Negative Gearing Shake-Up: What Investors Must Know
New negative gearing rules take effect July 2027 and a 30% minimum trust tax has a Friday deadline — what property investors need to know now.
Australia's investment property landscape is being reshaped by a package of tax changes that affect how investors structure their borrowing, what types of properties remain eligible for tax concessions, and how income from those properties is taxed. Two separate measures — a proposed 30 per cent minimum tax on discretionary trust distributions and significant changes to negative gearing and capital gains tax — are moving through the system simultaneously, with a critical consultation deadline landing this Friday.
The Discretionary Trust Tax: What's Changing and the Exit Penalty Problem
Under the current system, a discretionary trust generally pays no tax at the trustee level. Income is distributed to beneficiaries who are taxed at their own marginal rate. This structure allows income splitting — a trustee directs distributions toward family members on lower personal tax rates, reducing the household's overall tax bill. Many property investors, as well as mortgage brokerages and small businesses, operate through this structure for tax efficiency and asset protection purposes.
At the May Budget, Labor announced a flat 30 per cent minimum tax on discretionary trust distributions. Following industry pushback, the government offered a concession: existing discretionary trusts can make a one-off election to nominate fixed beneficiaries, preserving the current tax treatment for those recipients.
The problem is what happens if circumstances change. If a trustee later directs income to a beneficiary outside the fixed election — for example, a son or daughter who joins the family business — the trust loses the concession and is taxed at the top marginal rate of up to 47 per cent, plus the Medicare levy, for that year.
The Council of Small Business Organisations Australia (COSBOA) has pushed back hard on that exit penalty. CEO Skye Cappuccio called the exposure draft legislation "bad policy that will hurt small business", arguing the 47 per cent exit rate is unnecessary when a simpler alternative already exists: simply moving to the 30 per cent minimum tax.
"Family businesses evolve," Cappuccio said. "A son or daughter might come home and start working in the business. These are normal decisions for a family business."
Commercial and Asset Finance Brokers Association CEO David Bushby said he is "deeply concerned that these complex new rules and valuation requirements will adversely impact our members and their commercial clients, leading to unintended consequences." Finance Brokers Association of Australia chief Peter White cautioned that the reforms risk hurting "younger Australians, as well as many other people on lower incomes — the very people it seeks to help."
Treasury's consultation on the exposure draft closes this Friday, 18 September. MPA Australia's full reporting on the trust tax is available here.
Negative Gearing and CGT: The Investor Deadline That Cannot Be Ignored
The trust tax is one piece of a broader reshaping of investment property taxation. Two additional changes — to negative gearing and the capital gains tax discount — are equally significant for anyone assessing their borrowing and portfolio strategy right now.
Negative gearing benefits are being preserved for existing investment properties. However, for future purchases, the concession will be limited to new builds only, effective from July 2027. From that date, an investor buying an established rental property will no longer be able to offset rental losses against their personal income in the way they currently can.
The 50 per cent capital gains tax discount is also being replaced. The new model combines cost-base indexation with a 30 per cent minimum tax on net capital gains — representing, as MPA Australia reports, the most significant shake-up of investment property taxation in a generation.
These changes are already reshaping how investors think about their next purchase. Ray White research, cited by MPA Australia, is pointing brokers toward regional markets offering yields above 15 per cent, as new negative gearing rules push investor demand toward established housing — where new supply is not an option and existing access to negative gearing is preserved for those who purchase before July 2027.
REIA president Jacob Caine has warned that policies weakening investment confidence risk making Australia's housing affordability imbalance worse. When investor activity slows, rental supply tends to tighten — and it is already tight, with vacancy rates below 3 per cent in every Australian capital city. The structural undersupply driving rents higher is not a problem that resolves itself when investors step back from the market.
What Property Investors Should Do Before the Rules Change
If your investment property or business is structured through a discretionary trust, speaking to your accountant or tax adviser before Friday 18 September is the immediate priority. The consultation window on the exposure draft closes then, and the bill is expected to move toward Parliament shortly after.
More broadly, if you are planning to buy an investment property in the next 12 to 18 months, the timing of that purchase now carries real tax consequences. Established properties purchased before July 2027 retain access to negative gearing on the current basis. Properties purchased after that date will face the revised, more restricted rules.
For investors with existing loans, this is also a sound time to review whether your rate remains competitive. Use our investor home loan comparison to benchmark your current rate against the market. And if you are considering expanding your portfolio before the rules change, our borrowing power calculator can help you model what additional debt capacity you have in the current environment.
The window for purchasing established investment properties under the current negative gearing framework is narrowing. For investors who have been weighing their next move, the July 2027 deadline is now one of the most important dates on the calendar — not because property prices will necessarily change, but because the tax treatment of new purchases will change substantially.
Compare investor home loans to see what the current market is offering, or explore refinance options for your existing portfolio.