CGT, Negative Gearing and Bucket Companies: The Budget Changes Rural Businesses Need to Review
The proposed changes announced in the 2026–27 Federal Budget extend beyond the taxation of discretionary trusts.
Capital gains tax, negative gearing, corporate beneficiaries and business restructuring may all be affected if the measures proceed in their current form.
For rural family groups, these issues may overlap.
A family may hold agricultural land through a trust, own residential investment properties outside the farm, use a company beneficiary to retain trust income, and be considering a future succession or restructuring transaction.
Understanding each proposed change separately is important. Understanding how they may interact is equally important.
Important information: The measures discussed in this article were announced as part of the 2026–27 Federal Budget but have not yet been legislated.Exposure draft legislation is expected before the end of 2026. The proposed measures, commencement dates, exclusions, transitional arrangements and eligibility requirements may change through the consultation and legislative process.This article provides general information only. Readers should obtain independent advice from their accountant, tax adviser, solicitor and finance adviser before making any decision based on the proposed measures.
The proposed replacement of the 50% CGT discount
From 1 July 2027, the 50% capital gains tax discount that has applied to individuals, trusts and partnerships since 1999 is proposed to be replaced.
The proposed framework would introduce:
Cost-base indexation for capital gains tax assets held for more than 12 months
A 30% minimum tax on net capital gains
The stated intention is that investors would pay tax on real, inflation-adjusted capital gains rather than nominal gains.
However, the proposed 30% minimum tax would create a floor below which indexation could not reduce the tax payable.
These measures remain proposed and their final operation will depend on the legislation ultimately enacted.
How cost-base indexation may work
Under the proposed framework, the cost base of an eligible capital gains tax asset held for more than 12 months would be indexed for inflation.
This would mean the taxable gain is calculated with reference to the inflation-adjusted cost of the asset rather than its original nominal cost.
The proposed framework would then apply a minimum tax rate of 30% to net capital gains.
The effect for a particular taxpayer would depend on:
The acquisition date of the asset
The length of time the asset has been held
The original and indexed cost base
The value and timing of the gain
The taxpayer’s structure and broader tax position
The final legislation and any applicable transitional arrangements
The proposed system should not be assumed to produce the same outcome for every asset holder or transaction.
Transitional arrangements
The proposed reforms would apply only to gains arising on or after 1 July 2027.
The 50% capital gains tax discount would continue to apply to gains arising before that date.
Under the Budget announcement:
Gains arising before 1 July 2027 would continue to be treated under the existing framework
Gains arising on or after 1 July 2027 would be treated under the proposed indexation and minimum-tax framework
Pre-1985 assets would remain exempt for gains arising before 1 July 2027
Investors in new builds would be able to choose between the 50% discount and the proposed indexation arrangements
The distinction between gains arising before and after 1 July 2027 may be relevant where a land sale, business restructure or succession transaction is already being considered.
However, tax timing should not be considered in isolation.
The commercial, legal, lending, family and operational consequences of a transaction may be equally significant.
Why this matters for rural and regional clients
Rural family groups may hold assets for long periods and across multiple ownership structures.
These may include:
Agricultural land
Commercial property
Residential investment property
Shares and other investments
Assets held through discretionary trusts
Assets held personally or through partnerships
Assets connected to an active succession plan
Where a future land sale, restructure or family transition is already in progress, the proposed 1 July 2027 commencement date may become a material planning consideration.
A transaction completed before the proposed commencement date may be treated differently from a transaction completed after it.
That does not mean a transaction should be accelerated solely for tax reasons.
Any decision should be made only after the family has considered the broader financial and non-financial consequences with its professional advisers.
Proposed negative gearing changes
From 1 July 2027, negative gearing on residential property investments is proposed to be limited to new builds.
For established residential properties acquired after 7:30 pm AEST on 12 May 2026, losses would only be deductible against:
Rental income from residential property
Capital gains from residential property
Any excess losses would be carried forward.
Properties held before Budget night are proposed to retain their existing negative gearing treatment.
The proposed transition window
The Budget announcement includes a transition period for residential properties acquired between 12 May 2026 and 30 June 2027.
Investors purchasing during this period may be able to negatively gear the property until 30 June 2027, but not in later financial years.
For rural family groups with off-farm residential property holdings, the contract date may become an important part of the analysis.
The impact may also need to be considered across the family group rather than looking at each property in isolation.
That broader analysis may include:
The entity that owns the property
The date the property was acquired
Whether it is a new build or established property
The income and deductions generated by other residential properties
The family group’s broader investment and succession position
The effect of carried-forward residential property losses
The final treatment will depend on the legislation enacted and the circumstances of the relevant owner and property.
The bucket company issue
Corporate beneficiaries, often referred to as bucket companies, are another area that may be materially affected by the proposed trust tax changes.
A bucket company is commonly used to receive distributions from a discretionary trust.
The company may retain the income at the applicable company tax rate rather than distributing it immediately to an individual beneficiary who may be subject to a higher marginal tax rate.
ATO data referenced in the Bullagreen Brief indicates that approximately 80,000 companies receive discretionary trust distributions.
Of those companies, 83% have no other business activity.
This reflects the common use of companies established primarily to receive and retain trust income.
How the proposed minimum tax may affect corporate beneficiaries
Under the proposed rules, corporate beneficiaries would not receive non-refundable tax credits for the minimum tax paid by the trustee.
The mechanical result described in the Bullagreen Brief is that:
The trust pays the proposed 30% minimum tax on income distributed to the company.
The company may later pay its own tax when that income is distributed to shareholders or otherwise used within the group.
This may weaken the economic case for some bucket company arrangements.
However, it does not mean every corporate beneficiary structure would become unsuitable.
Some arrangements may continue to serve a commercial purpose, particularly where retained earnings are being invested into productive business activities.
The appropriate treatment would depend on:
How the company is used
Whether it conducts other business activities
How retained earnings are invested
Whether funds are later distributed to shareholders
The interaction between the trust and company
The family group’s broader business, tax and succession arrangements
Every arrangement would require its own review once the final legislation is available.
Why existing arrangements may need to be reviewed
The proposed changes may affect more than the annual tax outcome.
A review of an existing bucket company arrangement may need to consider:
Whether the structure continues to serve a genuine commercial purpose
How trust distributions are currently made
Where retained earnings are held
Whether the company owns assets or conducts business activities
Whether the company has existing lending obligations
How the company fits within the family’s succession plan
Whether restructuring would affect property, security or employment arrangements
A structure that was appropriate when established may not necessarily remain appropriate under a different legislative framework.
Equally, a change should not be made simply because a new measure has been announced.
The commercial and operational consequences of restructuring need to be understood before any decision is made.
The proposed three-year rollover relief window
The Budget measures include a proposed three-year rollover relief window.
The proposed window would open on 1 July 2027 and close on 30 June 2030.
During this period, restructuring from a discretionary trust into a company or fixed trust may be available without triggering income tax or capital gains tax consequences.
After 30 June 2030, restructuring may trigger full capital gains tax consequences.
The availability of relief would depend on the final legislation, eligibility requirements and the circumstances of the relevant restructure.
The proposed planning timeline
Now to December 2026
Map the income streams within each potentially affected discretionary trust.
This may include identifying:
Primary production income
Rental income
Investment returns
Share dividends
Contract or service revenue
Distributions made to corporate beneficiaries
Existing bucket company arrangements can also be identified for priority review.
At this stage, the purpose is to understand the current position rather than make decisions before the legislation is available.
January to June 2027
Exposure draft legislation is expected before the end of 2026.
Once further detail is available, more specific analysis may be possible.
This is likely to require coordinated tax, legal, accounting and finance advice.
1 July 2027
The proposed rollover relief window is scheduled to open.
The proposed capital gains tax and negative gearing reforms are also scheduled to commence from this date.
1 July 2028
The proposed 30% minimum tax on in-scope discretionary trusts is scheduled to commence.
The first relevant returns would be expected to be lodged from July 2029.
30 June 2030
The proposed rollover relief window is scheduled to close.
Restructuring after this date may trigger capital gains tax consequences.
All proposed dates remain subject to the final legislation.
Why restructuring is not only a tax issue
Moving assets or operations from a discretionary trust into a company or fixed trust may affect several parts of the business.
These may include:
Asset ownership
Property transfers
Existing lending facilities
Borrowing entities
Security arrangements
Lender covenants
Employment contracts
Workers compensation
Work health and safety obligations
Modern award compliance
Succession planning
Family control and decision-making
A tax-driven restructure can create consequences outside the tax position if the wider business is not considered.
The purpose of an integrated review is to avoid optimising one part of the structure while overlooking another.
The role of Bullagreen Finance
Where a proposed restructure involves property or assets supporting existing finance facilities, those facilities may need to be reviewed.
Changing the ownership or operating entity may require consideration of:
A new borrowing entity
Changes to security arrangements
A review or replacement of existing facilities
Lender consent
Covenant renegotiation
Updated financial information
A reassessment of serviceability
Any finance or lending outcome remains subject to eligibility, lender criteria, assessment and approval.
These matters may require significant lead time and should not automatically be treated as an issue to address immediately before a restructure is completed.
The role of Bullagreen Rural Partners
Succession matters involving discretionary trusts may need to be reviewed against several proposed changes at the same time.
These include:
The proposed minimum tax on trust income
The proposed capital gains tax framework
The proposed treatment of pre-1985 assets
The proposed rollover relief window
The ownership and control of operating assets
The financial position of the incoming and outgoing generations
Any active succession transaction may need to be tested against the proposed 1 July 2027 capital gains tax commencement date.
However, tax timing should remain one part of a broader family and commercial decision.
The role of Bullagreen People and Performance
A restructure may also change the legal entity employing staff.
Where the employing entity changes, the business may need to review:
Employment contracts
Employee records
Work health and safety responsibilities
Workers compensation coverage
Modern award compliance
Contractor arrangements
Payroll and superannuation processes
These issues can be overlooked where a restructure is driven primarily by tax or succession considerations.
They should be reviewed as part of the broader transition rather than after the new structure is already operating.
What rural family groups can consider now
The proposed changes have not yet been legislated.
Businesses should not restructure, sell assets, change trust distributions or alter finance arrangements based solely on the Budget announcement or this article.
However, rural family groups may begin preparing by documenting their current position.
An initial review may include:
The assets held by each entity
The income earned through each trust
Existing residential investment properties
The acquisition dates of those properties
Current company beneficiary arrangements
Existing trust distributions
Lending facilities and security arrangements
Active or anticipated succession transactions
Employment arrangements connected to each entity
This information may help the family and its advisers assess the proposed legislation once further detail becomes available.
The Budget measures may affect tax outcomes, but they may also affect how a business is owned, financed, operated and transferred between generations.
Want to discuss your broader business position?
James Brouff works with farming families, agribusiness operators and rural business owners across regional Australia, helping bring the right professionals around the table for complex finance, business structure and succession conversations.
To discuss what the proposed changes could mean for your broader business position, reach out directly.
M: 0461 374 585 | E: james@bullagreen.au | W: bullagreen.au
General information only. This content does not constitute financial or credit advice and has been prepared without considering your objectives, financial situation or needs. Lending is subject to eligibility, lender criteria and approval.
Bullagreen Finance | Credit Representative 571331 | Australian Credit Licence 389328
The tax, trust and legal information contained in this article is general in nature and should not be relied upon as a substitute for independent tax, accounting or legal advice.
The measures discussed were announced as part of the 2026–27 Federal Budget but had not been legislated at the time of publication. The proposed reforms, commencement dates, exclusions, eligibility requirements and transitional arrangements may change through the consultation and legislative process.
Before acting, selling or transferring an asset, purchasing an investment property, changing a trust distribution, restructuring a trust or company, varying a finance facility or making a succession-planning decision, obtain advice from appropriately qualified tax, accounting, legal and finance professionals.
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