Investors the biggest losers in 2026 Budget

As the 2026 Budget promises "bold, broad and ambitious" tax reforms, in addition to easing cost-of-living pressures and strengthening fuel security, wealth managers decry investors and the economy will not come out on top.

Last night, Treasurer Jim Chalmers' jampacked "five budgets in one" covered housing, fuel security, cost-of-living relief, tax reforms and productivity improvement.

The highly anticipated overhauls to the capital gains tax (CGT) discount and negative gearing, which aim to "level the playing field for first home buyers," captured much of wealth managers' attention as many clients will now have to reassess their investment vehicles and tax structures.

The 50% CGT discount will be replaced with inflation-adjusted indexation as the federal government seeks to restore the taxation of real gains across all asset classes. The new rules will apply from 1 July 2027. Changes to negative gearing reforms are also set to take effect on this date.

Residential property will be limited to new builds that genuinely add to housing supply. Properties held as of 12 May 2026, meanwhile, will be exempt and arrangements will not change for existing investors.

Discretionary trusts, meanwhile, are set for a shakeup after being slapped with a 30% minimum tax.

From 1 July 2028, Chalmers proposes to introduce the new tax that will be paid by trustees given they control distributions.

Beneficiaries will still need to declare the income in their tax returns. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee, which can be used to offset current year income tax liabilities.

"The minimum tax will mean a fairer rate of tax is paid on income from discretionary trusts, more closely aligning the tax rates for trusts with the rates paid by workers who earn a living from wages," he explained.

In a bid to protect more investors, Treasury pledged $10.3 million to ASIC to better data use when supervising managed investment schemes.

This comes as the government launched a review to focus on governance and oversight of registered MISs used by retail investors following the collapses of First Guardian and Shield Master Funds.

The aged care sector will receive a $3.7 billion boost to increase the supply of residential aged care accommodation, accelerate the release of Support at Home packages and enhance the quality and affordability of services.

The government will tighten the reins on the National Disability Insurance Scheme (NDIS) eligibility and compliance, saying it will revert to "original intent" by delivering quality services, clarifying eligibility requirements, slow rapid cost increases and address fraud.

This means NDIS payments will reduce by $37.8 billion over the next four years.

The government will provide $19.2 million over four years to establish a technical advisory group and to ensure representative organisations can facilitate community consultation on the reforms.

To encourage investment in startups, the government will adjust asset and fund size caps for venture capital to compensate for inflation since they were last set, starting July 2027.

For small businesses, the $20,000 instant asset write-off will be extended from July 2026.

Among the losers, the ban on foreign investors purchasing existing homes will be extended until mid-2029 as part of a sweeping housing and tax reform package aimed at improving affordability and lifting home ownership.

Meanwhile, the new $2 billion Local Infrastructure Fund hopes to accelerate housing delivery and easing development delays, supporting local governments and state utilities providers in delivering essential "last mile" infrastructure, like water, power, sewerage and road connections needed to unlock new housing developments.

'Generation-defining reset' for investors

The tax changes will have far and reaching consequences for investors, several experts and stakeholders in financial services say.

RSM Australia national tax technical partner Liam Telford said: "This is the most significant structural change to how investment income, capital gains and family-owned businesses are taxed since the introduction of the 50% CGT discount in 1999."

"Three of the foundations of how Australian families and businesses have organised their affairs for the past quarter-century are being rewritten at once. The interactions between the measures are as important as the measures themselves."

The Australian Shareholders' Association (ASA) chief executive Rachel Waterhouse said the CGT discount reforms undermine confidence in long-term investing.

While the changes are not comprehensive tax reform, Waterhouse said they are "a significant tax package affecting how Australians invest, hold assets, rebalance portfolios, manage small business structures and plan for retirement."

"Much of the public debate has focused on housing, but these measures also affect shareholders, small business owners, younger Australians saving and investing for a home deposit, working professionals building wealth outside the family home and self-funded retirees managing long-held investments," she said.

This is particularly concerning as young Australians turn to shares and ETFs as a practical way to try and build a home deposit or create wealth "when property ownership feels increasingly difficult."

"Tax changes should not make that pathway harder," Waterhouse added.

Experts in financial services, such as financial advisers and accountants, will have their work cut out, scrambling to help clients get their affairs in order prior to several changes slated for mid-2027.

Telford warns that business owners, investors and family enterprises face fundamental change, and a compressed window to reassess their structures before the changes take effect, saying this is "an unprecedented, potentially generation-defining reset of investor and business tax settings."

On discretionary trusts tax changes, Holding Redlich tax partner Dhanushka Jayawardena said the government has done what 25 years of tax reform reviews recommended and neutralised the tax advantage of discretionary trusts over companies.

"With both vehicles now sitting at or around 30%, and small business companies sitting below that at 25%, the case for a discretionary trust collapses to non-tax considerations. Asset protection and succession planning remain valid reasons to choose a trust. Tax efficiency is no longer one of them," Jayawardena said.

"We expect a meaningful migration into corporate structures over the three-year rollover window, and a near-universal default to companies for new structures from 2026 onwards."

Hamilton Wealth Partners financial adviser and managing director Will Hamilton slammed the tax reforms.

"The government does not have a mandate for these changes. The Prime Minister stated clearly that taxes would not be raised and key settings such as negative gearing would not be altered. That promise has been broken, there is no more generous interpretation available," he said.

"This is tax reform in name only. Higher taxes, no meaningful reduction in personal tax brackets, a company tax rate well above the OECD average, and new complexity for small businesses and family enterprises."

Financial Services Council (FSC) chief executive Blake Briggs is concerned about the proposed CGT changes applying to all asset classes rather than being targeted at the housing market.

"The Treasurer has used the well-established inequity in the housing market as a stalking-horse for tax increases on investments in asset classes that would play an important role in lifting Australia's economic growth," he said.

Furthermore, Briggs pointed to Australia's economic growth being downgraded to 1.75% in the coming financial year.

However, the Treasurer has elected to increase taxes on investments in productive areas of the economy, he said, which discourages Australians to invest in shares, managed funds and other high growth sectors, such as venture capital, and "will only serve to reduce access to capital for the engine room of the domestic economy."