How Smart Property Investors May Restructure After the Budget
The 2026 Budget encourages property investors to reassess discretionary trusts, ownership structures, debt strategies, and portfolio composition. Proposed trust taxes, rollover relief, changes to negative gearing, and concessions for new builds may influence how investors hold assets, manage debt, diversify portfolios, and plan for long-term wealth creation.
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Introduction
The 2026 Federal Budget does more than change tax rates and deductions. It changes the incentives that have shaped Australian property investing for decades.
The reforms affect discretionary trusts, Capital Gains Tax (CGT), negative gearing, and asset ownership structures. Investors who built portfolios around the existing rules may find that strategies which worked well in the past deliver different outcomes under the new framework.
That does not mean investors need to make immediate changes. It does mean that reviewing ownership structures, debt arrangements, and portfolio construction may become a worthwhile exercise before the reforms take effect.
For property investors, the coming years may present one of the largest restructuring opportunities since the introduction of the CGT discount in 1999.
Why Restructuring Is Becoming a Discussion Point
The Budget seeks to:
Reduce tax-driven investment decisions.
Encourage investment into new housing supply.
Limit income splitting through discretionary trusts.
Create more neutral tax treatment across asset classes.
Reduce incentives to hold assets solely for tax reasons.
As a result, investors may begin reassessing structures that were originally established under a very different tax environment.
The objective is not necessarily to reduce tax. In many cases, it is to ensure ownership structures, financing arrangements, and investment strategies remain aligned with long-term wealth objectives.
Discretionary Trusts Face New Scrutiny
Discretionary trusts have been a popular wealth management vehicle for decades.
They can offer:
Asset protection benefits.
Estate planning flexibility.
Income distribution flexibility.
Succession planning advantages.
The Budget papers note that the number of discretionary trusts has more than doubled over the past 20 years and now exceeds one million.
From 1 July 2028, the Government proposes introducing a 30% minimum tax on the taxable income of discretionary trusts, paid directly by the trustee.
The stated objective is to reduce the use of income splitting arrangements that distribute income to beneficiaries on lower tax rates.
For investors who use discretionary trusts primarily for flexibility in distributing income, the new rules may alter the attractiveness of these structures.
The Three-Year Restructuring Window
Recognising that the proposed trust reforms represent a major change, the Government intends to provide expanded rollover relief for three years from 1 July 2027.
Rollover relief allows eligible investors to transfer assets between structures without immediately triggering:
Capital Gains Tax.
Income tax consequences.
Without rollover relief, restructuring often creates a tax liability that discourages change.
The proposed concession creates a window during which investors can review existing arrangements and determine whether alternative structures may be better suited to the new environment.
For families with property portfolios, investment companies, or multiple trusts, this period may warrant detailed strategic review.
Could Fixed Trusts Become More Attractive?
One possible outcome of the reforms is greater interest in fixed trust structures.
Unlike discretionary trusts, fixed trusts provide beneficiaries with predetermined entitlements to income and capital.
The proposed 30% minimum tax is not intended to apply to:
Fixed trusts.
Fixed testamentary trusts.
Widely held trusts.
Complying superannuation funds.
That does not mean fixed trusts are automatically better than discretionary trusts.
Each structure has different implications for:
Asset protection.
Estate planning.
Family control.
Tax management.
However, the differential treatment may encourage some investors to revisit whether their current structure remains appropriate.
Could Companies Become More Attractive?
Companies may also receive greater attention under the new rules.
Small companies with turnover below $10 million can access a 25% corporate tax rate.
Companies also allow profits to remain within the entity rather than being distributed immediately.
This can provide flexibility where investors wish to:
Retain earnings.
Build investment capital.
Fund future acquisitions.
Smooth cash flow over time.
The Budget also makes permanent a two-year loss carry-back regime for companies with turnover of up to $1 billion.
Under this arrangement, a company that incurs a tax loss may be able to receive a refund of tax paid in previous years.
This type of cash-flow support is not generally available through discretionary trust structures.
Whether incorporation makes sense depends on a range of factors, including future income requirements, succession objectives, and long-term exit strategies.
Why New Builds May Receive More Attention
The Budget effectively creates a two-tier system for residential property investment. New residential builds continue to receive the most favourable treatment.
Investors purchasing eligible new builds retain:
Full negative gearing benefits.
Access to the proposed CGT choice mechanism.
When the property is sold, investors may be able to choose between:
The traditional 50% CGT discount.
The new indexation and 30% minimum tax framework.
No equivalent flexibility is proposed for established residential properties acquired after the Budget announcement. This means investors evaluating future acquisitions may pay closer attention to new developments than they have in the past.
Reassessing Established Property Holdings
The negative gearing reforms affect established residential properties acquired after 12 May 2026.
Under the proposed rules, rental losses from these properties can no longer be deducted against salary or business income.
Instead, losses are quarantined and may only be applied against:
Residential rental income.
Residential property capital gains.
For investors who previously relied on negative gearing benefits to support highly leveraged property strategies, this changes the after-tax economics of future acquisitions.
Some investors may respond by:
Reducing leverage.
Increasing cash-flow requirements.
Focusing on higher-yielding assets.
Redirecting capital toward new builds.
The appropriate response depends on the investor's objectives rather than tax considerations alone.
What About Debt Recycling?
Debt recycling is likely to remain relevant under the new framework. The strategy involves converting non-deductible debt, such as a home loan, into deductible investment debt over time.
The Budget does not propose changes to debt recycling arrangements. As a result, investors may continue exploring strategies that improve the tax efficiency of debt while building diversified investment portfolios.
However, debt recycling should never be viewed purely as a tax strategy. The approach increases investment exposure and introduces additional risks, including market volatility and higher debt levels.
The suitability of debt recycling depends on an investor's cash flow, risk tolerance, and long-term objectives.
Could SMSFs Play a Larger Role?
The proposed reforms do not alter the taxation of superannuation funds. This means SMSFs remain subject to their existing tax framework.
For investors concerned about changes to CGT, discretionary trusts, or negative gearing outside superannuation, this distinction may prompt a review of how assets are allocated across different structures.
An SMSF may provide:
A separate tax environment.
Long-term retirement planning benefits.
Greater control over investment decisions.
However, SMSFs also involve compliance obligations, trustee responsibilities, and investment restrictions that need careful consideration.
The decision should be based on retirement objectives rather than tax considerations alone.
Diversification May Become More Valuable
The Budget reforms reduce the preferential treatment historically enjoyed by certain property investment strategies. As a result, some investors may revisit the balance of assets across their portfolios.
Diversification may involve exposure to:
Residential property.
Commercial property.
Australian shares.
International shares.
ETFs.
Fixed income investments.
Cash reserves.
The objective is not to abandon property investing.
Rather, it is to ensure that portfolio performance is not overly dependent on one asset class, one tax concession, or one legislative framework.
Investors whose wealth is heavily concentrated in residential property may wish to assess whether their portfolio remains aligned with their long-term goals.
Managing Debt in a Different Tax Environment
Debt management may become a larger focus under the proposed reforms.
When tax benefits are reduced, investment outcomes become more dependent on:
Rental income.
Asset performance.
Interest costs.
Cash flow management.
This may encourage investors to review:
Loan structures.
Interest rate exposure.
Debt levels.
Refinancing opportunities.
Investors who can maintain flexibility during periods of legislative change are often better positioned to respond to future opportunities.
What Should Property Investors Do Now?
The proposed reforms are not yet law, and the final legislation may differ from the Budget announcements.
However, the period between now and July 2028 provides an opportunity to review:
Trust structures
Company structures
SMSF arrangements
Property portfolios
Debt strategies
Estate planning objectives
The strongest restructuring decisions are usually driven by long-term wealth objectives rather than short-term tax outcomes. Investors who take the time to assess their structures before the reforms commence will be in a stronger position to adapt if the proposed changes proceed.
If you would like to understand how the proposed Budget reforms could affect your property portfolio, ownership structures, debt strategy, or long-term wealth plan, book a free 15-minute call with James Hayes for personalised financial planning advice.
Disclaimer
The information in this article is provided as a general guide only. It does not constitute personal financial advice and should not be relied upon as such. Readers should seek advice from a licensed financial adviser before making any financial decisions. James Hayes and his associated entities accept no responsibility or liability for any loss, damage, or action taken in reliance on the information contained in this article. Links to third-party websites are provided for reference purposes only. We do not endorse or guarantee the accuracy of their content.