The 2026 Federal Budget delivers a wide-ranging package of tax reform, superannuation changes, housing measures and social program adjustments that will affect separating couples, family law practitioners and the clients they advise. Here is what you need to know.
1. Capital Gains Tax Reform
One of the most consequential changes for property settlements is the reform to capital gains tax (CGT), which takes effect from 1 July 2027. The 50 per cent CGT discount for individuals, trusts and partnerships will be replaced with cost base indexation and a new 30 per cent minimum tax rate. Indexation ensures that only real capital gains are subject to tax, while the minimum tax rate more closely aligns tax on capital gains with the marginal rate faced by the average worker. Critically, the new rules apply only to gains arising after 1 July 2027. Existing investments are protected by transitional arrangements, and investors who acquire new homes will be able to elect between the 50 per cent discount and the new rules on sale.
For family law, property pools containing investment properties, share portfolios and business interests will need to be valued with reference to the new tax treatment. Timing of settlement and any post-settlement sale has become more strategically significant, and parties with substantial CGT assets should seek advice well before the 1 July 2027 commencement date.
2. Negative Gearing Reform
From 1 July 2027, the Government will limit negative gearing for residential property to new builds that genuinely add to housing supply. Importantly, this is not an abolition of negative gearing. Properties held at 7:30pm AEST on 12 May 2026 are fully grandfathered, meaning existing investors are unaffected. Investments that support government housing programs, such as the provision of affordable housing, are also exempt.
For separating couples, the key question is how a property acquired after the commencement date will be treated in a property pool. The post-tax cash flow profile of investment properties acquired from 1 July 2027 will be materially different, which is relevant to add-backs, future needs assessments under section 79(5) of the Family Law Act 1975. The Government estimates the combined CGT and negative gearing reforms will support approximately 75,000 additional first home buyers entering the market over the coming decade.
3. Discretionary Trust Taxation
A new measure with direct relevance to many family law property matters is the introduction of a 30 per cent minimum tax on discretionary trusts from 1 July 2028. The tax will be paid by the trustee, with beneficiaries receiving non-refundable credits. Fixed trusts, including fixed testamentary trusts, are excluded, as are complying superannuation funds, special disability trusts and deceased estates.
Family-owned and closely-held businesses operating through discretionary trust structures are common in property pools. This reform will affect the after-tax income distributed from those structures, with flow-on consequences for business valuations, future maintainable earnings assessments and just-and-equitable analyses. Rollover relief will be available for businesses that restructure out of a discretionary trust into another entity type such as a company or fixed trust, and will be available for three years from 1 July 2027. However, this rollover relief is distinct from the rollover relief for CGT events that happen under a family law order or agreement.
4. Income Tax Cuts
The Budget delivers several layers of income tax relief that flow directly into child support and spousal maintenance calculations. From 1 July 2026, the 16 per cent tax rate applying to income between $18,201 and $45,000 reduces to 15 per cent, and will reduce further to 14 per cent from 1 July 2027. From the 2027-2028 income year, a new Working Australians Tax Offset (WATO) will provide an annual offset of up to $250 for income earned from work, benefiting over 13 million working Australians. From the 2026-2027 income year, workers can also claim an instant tax deduction of up to $1,000 for work-related expenses without needing receipts. Combined, an average worker on $81,245 will receive a tax cut of $1,978 in 2026-2027 and $2,496 per year from 2027-2028, compared to 2023-2024 settings. Additionally, the Medicare levy low-income thresholds will also increase by 2.9 per cent from the 2025-2026 income year.
5. NDIS Reform
The Budget takes significant steps to slow growth in NDIS expenditure, with reforms expected to reduce NDIS payments by $37.8 billion over the next four years. Nominal growth in the NDIS is projected to decline from over 10 per cent in 2024-2025 to an average of around 2 per cent between 2025-2026 and 2029-2030. The reforms include tightened eligibility requirements based on functional capacity, stricter plan reassessment criteria and expanded mandatory registration of providers. The Government is investing $2.0 billion for the Thriving Kids program for children with developmental delay or autism, with a further $3.0 billion provisioned over five years for Foundational Supports outside the NDIS, both to be matched by states and territories.
For family lawyers, the implications across all areas of practice are significant, namely increasing pressure on separated parents and straining the family court system. Stricter eligibility rules and funding caps will transition many children to state-based support systems, which may affect parents with neurodiverse children who require additional support where a parent loses government funded supports.
6. Housing Measures
The Help to Buy shared equity scheme invests $685.4 million over five years from 2025-2026, reflecting reduced lending estimates in line with updated actuarial estimates of average loan values eligible under the scheme.
The Budget funds the 100,000 Homes for First Home Buyers program, which provides concessional loans to state and territory governments to deliver additional housing. Housing affordability and availability remain relevant considerations in property settlements where preserving stable accommodation for children is a factor under section 75(2).
Seeking Advice
The 2026 Federal Budget creates both urgency and complexity for separating couples. Many of these changes will have a direct bearing on property settlements, parenting arrangements, child support and spousal maintenance outcomes. If you are going through separation or considering your options, our team at Nicholes Family Lawyers can help you understand how these changes may affect you.
Our office can be contacted at 03 9670 4122 and we can arrange an initial consultation to offer assistance.