Three down, one to watch: Navigating the 2026 tax reforms

The 50 per cent capital gains tax (CGT) discount is gone, negative gearing has been quarantined, and SMSF property borrowing is all but finished but the measure that should be occupying advisers most hasn’t even made it into a bill.

This changes, announced on budget night with some modifications since then, abolishes the 50 per cent CGT discount, still includes a further measure still under proposal: a 30 per cent minimum tax on discretionary trust distributions.

The practical implications split cleanly along two lines that are easy to conflate but shouldn’t be. First, asset scope: the CGT changes apply broadly to every CGT asset – shares, managed funds, commercial property and residential property alike – held by individuals, trusts and partnerships. The negative gearing quarantine is far narrower: it applies only to established residential property, and leaves commercial property and shares (held in any structure, including personal name) completely untouched, with full deductibility against any income continuing exactly as before. Second, timing: two of the four measures below are already settled law, one is settled but not yet in force, and one remains a proposal – a distinction worth holding onto, since advice calibrated to a proposal needs to be revisited once (or if) it is actually legislated.

What has actually changed, and when

26 June 2026, Royal Assent: The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and the companion Income Tax Rates Amendment Act 2026 are now law, not proposals.

From 1 July 2027, CGT reform: the 50 per cent CGT discount for individuals, trusts and partnerships is abolished, replaced by cost-base indexation and a 30 per cent minimum tax on capital gains, reverting to the pre-1999 indexation approach used before the Ralph Review discount.

From 1 July 2027, negative gearing quarantine: losses on established residential property acquired after 7:30pm AEST 12 May 2026 are quarantined against rental income only, with excess losses carried forward. Properties held at Budget night, new-build dwellings, widely-held trusts and superannuation funds are excluded.

From 10 August 2026, SMSF limited recourse borrowing arrangement (LRBA) ban: added late as the price of Greens support in the Senate. SMSFs can no longer enter a new limited recourse borrowing arrangement to acquire property that is not ‘business real property’. In practice, most residential, mixed-use and primary production property not used wholly and solely in a business. Existing LRBAs, and new arrangements where contracts are exchanged before 10 August 2026, are grandfathered. Outright cash purchases and borrowing for genuine business real property are unaffected.

Proposed, from 1 July 2028, discretionary trust minimum tax: still in consultation, with no bill introduced. A three-year rollover window (1 July 2027 to 30 June 2030) is proposed to let discretionary trusts restructure into fixed trusts or companies without an immediate CGT charge.

Three of these four measures are now locked in: CGT reform, the negative gearing quarantine, and the SMSF LRBA ban. The fourth, and the one still worth the most attention, is the proposed trust minimum tax: it targets a different problem (income streaming within a trust) rather than an asset class or an investor type, and its final design turns on a boundary (discretionary versus fixed) that Treasury has not yet settled.

What’s left to be decided: The trust minimum tax

Announced in the FY27 budget, the proposed 30 per cent minimum tax on discretionary trust distributions from 1 July 2028 is not yet law. Treasury’s consultation paper, released 8 July 2026, is the first detailed account of how the measure would operate. Both the design and the discretionary/fixed trust boundary itself remain open questions.

Discretionary trusts: The likely target

Discretionary trusts are the plain target. The rationale is the trustee’s power to stream income to the lowest-taxed beneficiary each year; the minimum tax neutralises that by imposing a non-refundable 30 per cent floor at the trustee level. Corporate beneficiaries fare worst: under the consulted design they receive no credit for trustee-level tax at all, so a distribution can be taxed at the trust, then again at the company, producing an effective corporate-level rate as high as 51 per cent and up to roughly 63 to 70 per cent once ultimately paid to an individual shareholder. Franking credits attached to trust income are applied to reduce the trustee’s liability rather than flowing through freely to beneficiaries. The proposal also intersects with the High Court’s Bendel decision on unpaid present entitlements, which Treasury is addressing in the same paper.

The three-year rollover, from 1 July 2027 to 30 June 2030, lets a discretionary trust restructure into a company, fixed trust, or individual or partnership holding without an immediate CGT charge, though it currently excludes companies with multiple share classes that could replicate discretionary streaming, and its state tax and trust law interactions are still unresolved. For clients using a discretionary trust for income-splitting, the practical message is that the strategy has a use-by date, not that it is already obsolete.

Fixed trusts: Why they are unlikely to be caught

Fixed and widely-held trusts sit outside the announced measure: a fixed beneficiary’s vested, indefeasible interest leaves no streaming mechanism to police, and widely-held vehicles, including managed investment trusts (MITs) and attribution managed investment trusts (AMITs), already answer to separate integrity regimes under Division 6C and the Division 276 AMIT rules. The residual risk is definitional, not substantive. Current law has no standalone definition of discretionary trust; a trust is treated as discretionary only because it fails the fixed-trust test, so the burden falls on every trust to prove it is fixed, using a test that can be failed by a deed retaining ordinary, unexercised variation or amendment powers. Treasury’s own consultation paper acknowledges this could inadvertently capture modern commercial trusts, and is now seeking submissions on a purpose-built definition rather than the inherited one. Until that is resolved, a unit trust’s safety depends on deed drafting, not on how it actually operates.

Where this leaves planning right now

For anything built on the CGT, negative gearing or LRBA measures, the planning question is mechanical: apply the enacted rules and dates. For anything built on the trust minimum tax or on a fixed-trust classification, the planning question is closer to risk management: the direction of travel is reasonably clear (discretionary structures lose ground, genuinely fixed and widely-held structures largely retain it), but the final boundary is not yet drawn, and deed-level detail – particularly any retained trustee power to vary entitlements – is what will decide individual cases once it is.

Arthur Marusevich is a financial services lawyer with expertise in superannuation and investments.