The May 2026 Budget dropped some of the most significant proposed tax changes in decades. If you're earning $250,000 or more, have investments outside super, or use a family trust - this one is worth reading carefully.

The 2026-27 Federal Budget proposes big changes to capital gains tax, negative gearing, and family trusts - all of which directly affect high-income Australian professionals who invest outside superannuation. The good news: super contributions caps have increased, and the super system itself was largely left alone. These are proposals, not yet law. But the direction is clear, and it makes reviewing your investment structures more important now than it's been in years.

WHY THIS BUDGET MATTERS MORE THAN MOST

Most federal budgets are incremental. This one isn't. The proposed changes to capital gains tax and negative gearing represent the most significant shift in Australian investment tax rules since the Howard government introduced the 50% CGT discount in 1999. If these proposals pass as written, the way Australians build wealth outside super will fundamentally change from 1 July 2027.

For my clients in Sydney - professionals in their late 30s to mid-40s with growing investment portfolios, mortgages, and complex financial lives - I've had more calls this week than after any budget I can remember. The questions are all versions of the same thing: Does this change what I should be doing? Here's my honest read.

THE PROPOSED CHANGES AT A GLANCE

• The 50% CGT discount replaced with CPI indexation for assets acquired from 1 July 2027, with a 30% minimum tax rate on gains.

• Property losses can no longer offset wages from 1 July 2027, for properties bought after Budget night (12 May 2026).

• 30% flat tax rate on discretionary trust distributions from 1 July 2028, removing the benefit of distributing to lower-income family members.

• Concessional cap rises to $32,500 (from $30,000). Non-concessional cap rises to $130,000 (from $120,000). From 1 July 2026.

• The 16% marginal rate drops to 15% from 1 July 2026, then 14% from 1 July 2027, for taxable income between $18,201 and $45,000.

• Employers must pay super at the same time as wages from 1 July 2026. Closing a compliance gap that has cost workers billions.

CAPITAL GAINS TAX: THE BIGGEST CHANGE IN A GENERATION

Under current rules, if you hold an investment asset for more than 12 months, you only pay tax on 50% of the capital gain. It's one of the most powerful incentives for long-term investing in Australia. The Budget proposes removing this discount for growth that accrues from 1 July 2027 onwards, replacing it with CPI indexation of the cost base and a 30% minimum tax rate on the gain.

There are two important things to understand. First, assets you already hold are transitionally protected - growth up to 30 June 2027 will be calculated under the current rules. Second, superannuation is exempt. The new rules apply to investments held personally, in a trust, or in some other structures - but not to assets inside your super fund or a company.

A share portfolio or investment property held in your personal name that you sell after 1 July 2027 will be taxed on more of its gain than under current rules. At a 47% marginal rate with a 50% discount, your effective rate on gains was about 23.5%. Under the proposed rules, a 30% minimum rate applies to the indexed gain. For most high earners, this makes outside-super investments meaningfully less attractive relative to holding assets inside super.

NEGATIVE GEARING: ONLY AFFECTS NEW PURCHASES

If you already own an investment property, breathe. The negative gearing changes only apply to residential properties acquired after Budget night - 12 May 2026. Your existing portfolio is grandfathered and the current rules continue to apply.

For properties purchased from 13 May 2026 onwards, losses from those properties would be quarantined from 1 July 2027 - meaning you can no longer use them to offset your salary. Losses carry forward to offset future investment income or gains from the same property. This doesn't make investment property impossible, but it substantially reduces the cash flow benefit of negatively geared property for high-income earners and changes the maths significantly for new purchases.

Commercial property and shares are unaffected. New builds are also exempt, which appears designed to maintain investment in housing supply.

FAMILY TRUSTS: SIGNIFICANT CHANGE COMING IN 2028

Discretionary trusts - commonly used by professional families in Sydney to split income between family members and manage tax - are in the crosshairs. From 1 July 2028, trustee distributions would be taxed at a flat 30%, rather than at each beneficiary's marginal rate.

If you currently distribute trust income to a partner on a lower income, or to adult children, that strategy loses most of its tax advantage under this proposal. The government has flagged a three-year rollover relief period from 1 July 2027 for people wanting to restructure into other vehicles - including companies.

These are proposals only. They are not yet law. Rushing to restructure an existing trust before the legislation is finalised could be premature and costly. Monitor the legislative process carefully - and talk to your adviser and accountant together before making any structural changes.

THE BRIGHT SIDE: SUPERANNUATION JUST GOT BETTER

Against a backdrop of proposed changes that make outside-super investments less attractive, the super system itself was largely untouched and actually improved. The concessional contribution cap increases from $30,000 to $32,500 per person from 1 July 2026. The non-concessional cap rises from $120,000 to $130,000. The transfer balance cap (the maximum you can hold in a tax-free pension phase) increases from $2.0 million to $2.1 million.

I've argued for years that most high-income professionals should be maximising their super contributions before building outside-super investments. The Budget has just made that argument significantly stronger. Super remains the most tax-effective long-term wealth vehicle in Australia - and under these proposals, it's pulling further ahead.

"The 2026 Budget doesn't change the fundamentals of building wealth. It strengthens the case for using superannuation properly - and raises the stakes for getting your outside-super structures right."

WHAT I'M ACTUALLY TELLING CLIENTS RIGHT NOW

The honest answer is: don't panic, but don't ignore this. Here's the practical guidance I'm giving to professionals in Sydney right now.

• If you're under contributing to super - the increased caps from July 2026 make this an even higher priority. Use the full $32,500 concessional cap before building outside-super investments.

• If you hold a discretionary trust - don't restructure yet. Wait for legislation. But start the conversation with your accountant now so you understand your options clearly.

• If you were considering buying an investment property - model it carefully under the new rules. The maths has changed for new purchases. An existing property acquired before Budget night is fine.

• If you hold a significant share portfolio outside super - understand your cost base for assets already held. Review whether your ownership structure is still optimal, especially as the CGT rules evolve.

• If you use negative gearing on an existing property - nothing changes for you. Keep doing what you're doing.

Want to know what this Budget means for your specific situation?

Every client's position is different. I'm doing specific Budget reviews for clients and prospective clients - looking at super, investment structures, and what (if anything) needs to change.