of the tax system, including changes to negative gearing, capital gains tax (CGT), and family trusts, as part of its broader budget strategy. The reforms, introduced by Treasurer Jim Chalmers, aim to address housing affordability and intergenerational equity. The package has generated substantial debate among political parties, business groups, and investors, and has been subject to amendments during the legislative process.

Overview of Tax Reforms

The government's tax reform package includes several key measures that were announced in the federal budget and subsequently debated in parliament. The core changes involve modifications to negative gearing, the capital gains tax discount, and the taxation of trusts.

Investment properties purchased after 7:30 PM on budget night (12 May 2026) will no longer be eligible for negative gearing from 1 July 2027. Losses from these properties can only be offset against other residential property income or carried forward. Exceptions include new builds and certain government housing programs. Existing investment properties purchased before this date are not affected by the change.

The current 50% capital gains tax (CGT) discount for assets held longer than 12 months will be replaced. From 1 July 2027, a cost-base indexation system will be introduced, adjusting the gain for inflation and taxing only the "real" increase in value. A minimum 30% tax rate on capital gains will also apply from that date. For investors building new residential properties, the existing 50% discount will remain an option.

A 30% minimum tax on discretionary trusts will be introduced from 1 July 2028. Exemptions from this tax include fixed trusts, superannuation funds, special disability trusts, deceased estates, charitable trusts, and some farming income.

Grandfathering and Transitional Arrangements

The government has indicated that changes will not apply to existing asset holders, with transitional arrangements in place. For assets purchased before the start date, capital gains up to 30 June 2027 will retain the 50% discount, while gains after that date will be subject to the new inflation-linked regime.

Impact on Housing Market

Treasury estimates indicate the changes will reduce property price growth by approximately 2%, or $19,000 per property, for a couple of years.

The reforms are expected to help an additional 75,000 Australians into home ownership over the next decade. However, Treasury modeling also projects 35,000 fewer homes will be built over 10 years, with a median rent increase of $2 per week. Separate analysis by Westpac suggests dwelling prices could fall by 3% in Sydney and 4% in Melbourne due to the tax changes and expected interest rate rises.

Political and Business Reactions

The reforms have drawn varied responses. The government states the plan aims to rebalance the tax system towards taxing assets rather than incomes. The Coalition and property lobby groups have argued that scaling back tax breaks will reduce supply and negatively affect affordability, particularly for renters. The Coalition has stated it will repeal the changes if elected.

Business groups, including the Australian Chamber of Commerce and Industry, the Business Council of Australia, and the Council of Small Business Organisations Australia, have called on parliament to reject the legislation, arguing it will affect businesses of all sizes and discourage investment. The startup sector has criticized the changes, with figures like Seek co-founder Paul Bassat and Canva co-founder Cliff Obrecht voicing concerns about impacts on entrepreneurship and innovation.

The Greens have supported the bill after securing additional amendments, including a ban on self-managed super funds (SMSFs) borrowing to purchase residential property and an extended inquiry into National Disability Insurance Scheme (NDIS) reforms.

Negotiations and Legislative Amendments

Following consultation and criticism, the government announced several amendments to the tax package:

• Small Business CGT Concessions: The turnover threshold for the existing small business 50% active asset CGT reduction will be increased from $2 million to $10 million, making an estimated 2.7 million small businesses eligible.
• Startup Concessions: A consultation paper has been released on the design of a new Innovative Business CGT Concession, proposing a 50% CGT discount for early-stage investors, including founders and employee share scheme participants of innovative start-ups.
• Testamentary Trusts: Income from all types of testamentary trusts will be exempt from the minimum tax, including future discretionary testamentary trusts.

The government has also indicated openness to retaining the 50% CGT discount for startups that meet specific criteria, with definitions for "innovative startup" to be established through consultation.

Legislative Process

The tax changes were introduced as an omnibus bill and passed the House of Representatives. The Senate passed the budget overhaul, which includes the CGT and negative gearing changes, the $250 income tax offset, and the $1,000 instant tax deduction for workers. The legislation implements a mandatory 'loss-ordering' mechanism for capital losses, requiring investors to apply losses first against older gains eligible for the 50% CGT discount before using them against newer gains.

The budget did not extend the fuel excise cut beyond June. The government stated it would review the arrangements on a week-to-week basis and decide closer to the end of the month.