The 2026-27 Federal Budget, handed down on 12 May 2026, is not a budget that affects only one corner of legal practice. The structural changes to capital gains tax, negative gearing, discretionary trusts, business tax concessions, research and development incentives, and immigration settings each carry direct implications for practitioners across property, family, estate, commercial, and immigration law. For firms of any size or specialisation, the next 12 months will bring client questions shaped by this budget, and the practitioners best placed to answer them will be those who understood the changes before the calls started coming in.
From 1 July 2027, the longstanding 50 per cent capital gains tax discount for individuals and trusts will be replaced by CPI-based cost base indexation. A minimum tax rate of 30 per cent on net capital gains will also apply from the same date. For property lawyers and conveyancers, this shift is consequential on two fronts.
First, clients who have been holding investment properties with a view to selling in a few years will begin recalculating their position. In a market where property values have appreciated substantially over the past decade, the difference between a 50 per cent discount and CPI indexation is meaningful, particularly for assets purchased in the mid-2000s or earlier. Expect an uptick in pre-July 2027 disposal activity as vendors move to realise gains under the existing regime.
Second, the transitional arrangements introduce a layer of complexity that practitioners will need to navigate carefully. For assets held before 1 July 2027 and sold after that date, gains are split across two periods, with the old discount applying to pre-transition gains and the new indexation and minimum tax applying to post-transition gains. Practitioners will need to work through valuation questions at 1 July 2027, which the ATO has indicated it will support with guidance and calculation tools, but which will nonetheless require careful attention during the conveyancing and settlement process.
The 30 per cent minimum tax also has an important carve-out. Individuals receiving means-tested income support payments such as the Age Pension are exempt, a detail that will surface in estate and family law contexts where asset realisation coincides with changes in a client’s income support status.
The budget draws a clear line in the property investment landscape. From 1 July 2027, losses from established residential properties will only be deductible against rental income or capital gains from residential property, not against other income such as wages. Losses in excess of residential property income will be carried forward.
The critical distinction for practitioners is between established properties and eligible new builds. New builds, defined broadly as dwellings that genuinely add to housing supply, including newly constructed apartments, duplexes replacing single dwellings, and residential construction on previously vacant land, remain fully negatively geared and unaffected by the changes.
The boundary between an eligible new build and an established property is not always self-evident. A property extended to add bedrooms is not an eligible new build. A knockdown-rebuild that replaces one house with one house is not an eligible new build. A duplex replacing a single dwelling is. A newly built property occupied for less than 12 months before first sale qualifies; one occupied for more than 12 months does not.
These distinctions will surface in due diligence, in contract reviews, and in the questions clients ask when purchasing investment properties. Conveyancers and property lawyers are well-placed to help clients understand the implications of the property type they are acquiring, even if the tax advice itself sits with their accountant.
For properties acquired on or after 7:30pm AEST on 12 May 2026, the new rules will apply from 1 July 2027. Properties held at announcement retain their existing negative gearing entitlements indefinitely.
From 1 July 2028, trustees will be required to pay a minimum tax of 30 per cent on the taxable income of discretionary trusts. The measure is designed to limit the tax benefit of distributing trust income to low-tax-rate beneficiaries, a strategy that has been a cornerstone of estate and wealth planning for decades.
The impact on practitioners will be most visible in estate planning work and in matters involving small business or family property held through a discretionary trust structure.
The government has announced a three-year rollover relief window from 1 July 2027, allowing small businesses and others to restructure out of discretionary trusts into companies or fixed trusts without triggering CGT or other income tax consequences. For practitioners advising clients who hold property or business assets through discretionary trusts, the period between now and mid-2027 represents a meaningful planning opportunity that is worth raising proactively with clients rather than waiting for them to ask.
Widely held trusts, complying superannuation funds, special disability trusts, deceased estates, and charitable trusts are all excluded from the minimum tax. Fixed and widely held testamentary trusts are also excluded, which limits the direct impact on estate administration work, though the interaction with discretionary testamentary trusts warrants careful attention in drafting and advice.
Family lawyers will encounter the budget’s CGT and trust changes most acutely in property settlements and financial agreements. When separating couples hold investment properties or assets in discretionary trusts, the new CGT regime and the minimum trust tax will affect the after-tax value of those assets and therefore the shape of equitable settlements.
The transitional valuation requirement at 1 July 2027 introduces a new reference point that will be relevant in consent orders and binding financial agreements where asset values need to be established. Practitioners negotiating settlements that straddle the transition date should be alert to the impact the new minimum tax rate may have on the net proceeds a client receives from an asset disposal.
The Age Pension exemption from the 30 per cent minimum capital gains tax is also relevant in matters involving older clients where asset realisation and income support eligibility intersect. Ensuring that financial agreements accurately reflect the tax position of each party, particularly where one party receives means-tested payments, will become a more material consideration in settlement negotiations.
Superannuation funds are carved out of the CGT discount changes entirely, retaining their existing 33.3 per cent discount on assets held for more than 12 months. Self-managed superannuation funds are also excluded from the negative gearing changes and from the minimum tax on discretionary trusts. For practitioners advising clients on property or investment assets held within an SMSF structure, the existing framework remains in place, and the budget has not altered the relative advantages of that structure.
Several of the budget’s business tax measures will generate advisory work for commercial lawyers, particularly those supporting small and medium enterprises.
The permanent extension of the $20,000 instant asset write-off for businesses with turnover up to $10 million, effective from 1 July 2026, removes the uncertainty that has surrounded this concession for years and gives business clients a stable planning horizon. The reintroduction of a permanent two-year loss carry-back for companies with less than $1 billion in aggregated global annual turnover, also from 1 July 2026, is relevant for clients in cyclical industries or those managing the aftermath of a difficult trading period.
The reforms to the Research and Development Tax Incentive, taking effect from 1 July 2028, are significant for lawyers advising technology, life sciences, and manufacturing clients. The R&D premium will increase by 4.5 percentage points across all offset rates, but the removal of eligibility for supporting R&D activities narrows the scope of what qualifies. Based on government data from 2023-24, supporting R&D activities represent approximately 29 per cent of claimed R&D expenditure, meaning clients who have relied on this component of the incentive will need to reassess their claims architecture well before 2028.
The expanded venture capital thresholds taking effect from 1 July 2027 are relevant for lawyers advising early-stage companies and their investors. The asset size cap for venture capital limited partnerships rises from $250 million to $480 million, and the early-stage venture capital limited partnership cap increases from $50 million to $80 million. These changes widen the pool of investee businesses that qualify for the programme and should be factored into investment structure advice.
The period between now and 1 July 2027 is likely to see elevated activity across multiple practice areas, as clients assess the implications of the new CGT and negative gearing rules, explore trust restructuring options, and respond to the changed business tax environment. Practitioners who engage with these changes now, across all areas of their practice, rather than at the point of individual transactions, will be better placed to guide clients through decisions that carry long-term financial consequences.
The trust restructuring window in particular is time-limited and will reward proactive outreach to existing clients holding assets in discretionary structures. The same applies to commercial clients with R&D claims who will need to understand how the removal of supporting activity eligibility affects their position before 2028.
Staying across the architecture of these changes, including the transitional arrangements, the eligibility boundaries, and the carve-outs, is the foundation for the advice clients will rely on in the months ahead. The firms that treat this budget as a conversation starter rather than a compliance checklist will be the ones clients remember when more complex questions arise.
*This article is intended as a general overview of selected 2026-27 Federal Budget measures. It does not constitute legal or tax advice. Practitioners should refer clients to qualified tax advisers for guidance specific to their circumstances.
