Written

For

The

Australian

-

How

property

investors

can

offset

budget

tax

shake-up

on

negative

gearing

and

capital

gains

Twenty-seven years of stability is about to end. The May budget is shaping up to be a watershed moment for property investors, and the smart money is already repositioning.

For nearly three decades, investors have enjoyed the same playbook: negative gearing to slash tax on employment income at rates up to 47 per cent, and a flat 50 per cent capital gains discount on assets held over 12 months. That era is closing. The Albanese government is finalising a tax overhaul that could axe the CGT discount in favour of inflation indexation on new investments, with partial grandfathering for existing holdings. Negative gearing may also be quarantined or restricted to new builds.

So where does that leave investors? The obvious first move is to look beyond owning property in personal names. Family trusts have traditionally been the go-to "flow through" structure, but they're also in Treasury's sights — modelling suggests a flat 30 per cent minimum tax on trust distributions could raise $3bn annually. That doesn't kill trusts, but it blunts their edge for splitting income to low-income beneficiaries.

A family investment company starts looking more compelling in this new landscape. Yes, companies miss out on the CGT discount, but with a tax rate of 25-30 per cent, they may actually pay less CGT than someone on the top marginal rate post-budget. Losses get carried forward rather than refunded, but for long-term holders that's a manageable trade-off.

In my view, the most powerful structure for those nearing retirement remains superannuation. With up to $2m per person in a tax-free pension account from age 60, plus just 10-15 per cent tax in accumulation phase, super is becoming the standout vehicle for property.

Some will get creative with owner-occupier strategies to dodge CGT entirely, but repeat that trick and the ATO will come knocking. May 12 is the date that matters.