Here's a simple breakdown of what's been proposed and what it could mean for business owners, investors and professionals.
What the proposed negative gearing changes could mean for investors
Negative gearing has been one of the most talked-about parts of the Budget.
Under the proposal, people who buy an existing investment property after Budget night may no longer be able to use rental losses to reduce tax on their salary or other income. Instead, those losses would generally need to be carried forward and used against future rental income or capital gains from residential property.
For many existing investors, the proposed grandfathering rules mean very little is expected to change. If you already owned an investment property, or had exchanged contracts before the Budget announcement, the current rules are expected to continue to apply.
If you're planning to buy an investment property in the future, the numbers may look different under the new rules. That doesn't automatically make property a bad investment, but it does mean investors may need to be more selective and think carefully about long-term returns.
The proposed changes only apply to residential property. Commercial property, shares and other investments are not expected to be affected.
What the proposed capital gains tax changes could mean for investors
If you've built wealth through property, shares or business assets, one of the biggest changes to watch is the proposed overhaul of capital gains tax (CGT).
At the moment, people who hold an asset for more than 12 months can generally reduce the taxable gain they pay tax on by 50% when they sell.
The Government is proposing to replace this system from 1 July 2027 with:
- Cost base indexation to account for inflation
- A 30% minimum tax on capital gains
The changes would apply to a wide range of assets, including investment properties, commercial property, shares and business assets.
Importantly, gains that build up before 1 July 2027 are expected to remain eligible for the current rules.
What does that mean in practice?
For some investors, the amount of tax they pay when selling an asset could increase. For others, the impact may be minimal. It all depends on what you own, how long you've owned it and your individual circumstances.
That's why it's important to look beyond the headlines and understand how the changes may apply to you.
What the proposed trust changes could mean for business owners and families
Family trusts have long been a popular structure for business owners and investors because they offer flexibility when distributing income.
The Budget proposes introducing a 30% minimum tax rate on discretionary trust income.
If introduced, this could reduce some of the tax advantages that trusts currently provide for families and business owners.
For some people, the impact may be relatively small. For others, it could mean paying significantly more tax on the same level of income.
That doesn't mean trusts suddenly become a bad structure.
Trusts can still play an important role in asset protection, succession planning and investment ownership. However, the proposed changes may mean it's time to review whether your current structure is still the right fit for your circumstances.
Should you be making changes now?
This is probably the question we're hearing most.
For most people, the answer is no, not yet.
Many of the proposed changes are still working their way through Parliament and there is plenty of time before most are expected to start.
Making major decisions based on media headlines can sometimes create more problems than it solves.
Instead, now is a good opportunity to review your current position and understand where you might be exposed if the changes go ahead.
For some people, no action may be needed at all.
For others, it may be worth exploring whether a different ownership structure, investment strategy or business setup could deliver a better outcome over the long term.
What should you do now?
Rather than reacting to the headlines, consider using this time to:
- Review your investment portfolio
- Understand how the proposed changes could affect future investments
- Review your business or trust structure
- Consider how future tax outcomes may change
- Seek advice before making any major decisions
The right strategy will look different for everyone. What works for one investor or business owner may not work for another.
Not sure what this means for you?
The headlines can make these changes sound dramatic, but the reality is that everyone's situation is different.
A proposed change that has a major impact on one person might have very little effect on someone else.
If you're unsure how these proposed changes could affect you, that's where a conversation can help. We can explain what the changes mean, look at how they might apply to your situation and help you understand your options.
Get in touch with Lead Advisory Group if you'd like to talk through what these proposed changes could mean for you.
