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Labor CGT Changes: What They Mean for Trusts, Companies and Private Lending
- 1 day ago
- 15 min read
Labor announced Capital Gains Tax (CGT) reforms could materially change how Australian investors, property owners, trusts and private lending structures are taxed. From 1 July 2027, the Government has announced that the 50% CGT discount will be replaced with inflation-based indexation and a 30% minimum tax rate on capital gains for affected individuals, trusts and partnerships. A separate 30% minimum tax on discretionary trust taxable income is proposed from 1 July 2028. Division 296, an additional super-balance tax, is already law and applies from 1 July 2026.
For property investors, the issue is whether the traditional tax advantages of holding assets through discretionary trusts remain worthwhile. For business owners, the issue is whether trust-to-company planning remains effective. For private lenders, the issue is not that interest income becomes a capital gain (it does not), but that the structure receiving that interest may produce a different after-tax outcome.
Important disclaimer: This article is general information only. It is based on announced Federal Budget measures and publicly available guidance at the time of writing. Some measures may not yet be law and may change before enactment. Innovate Funding does not provide tax, legal, accounting or structuring advice. You should speak with a qualified accountant, tax adviser or lawyer before making any tax, investment or restructuring decision.
Key takeaways
Labor's announced tax reforms could affect investors in four major ways:
The 50% CGT discount is being replaced for affected gains with inflation-adjusted indexation and a 30% minimum tax rate from 1 July 2027.
Discretionary trusts may face a 30% minimum tax on taxable income from 1 July 2028, if the announced trust measure becomes law.
Companies remain outside the proposed CGT discount/indexation regime, but company-related trust planning may become less effective.
Division 296 superannuation tax is now law and applies from 1 July 2026 to certain realised earnings connected to super balances above $3 million.
The key point is this: the gross return on an investment may not change, but the after-tax return could change significantly depending on whether the asset or income is held personally, through a discretionary trust, through a company, through superannuation or through a fixed investment structure.
What is changing under Labor's CGT reforms?
The 50% CGT discount is being replaced with indexation and a 30% minimum tax
Since 1999, individuals and trusts that hold an asset for more than 12 months have generally been able to reduce the taxable capital gain by 50%.
Under the announced reforms, the Government will replace the 50% CGT discount with a system based on inflation-adjusted gains.
In simple terms:
The asset's cost base is adjusted for inflation.
Only the real gain above inflation is taxed.
A 30% minimum tax rate applies to the gain.
The change applies to gains arising after 1 July 2027.
The reform is aimed at individuals, trusts and partnerships.
Companies remain outside the new indexation/minimum-tax CGT system.
This means investors may no longer be taxed under the simple "50% discount after 12 months" approach for affected post-1 July 2027 gains.
Instead, the tax outcome will depend on:
The purchase date
The sale date
The amount of gain before and after 1 July 2027
Inflation during the ownership period
The taxpayer's marginal tax rate
The entity holding the asset
Whether the asset qualifies for any transitional or special treatment
For eligible new residential properties, investors may be able to choose between the existing CGT discount and the new indexation/minimum-tax method.
How pre-2027 capital gains may be treated
A major concern for investors is what happens to gains that have already accrued before the new rules start. Based on the announced transition approach, gains accrued before 1 July 2027 are expected to continue to receive the existing 50% CGT discount, provided the asset otherwise qualifies. The post-1 July 2027 portion of the gain may then be calculated under the new indexation and 30% minimum-tax method.
This makes record keeping more important.
Investors may need to consider:
Valuation evidence as at 30 June 2027
Purchase contracts
Improvement costs
Holding costs
Depreciation records
Entity structure
Whether the asset is held personally, in a trust, or in a company
Whether any sale, transfer or restructure could trigger CGT or stamp duty
This does not mean every investor should sell before 1 July 2027. It means investors should model the difference between selling before and after the transition date before making any decision.
What is changing for discretionary trusts?
A 30% minimum tax is proposed from 1 July 2028
The Government has also announced a separate measure aimed at discretionary trusts.
If enacted as proposed, trustees of discretionary trusts would pay a 30% minimum tax on the trust's taxable income from 1 July 2028. This matters because discretionary trusts are commonly used by families, business owners and investors to distribute income to beneficiaries. Historically, a discretionary trust may distribute income to:
A spouse on a lower marginal tax rate
Adult children
Related family members
A corporate beneficiary, often called a bucket company
The proposed 30% minimum tax could reduce the benefit of those strategies.
For non-corporate beneficiaries, a non-refundable tax credit may apply for tax paid by the trustee. However, if the beneficiary's tax rate is below 30%, the excess credit may not produce a refund. For corporate beneficiaries, the proposed rules are expected to be less favourable, which could materially weaken bucket company planning.
Are all trusts affected?
No. The proposed 30% minimum tax is aimed at discretionary trusts. It is not expected to apply in the same way to all trust structures. Potential carve-outs may include:
Fixed trusts
Widely held trusts
Listed trusts
Complying superannuation funds
Special disability trusts
Charitable trusts
Deceased estates
Certain testamentary trusts
Certain primary production income
Certain income derived by vulnerable minors
However, whether a trust is genuinely fixed, discretionary or excluded will depend on the trust deed, the legal rights of beneficiaries and the final legislation. Investors should not assume a trust is "fixed" simply because it has units. The deed needs to be reviewed.
What the CGT changes mean for property held in a family trust
A common structure is an investment property held inside a family discretionary trust.
Under current rules, that structure may provide:
Asset protection benefits
Estate planning flexibility
Income distribution flexibility
Access to the 50% CGT discount where the trust qualifies
The ability to distribute income to beneficiaries on lower marginal tax rates
Under the proposed rules, that position may change.
From 1 July 2027, post-2027 capital gains may move from the 50% CGT discount system to the new indexation and 30% minimum-tax system.
From 1 July 2028, discretionary trust taxable income may also be subject to a 30% minimum tax at the trustee level.
The effect is not necessarily double taxation. Rather, the CGT rules and the discretionary trust minimum-tax rules may interact. For property investors, the practical issue is this:
A discretionary family trust used mainly to split rental income and capital gains may become less tax-efficient than it was under the current rules.
That does not automatically mean the trust should be unwound. Trusts can still provide non-tax benefits, including asset protection and succession planning. But investors should review whether the tax benefits still justify the complexity.
Example: Property in a discretionary trust
Assume a family trust owns an investment property. The trust earns rental income and distributes that income to adult beneficiaries. Under the current system, the trust may distribute income to beneficiaries on lower marginal tax rates. Under the proposed discretionary trust rules, the trust may first pay tax at a minimum rate of 30%.
If the beneficiary's marginal tax rate is below 30%, the non-refundable credit may not fully benefit them. If the property is later sold, the capital gain may also be affected by the proposed post-1 July 2027 CGT rules. The property investor now needs to model:
The tax outcome if the property is retained
The tax outcome if the property is sold before 1 July 2027
The tax outcome if sold after 1 July 2027
Whether a valuation is required at the transition date
Whether trust restructuring is possible
Whether restructuring creates CGT, stamp duty or land tax issues
Whether refinancing is preferable to sale
What the CGT changes mean for property held in a company
Companies have never received the 50% CGT discount. That does not change under the announced reforms. A company is expected to continue paying company tax on the full nominal capital gain. It does not receive the proposed CGT indexation treatment available under the new individual/trust/partnership regime. At first glance, companies may look more competitive after the reform because individuals and trusts may face a 30% minimum tax on real gains. However, this comparison is not straightforward.
A company still pays tax on the full nominal gain, not just the inflation-adjusted gain. Then, if the company distributes after-tax profits to shareholders as dividends, top-up tax may apply depending on the shareholder's marginal tax rate and available franking credits. So the real comparison depends on:
Company tax rate
Inflation
Capital growth
Whether profits are retained or distributed
Shareholder marginal tax rates
Franking credits
Asset protection
Estate planning
Land tax
Financing requirements
Commercial purpose
The key point is that companies may become more competitive in some scenarios, but they are not automatically better.
What happens to bucket companies?
A bucket company is commonly used as a corporate beneficiary of a discretionary trust.
The trust distributes income to the company. The company pays tax at the corporate rate, and the money may be retained in the company for future investment or business use. The proposed discretionary trust changes may reduce the effectiveness of this strategy. If corporate beneficiaries are excluded from the trust tax credit, the old benefit of pushing trust income into a company may be materially weakened. This is one of the most important issues for business owners. The change is not just about property investors. It may affect family groups that use discretionary trusts for:
Business income
Investment income
Private lending income
Property development profits
Commercial property income
Share portfolio income
Related-party investment structures
If you currently use a trust and bucket company structure, this is something to review with your accountant before 2028.
What the reforms mean for private lending
Private lending usually generates interest income, not capital gains, that is a critical distinction. A lender advancing funds under a first mortgage, second mortgage, bridging loan or private mortgage facility is generally earning interest. That interest is ordinary income. Therefore, the proposed CGT changes do not directly convert private lending income into capital gains. However, the structure receiving the interest matters.
If the lending income is received through a discretionary trust, the proposed 30% minimum tax on discretionary trust taxable income may affect the after-tax return from 1 July 2028. This is where the private lending impact sits. It is not product-based. It is structure-based.
Private lending through a discretionary trust
A high-net-worth investor may lend through a family discretionary trust. The trust earns interest from private mortgages. Under the current rules, that interest may be distributed to beneficiaries depending on the trust deed and tax advice. Under the proposed trust rules, the trust may be subject to a 30% minimum tax before the income reaches beneficiaries. For investors who previously distributed private lending income to low-tax beneficiaries, the after-tax result may change. The gross return on the loan may remain the same. The net return to the investor may not. For example, private lending returns of 8.75%, 10%, 12% or 13% per annum can produce very different net outcomes depending on whether the income is earned:
Personally
Through a discretionary trust
Through a company
Through a fixed trust
Through superannuation
Through another investment vehicle
This is why tax structure matters when assessing private lending returns.
Private lending through a company
If a company earns private lending interest directly, the interest is generally taxed at the company tax rate. This is not new. The proposed CGT reforms do not directly change the taxation of company interest income. However, the broader trust reforms may affect company structures where the company receives trust distributions as a corporate beneficiary. If the company is not lending directly, but instead receiving income from a trust, the proposed trust rules may change the after-tax outcome.
When profits are eventually distributed from the company to shareholders, franking credits and shareholder marginal tax rates also need to be considered.
Private lending through a fixed trust or widely held structure
Fixed trusts and widely held structures may become more relevant for certain investors.
If a trust is genuinely fixed and falls outside the proposed discretionary trust minimum-tax regime, the tax treatment may differ from a family discretionary trust.
This is one reason investors may consider fixed or pooled investment structures for private credit and mortgage lending.
However, structure cannot be assumed. The trust deed, investor rights, distribution rules and actual operation of the trust all matter.
Any restructuring should be reviewed by a tax lawyer and accountant before action is taken.
What about negative gearing?
The Government has also announced changes to negative gearing for residential investment property. The broad policy direction is that negative gearing benefits for established residential properties will be limited, while new residential properties receive more favourable treatment. For established residential properties acquired after Budget night, losses may be quarantined from 1 July 2027 and generally only deductible against residential property income, including residential property capital gains. Properties already held at the time of the announcement are expected to be grandfathered until sold. This distinction is important. It would be misleading to say all existing negatively geared properties immediately lose negative gearing. The announced policy includes grandfathering for existing holdings. The impact will depend on:
When the property was acquired
Whether it is new or established
Whether the property was already held at announcement
Whether a contract was already entered into
Whether the property is residential, commercial or another asset type
Whether losses are being offset against wages or other income
Whether the investor owns multiple properties
Whether the investment is held personally, in a trust or in another structure
For investors, the question is not simply "Does negative gearing still exist?" The better question is: Does negative gearing still work for this property, this acquisition date and this ownership structure?
Why this matters for business owners
The reforms are not only relevant to property investors.
Many Australian business owners use discretionary trusts as part of their operating or investment structure.
A typical business group may include:
A trading trust
A family trust
A corporate beneficiary
A private investment company
A property-holding entity
Related-party loans
Business-purpose lending arrangements
Retained profits used for future investment
If the proposed trust minimum tax proceeds, business owners may need to review whether their current structure still produces the intended tax outcome.
This may affect:
Profit distributions
Trust income streaming
Corporate beneficiary arrangements
Retained earnings strategies
Asset protection planning
Succession planning
Lending capacity
Reinvestment of business profits
Private lending and investment income
For private lending specifically, the reform may change how investors assess net yield.
A loan may still pay the same interest rate. But the entity receiving the interest may produce a different after-tax return.
Why this matters for borrowers
Borrowers may also be affected indirectly.
If investors and lenders receive lower after-tax returns through certain structures, some may adjust their required returns, preferred investment vehicles or risk appetite.
That does not mean private lending becomes unavailable.
It means the market may become more structure-aware.
Private lenders may pay closer attention to:
Entity type
Tax treatment of interest income
Whether investors are lending personally, through trusts or through companies
Whether a mortgage investment structure is fixed or discretionary
How income is distributed to end investors
Whether the net return justifies the risk
For borrowers, this reinforces the importance of presenting a clear, fundable transaction.
Private lenders still focus heavily on:
Security property
Exit strategy
Loan term
First or second mortgage position
Valuation
Borrower structure
Purpose of funds
Tax changes may affect investor behaviour, but strong transactions with clear exits will remain attractive.
Should investors sell before 1 July 2027?
Not necessarily.
Selling solely because of a tax change can create a poor commercial outcome.
A sale may trigger:
CGT
Agent fees
Legal costs
Loan break costs
Stamp duty on replacement assets
Lost rental income
Lost future capital growth
Refinancing issues
Asset protection issues
Estate planning consequences
The better approach is to model the position.
Investors should ask their accountant to compare:
Selling before 1 July 2027
Selling after 1 July 2027
Holding long term
Refinancing instead of selling
Restructuring ownership
Moving from discretionary to fixed structures
Holding through a company
Keeping the asset in the existing structure
For many investors, holding may still be the right decision.
For others, the tax changes may bring forward decisions that were already being considered.
Should investors move assets out of discretionary trusts?
Not without advice.
Moving assets out of a trust can create serious tax and legal consequences.
Potential issues include:
CGT
Stamp duty
Land tax
Loan refinancing
Mortgage consent
Asset protection risk
Loss of trust flexibility
Estate planning disruption
Division 7A issues
Related-party loan issues
Commercial risk
There may be transitional relief or rollover options in some circumstances, but this will depend on the final legislation and the investor's structure.
Do not restructure based on headlines.
Get advice before acting.
Practical planning checklist
Before making a decision, investors should review the following with their accountant, lawyer and finance adviser.
1. Identify your structure
Are your assets held:
Personally?
In a discretionary trust?
In a fixed trust?
In a company?
In superannuation?
Across multiple entities?
2. Identify the income type
Is the income:
Rental income?
Interest income?
Business income?
Capital gain?
Dividend income?
Trust distribution?
Development profit?
3. Identify the asset type
Is the asset:
Established residential property?
New residential property?
Commercial property?
Shares?
Business assets?
Private credit?
Mortgage investments?
Development stock?
4. Model the dates
Important dates include:
Budget night announcement date
1 July 2026 for Division 296
1 July 2027 for CGT and negative gearing changes
1 July 2028 for proposed discretionary trust minimum tax
5. Model after-tax returns
For private lenders and investors, gross yield is only half the story.
You should model:
Gross interest income
Entity-level tax
Beneficiary-level tax
Company tax
Franking credits
Trust tax credits
Timing of distributions
Retained profits
Final after-tax cash return
6. Review finance options
Tax changes often lead to funding decisions.
Investors may consider:
Selling
Holding
Releasing equity
Restructuring debt
Moving quickly on accountant-led restructuring decisions
This is where private lending may assist, but only after the tax and legal strategy has been properly considered.
Frequently asked questions
When do Labor's CGT changes start?
The announced CGT changes are scheduled to apply from 1 July 2027.
From that date, the 50% CGT discount is expected to be replaced for affected post-2027 gains with inflation-adjusted indexation and a 30% minimum tax rate.
Are Labor's CGT changes already law?
Some measures may still require final legislation. Investors should treat the announcements seriously, but should not make irreversible decisions without professional advice. Division 296, however, is now law and applies from 1 July 2026.
Do the CGT changes apply to companies?
Companies are expected to remain outside the proposed new CGT indexation/minimum-tax regime. They would continue to pay company tax on the full nominal capital gain. However, companies may still be affected indirectly if they are used as corporate beneficiaries of discretionary trusts.
What happens to gains I made before 1 July 2027?
Under the announced transition approach, gains accrued before 1 July 2027 may continue to receive the existing 50% CGT discount, provided the asset otherwise qualifies.
The post-1 July 2027 portion may fall under the new indexation and 30% minimum-tax system.
Are discretionary trusts being banned?
No. Discretionary trusts are not being banned. The proposed changes may reduce the tax efficiency of some discretionary trust arrangements, particularly where trusts are used for income splitting or corporate beneficiary planning. Trusts may still have asset protection, estate planning and commercial uses.
Are all trusts affected by the 30% minimum tax?
No. The proposed 30% minimum tax is aimed at discretionary trusts. Fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, charitable trusts, deceased estates and certain testamentary trusts may be excluded, depending on the final rules.
Does private lending interest become a capital gain?
No. Private lending interest is generally ordinary income, not a capital gain. The CGT changes do not directly apply to private lending interest. However, if the interest is earned through a discretionary trust, the proposed 30% trust minimum tax may affect the after-tax return.
Will private lending become less attractive?
Not necessarily. Private lending may remain attractive as a yield-focused investment class. However, investors may need to review the structure through which they lend.
The same gross interest rate can produce different after-tax results depending on whether the investment is held personally, through a discretionary trust, through a company, through superannuation or through a fixed structure.
Does Division 296 tax unrealised gains?
No. The final Division 296 law applies to realised earnings connected to superannuation balances above the relevant thresholds. The earlier unrealised-gains proposal was not adopted in the final form.
Should I restructure my trust before 2028?
Not without advice. Restructuring can trigger CGT, stamp duty, land tax, refinancing issues and legal consequences. Before restructuring, speak with your accountant and lawyer.
Can Innovate Funding provide tax advice?
No. Innovate Funding does not provide tax, legal or structuring advice.
We provide private lending solutions where borrowers, brokers and advisers require fast, flexible property-secured finance.
Where this leaves investors, business owners and private lenders
Labor's announced CGT and trust reforms could become one of the most significant changes to Australia's investment tax landscape since the 50% CGT discount was introduced in 1999. For property investors, the key issue is whether the traditional benefits of discretionary trusts still justify the complexity. For business owners, the key issue is whether trust-to-company distribution strategies still work as intended.
For private lenders, the key issue is whether the structure receiving interest income still produces the desired after-tax return. The 18-month window before 1 July 2027 gives investors time to review, model and act carefully. The right decision may be to sell. It may be to hold. It may be to refinance. It may be to restructure. It may be to do nothing.
But the decision should be based on modelling, not headlines.
How Innovate Funding may assist
Innovate Funding does not provide tax or structuring advice.
However, when borrowers, brokers, investors or business owners need funding to act on a decision their accountant or adviser has already made, we can assist with fast, flexible property-secured finance.
We assist with:
Property-secured business finance for specialised borrowers
Non-bank lending solutions
Whether you are refinancing, bridging a settlement, releasing equity, funding a business requirement or moving quickly on a transaction, Innovate Funding can assess loans from $50,000 to $20 million Australia-wide.
Speak with a private lending specialist about your finance needs. Contact Innovate Funding or call 02 8919 3639.
