Investing under a new tax regime

The 2026 Budget announced a number of key changes, including the treatment of Capital Gains Tax, that will impact investments. Stuart Sheary (Institute of Financial Professionals Australia) and Chris Brycki (Stockpot) consider how portfolios should respond to a new tax environment where capital gains are less favourably treated

In this year’s Federal Budget, the Government announced a number of tax changes that will significantly impact portfolios and the investment recommendations advisers make to their clients. Stuart Sheary CFP^® — Senior Technical Services Specialist at the Institute of Financial Professionals Australia — believes the legislated changes that advisers need to be particularly aware of are:

• Limited Recourse Borrowing Arrangement (LRBA) restrictions on real property;
• Changes to negative gearing on residential property;
• A 30 per cent minimum tax on capital gains accrued post 1 July 2027; and
• Removal of the 12-month 50 per cent CGT discount on gains accrued post 1 July 2027.

By Jayson Forrest

Continued.....

In a session on ‘How the budget changes your investment recommendations’ at the 2026 IMAP Advice in Action Conference, Stuart provided an overview of these four legislated changes.

1. Ban on residential property LRBAs

While investors can still use an LRBA to purchase business real property, it can only be done if it satisfies the business real property definition, which is: the property must be wholly and exclusively used in one or more businesses.

As for residential property, from 10 August 2026, investors cannot enter into an LRBA to buy residential property. “However, grandfathering provisions are in place for investors who have already entered into arrangements to purchase residential property prior to 10 August. In addition, refinancing of existing arrangements will also be grandfathered,” says Stuart. 

2. Negative gearing changes

These changes only apply for investment properties bought after 7:30pm on 12 May 2026. The main changes include:

New purchases: Starting from 1 July 2027, the ATO will limit negative gearing for residential property investments to new builds. If you buy an established (older) residential home after 7:30pm on 12 May 2026, you cannot use rental losses to lower the tax on your salary, wages, or other personal income.

Quarantined losses: You can only deduct rental losses from these new established properties against residential rental income or future capital gains from residential property. You can also carry unused losses forward to future financial years.

New builds exemption: If you invest in a newly built residential property, you can still access standard negative gearing rules.

There are also grandfathering and exceptions with these negative gearing changes. These include:

Existing properties: If you already own an established property or signed a contract before 7:30pm on 12 May 2026, your current negative gearing rules stay the same.

Special entities: Complying superannuation funds and widely held unit trusts are exempt from these changes.

3. Capital Gains Tax (CGT) changes

These changes apply to all CGT assets, like shares, and not just real property. They include three key elements:

1. For assets bought and sold before 1 July 2027, there are no changes to the current system — the 50 per cent CGT discount applies.

2. For assets bought before but sold from 1 July 2027, gains accrued up to 30 June 2027 receive the 50 per cent CGT discount. However, any gains accrued from 1 July 2027 will be subject to the  cost base inflation indexation method (used to adjust an asset’s original purchase price and eligible holding costs upward in line with inflation [measured by the Consumer Price Index], so that investors are only taxed on their ‘real’ inflation-adjusted capital gains) and a minimum 30 per cent tax rate thereafter.

3. For assets bought and sold from 1 July 2027, the new rules apply, which means indexation and a minimum 30 per cent tax rate only (however, exclusions apply, like on new residential builds and for certain income support payments, such as the Age Pension).

“For an adviser who has a client on the cusp of getting the Age Pension, there might be an incentive to put in strategies to help them receive one fortnight of Age Pension in the year in which they are going to realise a gain, in order not to be subject to that minimum 30 per cent tax,” says Stuart.

It should be noted that personal deductible superannuation contributions will not reduce the minimum 30 per cent tax. This means if a client realises a gain of $50,000 and they make a personal deductible contribution of $20,000, their minimum tax is still going to be 30 per cent on the $50,000 and not 30 per cent on $30,000.

However, Stuart adds charitable donations can reduce the tax on capital gains.

Chris believes direct investments outside super is probably the most important but least understood part of the CGT reforms, which centres on how the indexation calculation is applied to investments for capital gains purposes.

He explains: “In the past, if you had an investment in a portfolio with a positive return and a negative return, they helped to offset each other nominally. This meant you paid tax on the difference between the winners and the losers in your portfolio.

“However, under the new CGT system, you’re going to be paying more tax on the winners in your portfolio, because you are now subject to indexation — where the asset cost base will be indexed in line with inflation (CPI) and you will only be taxed on the real inflation-adjusted capital gains — and not the 50 per cent CGT discount.

“But there’s a problem now. For the losers in your portfolio, you’re only able to use the nominal losses, not the real losses. That has enormous consequences for investments in a portfolio. That’s because most investor portfolios aren’t only made up of winning investments that have positive, real and nominal returns. Instead, most portfolios are actually a basket of investment winners and losers.”

While the benefits of portfolio diversification are well-known, Chris says these new CGT changes now penalise diversification when it’s done on an individual share basis.

“The new rules tax gains and losses on each individual investment, rather than the overall outcome of a portfolio. An investor can pay tax on their winners, while getting only limited benefit from investments that underperform inflation,” he says. “So, diversifying across many holdings can now increase the tax drag, because winners and losers are not netted off.”

He warns advisers that under the new regime, tax is no longer about your portfolio outcome. Instead, tax can fall on individual stock winners, even when the overall result is modest. He believes investors can no longer afford to have losers in their portfolios, because they don’t get sufficient ability to offset them from a tax perspective.

In this new tax environment, Chris says advisers need to use investment structures that allow them to offset their winners and losers before they are considered from a tax and indexation perspective. He believes the CGT reforms will drastically transform share ownership in Australia, because shares will no longer be appealing from a risk-adjusted and after-tax perspective.

He adds that the changes to CGT mean that the choice of investment structure — ETFs, managed funds, LICs, direct shares — is now more critical for advisers than in the past. Chris believes pooled structures are going to become more attractive than owning assets individually, and this will become even more critical where there is a wider dispersion of returns. The more dispersed your returns are, the bigger the tax implications.

“In this environment, direct shares are not attractive. Instead, pooled structures are definitely more appealing, as they can shelter clients from the ‘diversification penalty’ that hits direct and individually held investments,” says Chris.

However, Chris acknowledges there are differences in pooled structures, like ETFs and managed funds, that advisers need to be aware of.

“ETFs have the advantage of generally having lower portfolio turnover, if they are true indexed ETFs that are following the market. This is particularly important now, considering the 30 per cent minimum tax on any capital gains. So, portfolio turnover of funds is going to become a more important consideration going forward.”

Chris says ETFs have another structural benefit — the ability to stream capital gains out to market makers. Streaming capital gains to market makers refers to when an ETF shrinks because an institutional trader — market maker or authorised participant — redeems units, with the tax liability from any asset sales pushed onto that trader, rather than the everyday investors left in the fund. By doing so, ETFs are able to shield their underlying unit holders from some of those capital gains.

While managed funds also have the benefit of being a pooled structure, Chris says there are two considerations advisers need to be mindful of.

1. What’s the portfolio turnover? If fund managers have higher portfolio turnover, they will potentially be creating less beneficial after-tax outcomes for investors. 

2. An inability to stream out of managed funds (cannot transfer, withdraw, or switch investment capital out of a fund when an investor wants to). This is particularly important for managed funds that are in an outflow or redemption phase.

“If a managed fund is in outflow, because the performance has been poor, when redemptions are triggered, the underlying investments are sold, which triggers capital gains. Those capital gains are then distributed to the remaining unit holders,” says Chris.

“So, the key consideration for advisers in this new CGT regime is to think carefully, not only about what’s in your portfolio, but also the structure investments are held in.”

Glenn Poynton is Chief Executive Officer at DASH; and

Simon Jeffery-Bilich is Head of Investments at Count.

They spoke on the topic ‘The new advice world: What changes next and what it means for your firm?’ at the 2026 IMAP Advice in Action Conference.

The session was moderated by Toby Potter — Chair of IMAP.