The Federal Budget just changed retirement FOREVER

Hinzugefügt: 2026-05-25

[00:00:02]Last week, we saw the Australian government announce the 2026 budget, and boy did it come out swinging. From now on, the government will implement major changes to negative gearing, capital gains discounts, trust structures, and a whole lot more. And yes, these changes will have a massive impact on Australian retirees. So, in this video, I want to discuss the major changes you need to know about, what it means for your retirement, and I'll answer some of the most pressing questions I've been getting from my clients over the past week. Now, if you're retired or close to it, especially if you've owned a business or used to own a business during your career, last week's budget changed more for you than almost anyone else. And most of it wasn't on the front page, and a lot of it was in the detail of the budget documents, even though it should have been on the front page the next day, the next week. It was built as one of the most significant budgets in a generation. And for retirees and business owners, that's probably right.

[00:00:51]The headlines focused on negative gearing and the benefit for first home buyers of reducing negative gearing and hopefully seeing 75,000 more people buy new homes. But the real story for retirees is everywhere else. Changes to capital gains tax calculations, including a minimum tax rate. Pre1985 used to be exempt from CGT are back in the tax net. Family trusts and the companies underneath them or corporate beneficiary structures. These things are all becoming less beneficial and being directly attacked by this budget. If you build a business through a trust, pay very close attention. Today, we're going to talk about what's changing, what's not, what to do, and have a little small political view at the end. So, the first change, and one of the most important ones to talk about is the 30% CGT or capital gains tax law. From 1 July 2027, the 50% CG discount is gone for assets outside of super and assets purchased after that date. It is replaced by two things. The first one is an indexation of the cost base of the asset you purchase. This means that the initial value is increased by inflation or an agreed amount or amount prescribed by the government and only the portion above that index cost base is included in the capital gains tax calculation. In addition to this, you now have a minimum 30% tax rate. This is a flaw, not a ceiling. So if your marginal tax rate is below 30%, you're going to be paying significantly more in tax. And if your marginal tax rate is above it, you're going to pay the same high marginal tax rate and higher than 30%. So this actually impacts people on lower incomes or lower taxable incomes heading towards retirement. Indexation somewhat defensible increasing that cost base over time. It worked in the past. Why didn't we keep it going in the first place? The flaw, however, is is the pointed and the very dangerous part and the most aggressive part of this budget.

[00:02:31]And this is after decades of advice and this is what we we've continued to recommend in in recent years is that retirees as they build towards retirement, they plan towards retirement, they might have accumulated assets like properties or share portfolios outside of superanuation. It makes sense they start slowing down work. Their taxable income reduces. So you sell those appreciated assets. Once that taxable income is reduced, you have a lower income. You have a lower marginal tax rate. You're in a better position. Treasury said this out loud that they do not want people delaying the sale of assets. While it's focused on property, it impacts all asset classes with the flaw designed to stop this particular strategy specifically.

[00:03:08]The 30% rate is no accident. But there are two reassurances that came out and that I'd like to provide as a financial adviser that super is completely untouched. The 33% capital gains tax discount stays and pensioners, so those receiving an age pension are exempt from that 30% flaw. How this works though is it's actually additionally complicated by the transitional CGT option that has been put forward and that will be executed. And this is the part that most people get wrong. Property purchase before budget night isn't entirely off the hook. So you still get the 50% discount on gains you've already made.

[00:03:40]But anything from 1 July 2027 onwards is covered by these new rules. The gain gets split into two periods at 1 July 2027. Period 1 purchase to 30 June 2027 that gets the old rules. the 50% discount, the no minimum CGT rate, the second part, 1 July 2027 until the sale of your property. This gets the new rules, an index cost base plus the 30% floor on the minimum tax rate. There are two ways to split the gain. You can get a valuation as of 1 July 2027, which we know can cost money for shares. It's obviously a little bit easier to do that. Or you can use an aortionment formula based on the holding period.

[00:04:15]Here's a worked example that we put together assuming an asset was bought in 2020 and sold in 2030. Let's say it's a property. It was bought in 2020 for $500,000, valued at $800,000 on 1 July 2027, and sold in 2030 for $1 million.

[00:04:28]The 2020 to 2027 portion, there's a gain of $300,000. The 50% discount applies, and $150,000 of this is added to your taxable income. If you don't have any carry forward capital losses, this is then taxed at your marginal rate in 2030. From 2027 to 2030, the notional cost base is $800,000, which is then indexed with CPI for the three years until 2030. Say it's 3% per year. The cost base therefore increases from 800 to 873,000, meaning a real gain of $127,000 under the new transitional laws. That will then be applied at a 30% minimum tax rate, even if your marginal tax rate is lower, or your marginal tax rate if it's higher. The punch line here though is the longer you held before 1 July 2027, the more of your gain stays under the old rules. Long-held properties obviously benefit the most as well as properties bought close to budget night will be the most affected by this. Now the second big change wasn't caught up as much cuz all the focus was on negative gearing but is on the treatment of pre985 assets. Until last week, if you purchase an asset before 1985, it was completely exempt from capital gains. They've been CGT free for the last 40 years. that ends as of 1 July 2027. Beach houses bought in the 70s and 80s. Family properties held through generations, long held share parcels in companies that existed before 1985.

[00:05:46]Inherited assets that kept their pre85 status are now gone. The cost base now resets to market value as at 1 July 2027. So again, you need to value these assets. Anything after that point is taxable when it's sold. And this isn't a problem for the original owner who may never sell it. It's likely to be a problem for the kids who inherit and sell it later on. If your family holds pre985 CGT free assets, the next 14 months are the right time to revisit your estate plan and look a lot closer at this. The third change and one of the most impactful ones for small business owners and or those that ran businesses during their career is the change to family trusts. And for anyone who knows or has owned a business through a trust, this is where the real complexity sits.

[00:06:26]Discretionary trusts plus a private company are the backbone of small business structuring and they have been for the last 30 years. the 30% floor that has now been implemented for family trust distributing. So every part of the income from a family trust is now taxed at 30%. This completely changes the maths. It also makes the structure harder to live with. It doesn't mean it won't be beneficial at all. But a lot more planning and analysis needs to go into it. So from 1 July 2028, a 30% minimum tax will apply to family trust distributions at the trustee level. So the trust itself will have to calculate what tax is paid despite historically that tax being including the taxable income of the beneficiaries. The ability to distribute to lower taxed family members no longer works. Kids at university, a partner that isn't working as much at the time. This part is already being discussed heavily. The bucket company angle, the way you used to distribute income to a corporate beneficiary, that is being missed significantly. Trust income.

[00:07:20]Historically, if two partners were working and on the top marginal tax rate, they distribute to a company, and then have to pay tax again when they paid that money out of the company, say in retirement. The key here is that within that company, the tax rate was 30%. So, you ultimately had a cap tax rate of 30%. At least for a period of time. That's the base company tax rate.

[00:07:38]For passive income, that has always been a 30% tax rate. The new 30% trustee tax rate does two things. For active bucket companies that exist, it wipes out any advantage. But the strategic logic also starts to fall apart. There's no point parking that trust income in a company at 30% and then having to pay tax on the way out of it when you could just distribute it at 30%. The company significantly stops being a powerful tool and it starts becoming a problem.

[00:08:02]Companies become harder to deal with.

[00:08:04]They're harder to use and harder to unwind. You've still got division 7A issues which were there to protect from people getting benefits from a company.

[00:08:11]And rollover relief only applies to the capital gains tax impact of restructuring. What is that rollover relief? So, the government has allowed a CGT free rollover period from 1 July 2027 being a 3-year window to allow people to restructure their finances, whether they're closing down trusts or companies to do that without CGT. It solves the CGT cost of moving out, but it's a window and not a magic wand. Many retirees that I work with and self-funded retirees are former business owners. The legacy trusts and company structures are always in place and estate planning through trusts also is has becoming challenged by this and needs more structure and planning.

[00:08:47]Bucket companies in particular with retained earnings become awkward inheritances for the next generation.

[00:08:52]What's not affected? Testament trusts that exist at the announcement date. So this is important because testimeamentary trusts allow minor children or grandchildren to receive income at adult marginal tax rate if they exist at the time of the budget.

[00:09:04]This is new ones that are created after this aren't expected to still get that benefit according to the budget documents. The detail here is still being clarified. However, the next 14 months are a critical window in which you need to work with your accountant and your adviser and make sure your structures in place. The fourth major change and this is less relevant to this audience was essentially the abolishment or quarantining of negative gearing going forward. This obviously made the most headlines and this is the one most targeted at improving housing affordability. It's the least impactful for most retirees though because once you get to retirement, you've heard on this video many times. The benefit of taxdeductible income and being negative geared starts to reduce if you have lower taxable income. Existing investment properties are fully grandfathered from this, but new rules apply to established property bought after 7:30, so budget time on the 12th of May 2026. In this case, losses can still offset your rental income and used to reduce that capital gain when properties are sold in the future. It just cannot reduce your wages and your taxable income like it has in the past.

[00:10:02]New builds, however, keep that full negative gearing benefit. It's important to understand what a new build actually means and you need to go look at the legislation when it's actually passed.

[00:10:10]If you already own an investment property, you can all but ignore this one. It's more what you plan to do in the future. But importantly, at the time of reading and writing and recording this, we understand that investing into other asset classes other than residential property and investment property may be exempt from this or not included in this, which means you could still get that tax and negative gearing benefit if investing into shares, making it incredibly attractive option. So, what's safe before? That's probably worth touching on what hasn't changed.

[00:10:37]Super was completely untouched, probably the first time in 5 years. The 33% discount on capital gains tool exists.

[00:10:43]SMSFS were included. Pensioners are exempt. So if you're on the age pension, you're exempt from the CGT minimum tax law. Your main residence exemption remains unchanged and your home is still CGT free. Existing property investors are grandfathered. So they're not going to be as impacted and the small business CGT conditions are still preserved. And now we obviously try to keep these updates apolitical, but there's one observation that I have to make here is is that a lot of these things were ruled out by governments in in previous years only to be brought up once again. I'm not saying there's anything wrong with this. I think it's just important that we are aware and it probably reiterates the importance of planning ahead and not putting all your eggs in one basket, whether it's to do with strategy or investing solely for the purpose of taxation. So, what should people be doing now? Don't panic. Most changes don't take effect until 2027 or 2028, which means you have time. But don't sit still. You need to start thinking about whether you're going to value your assets again and understand what your priorities are for the next few months.

[00:11:40]pre-95 assets, you need to start thinking about reviewing your estate plan. Family trust and bucket company structures, it's important you go meet your adviser and your accountant and look at the restructuring options you're going to have available to you. If you're sitting on appreciated personal assets, direct shares, other property in your own name, it's important to ask your adviser or do it yourself and run those numbers. Importantly, most retirees will be fine, but the planning conversation has shifted significantly and those seeking to transition or plan for retirement need to seek advice more more aggressively and sooner than they probably have in the past. Especially business owners, if you got a trusted bucket company, pre85 assets, large personal portfolio, it's important to get in touch. The next 14 months is going to matter a lot. So, as always, thanks for watching this channel. If you're interested in understanding what impact the budget will have in your portfolio, please click the link in the notes of this video and please subscribe to the page if you like the information we're producing.