The 2026 Federal Budget confirms a clear shift in the direction of Australia’s taxation landscape. What is emerging is not a series of isolated policy changes, but reforms that suggest a broader recalibration of the settings that have historically underpinned wealth accumulation.
The changes to capital gains tax (CGT), trust taxation and super’s new Division 296 tax are not standalone adjustments. Once enacted, together they will represent a coordinated rebalancing across the methods commonly used by Australian families to accumulate, manage and transfer wealth, prompting a reassessment of how wealth is structured both today and over the long term. In practical terms, this is translating into a steady narrowing of the tax-effective investment approaches Australians have relied on for decades.
This also has implications at a generational level. The combination of proposed changes to the taxation of trusts, capital gains and super represents a meaningful time to review how wealth is accumulated and transferred. The mechanisms that enabled families to support the next generation in real time are becoming less tax effective, with a likely shift toward larger, less frequent transfers over time.
Capital gains tax reform: a cross-asset reset
The government is proposing to remove the 50% CGT discount with effect from 1 July 2027 and replace it with cost base indexation for assets held for more than 12 months, with a 30 per cent minimum tax on net capital gains, including for pre-1985 assets¹. There will be a transition period whereby the current CGT discount and CGT exemption for pre-1985 assets will be retained for gains which arise prior to 1 July 2027 and the revised arrangements will apply to gains which arise thereafter².
The most significant impact of the proposed CGT changes is not the tax itself, but the uncertainty now embedded in long-held planning assumptions.
For investors who have built wealth around the CGT discount, particularly those holding multiple investment properties, the question becomes structural: whether to crystallise gains ahead of implementation or hold and accept a potentially lower after-tax return profile over time.
For accumulators, the changes reopen the asset allocation conversation. For pre-retirees, particularly those approaching drawdown, the trade-off becomes more immediate. Decisions around timing, liquidity and tax outcomes carry greater weight in a compressed timeframe.
There is also a broader market dynamic. If a significant cohort of investors move to realise gains ahead of implementation, this could place downward pressure on asset prices. At the same time, capital may rotate, with some reallocation from property into equities or other asset classes.
The mechanics of the changes add further complexity. Under the grandfathering model announced, accrued gains are preserved under the current CGT discount regime, while future gains are taxed under an indexation model. While this may evade retrospective impact, it will introduce more complex calculations at the point of sale and likely to reduce after-tax returns on gains from here.
The broader implication is clear: planning assumptions that have held for decades are being reformed simultaneously across multiple investment vehicles.
Where growth remains the objective, holding periods are likely to extend. The ability to defer capital gains becomes more valuable, increasing demand for control over the timing of realisation. At the same time, the indexation model to establish the cost-base may (depending on inflation levels) increase the proportion of gains subject to tax, thereby raising the likelihood of bracket creep at the point of realisation and higher tax rates.
Trust taxation: a structural shift
Proposed changes to trust taxation represent a second, equally significant shift. A move toward a minimum 30% tax on distributions from discretionary trusts to all beneficiaries would materially reduce the effectiveness of discretionary trusts as flexible, income streaming vehicles for family groups (with potential double taxation for corporate beneficiaries in the absence of an available tax offset).
In practice, this may be the end for the use of the discretionary trust as a income streaming tool. Australian families have used discretionary trusts for decades to protect assets and also, enjoyed ancillary benefits from income streaming between a high-earning spouse, a partner out of the workforce, and adult children at universities. If those distributions are taxed at a minimum of 30%, most of the tax benefits go. Now, families who have structured their affairs having in mind the ancillary advantages of income streaming, will need to rethink their whole approach.
The families most exposed are professionals who built their affairs around income streaming like doctors, dentists, accountants, lawyers or consultants, but also other small businesses that operate with trust owners. The real question is — where should their capital stay or go from here?
Bucket companies, super, investment bonds, even retaining income in the trust itself, each has a role and trade-offs. What is changing is not the availability of structures, but revisiting how they’re used in combination.
Investment bonds: certainty in a legislated uncertain environment
With a convergence of policy shifts — from super through to capital gains tax, negative gearing and trusts — investment bonds are emerging as a compelling alternative for investors seeking a tax-effective and historically legislatively certain structure.
Investment bonds are taxed in the life company at a maximum rate of 30%. While this may appear comparable to trust distribution rates, Generation Life’s tax optimisation within its investment bond structure can result in effective tax rates of around 10 –15%³ over the long term. Importantly, after a 10-year holding period, investment returns can be withdrawn tax-free in the hands of the investor (whilst still being subject to up to 30% tax in the life company).
Unlike super, investment bonds have no contribution caps, preservation age or balance thresholds triggering additional tax. And when it comes to passing on wealth, there’s no death tax for distributions out of an investment bond. Whereas there can be a death tax for death benefits paid out of superannuation. Unlike trusts, they do not distribute income and can also be held within a trust structure. After 10 years, proceeds can be distributed without further tax in the hands of trust beneficiaries.
From an intergenerational perspective, investment bonds also offer features not typically available through trusts under the evolving regime. Investment bonds can be structured as non-estate assets, are subject to protection under bankruptcy laws, facilitating a tax-effective transfer of wealth outside the estate and without the administrative burden increasingly associated with testamentary or discretionary trusts.
The bigger role of advice in a more complex planning environment
For financial advisers, these changes elevate the role of advice. In many respects, advisers are increasingly acting as interpreters of complexity – translating evolving policy settings into clear, practical guidance that supports informed decision-making.
Confidence becomes a tangible outcome of that process. It enables clients to remain committed to long-term strategies, not make reactive decisions, and proactively be acting in their best interests as tax and retirement settings continue to evolve.
This, in turn, places an importance on disciplined portfolio construction, clear strategic frameworks, and consistency in client outcomes.
Reframing uncertainty into new opportunities
Taken together, these measures signal a consistent direction of travel: traditional concessions can no longer always be relied upon as the foundation for long-term planning.
Importantly, the most immediate challenge for investors is not the tax impact in isolation, but the uncertainty now embedded in long-standing assumptions. Decisions that were made over many years around property, trusts and capital gains, were based in a relatively stable policy environment. That stability is now being tested.
None of this suggests that core strategies and investment arrangements such as trusts, property or super will disappear. Rather, their roles are evolving. Each will continue to have a place, but within a broader, more deliberate approach to structuring wealth.
As the combined effect of the proposed changes reshapes traditional approaches, greater attention is likely to be given to complementary vehicles that offer more predictable outcomes. Investment bonds are one example, a tax-paid structure that provides a defined legislative framework and, over time, greater certainty in after-tax outcomes, while sitting alongside a diversified portfolio.
In that sense, the Budget does not close off opportunities. It reframes them to create new ones.
1. Subject to certain carve outs. These changes will cover all asset classes including shares, property, and managed funds held by individuals, most trusts and partnerships. Super funds are expected to continue to be able to access the existing 1/3rd CGT discount with clarification needed on the treatment of trust gains which flow to super funds. There will be an exception for new residential property builds for which there will be a choice to apply the CGT discount or cost base indexation.
2. Thereby, likely to require a determination of the market value of relevant assets as at 1 July 2027.
3. Estimated average tax rates being the estimated average annual tax as a percentage of earnings for each 12-month period over a period of 15 years. Actual tax amounts payable are not guaranteed and may vary from year to year based on, amongst other things, the earnings of an investment option.
