Here’s the short, sharp summary – winners, losers, and where it matters for investors, business owners and families.
The Big Winners (At Least on Paper)
Cost-of-living relief
- $250 rebate for eligible households.
- $1,000 rebate targeted at lower-income earners and families.
This will certainly help low-income earners and that is welcomed. As noted earlier though, based on all costs, I can’t help thinking it is just a token with no meaningful impact.
Small Business Relief
- $20,000 Instant Asset Write-Off extended
This allows eligible businesses to immediately deduct assets rather than depreciating them over time.
This is a good outcome for businesses provided they meet the requirements.
Negative Gearing Changes
- Negative gearing changes apply to residential investment property only.
- Negative gearing does not apply to Managed Funds, ETFs, or Direct Shares.
This will change investor purchasing behaviour. I don’t subscribe to Government rhetoric that the property prices are going to come down by 2% and that rents will be reduced by $2 per week. I think of investing as a business, you know that you cannot go broke making a profit and inverse of that, if you keep making losses, you will go broke.
It is important to note that negative gearing is a short to medium term strategy to allow you to get into an investment and settle in the first few years. It is not intended to be forever for your investment strategy. To clarify, negative gearing is spending $1 to get up to $0.45 back ($0.55 is hard costs). These hard costs are only recouped from your gains in the future, and if there aren’t enough gains, you’ve made nothing. You can’t keep going making a loss, otherwise it would be a bad investment.
Therefore, rents will need to increase, or established property values need to drop which then makes it more attractive to buy cashflow neutral or positive properties as investment. Land tax changes in Victoria introduced by Andrews Government had a 10% impact on house prices, and that has a more moderate impact. So, we will need to see how this plays out and how hard it will hit.
Since negative gearing is going to be adjusted, banks may decide to remove the positive impact of negative gearing from their servicing calculators leading to less borrowing capacity. This is a wait and see item.
Note, that anything that you cannot claim off your income, is carried forward and can be claimed against future capital gains so you won’t lose the value, they just can’t be offset against your salary each year which means your cashflow will be under more pressure if you had counted on tax return money to balance the books.
For over two decades, we have been using debt recycling and other equity-based investment strategies (better income profile than many investment properties) and these will continue going forward, hence steady as she goes for many Moneyclip clients, which is great news.
Capital Gains Tax (‘CGT’) & Trusts
- Changes to CGT and trust distributions may increase tax leakage for some discretionary trust structures.
Going forward, discretionary trust will be taxed at a minimum of 30%. Distributing to a company will double tax.
The minimum CGT in the future will be 30%, Currently, the maximum CGT (if owned for less than 12-months) is the marginal tax rate (0 to 46.5%) and if more than 12-months, then it is 23.25%.
50% CGT discount will remain for properties already purchased and will be changed to an inflation-based calculation (more complicated) going forward, starting from 1 July 2027. For example, 50% discount, partially inflation based pending when you sell.
That 50% discount will apply to brand new properties without changes. A knock-down and rebuild will not count, but a knock-down and build a duplex does.
CGT changes apply to all investments, whether shares, property or any appreciating assets. Some start-ups and businesses may be exempt, but more information is to come.
Good news: Superannuation and SMSF accounts are exempt from CGT and trust tax changes.
Existing investments can carry on as normal but will be caught in the new rules from 1 July 2027 onwards. It is somewhat unclear, but it appears that you can’t wait to sell in a year that you have lower income due to applying the minimum 30% tax.
Not great for trusts potentially moving to companies and more visibility for the ATO!
High inflation helps with setting the cost base higher, whereas more benign inflation period will have the opposite effect. This is an area that will hurt over time.
Super investing just got that bit more interesting, especially for those who have been avoiding it due to length of time before accessing, generally from age 60 onwards.
Tax Breaks and Investment Behaviour
- The Budget nudges investors away from property speculation and towards diversified productive assets.
Less speculation is good, but I am concerned this will fuel regional house prices and make the brand-new builds that are already overpriced when you buy them, even more overpriced, leading to issues with valuations and loan servicing.
Younger Generations & Property Affordability
- Aimed at reducing investor pressure and improving access for first-time buyers.
- Affordability challenges remain structural, not just tax-driven.
This is always welcomed. We want the next generation to do well and stand on their feet.
I fear that there is some lip service for the supply side of property equation, but not enough is being done overall given we have in excess of 250,000 people migrating each year, and we are not building enough properties to house them, let alone our own population growth and the young generation we are aiming to help get into the housing market.
Some of the youth I have come across say they prefer to spend their money rather than save and miss out on living, or go into debt buying a house, so there is some disconnect in what you hear in the media and what the younger generation want to do, in comparison to those in their 40’s and 50’s. I will qualify this by saying we have plenty of clients who are in their twenties and thirties who through saving and investing since their teens have been able to achieve property purchases, after showing good habits and the discipline of spending less than they make, saving and investing before spending. Good on you for taking great responsibility for your financial future.
Key Takeaway
Budgets reward planning and punish complacency. Structure, diversification and timely advice matter more than ever.
This is where the Moneyclip team can assist through our financial planning, mortgage, accounting and tax, and real estate advice, along with our subject matter experts. Reach out to us on myadviser@moneyclip.com.au or 02 9299 2292.