What the CGT Changes Mean for Property Held in a Trust
If you hold investment property in a trust, the proposed changes to capital gains tax from 1 July 2027 will affect how much tax you pay when you sell. For most property investors, the real wealth comes from capital growth over time, not just the rental income each year. That makes understanding these changes particularly important.
These proposed changes are not yet law. This article is general information only and does not constitute tax or financial advice. You should speak with your adviser before making any decisions.
The proposed changes are broad. They affect individuals, trusts and partnerships, not just bucket company arrangements. If you hold property in a trust and plan to sell after 1 July 2027, the way your capital gain is taxed will be different.
How the 50% CGT Discount Has Worked Until Now
Currently, a trust that holds a property for more than 12 months can access the 50% capital gains tax discount. When the property is sold, the discounted capital gain flows to individual beneficiaries who pay tax at their own marginal rate. This has been one of the most powerful tax advantages of holding property in a trust. Companies have never been able to access the 50% CGT discount, which is why most property investors avoid directing capital gains to bucket companies.
Consider a trust that bought an investment property years ago and sells it now. The capital gain is calculated, then halved, and the discounted amount is distributed to beneficiaries. If a beneficiary is on a marginal tax rate of 37%, they pay tax on half the gain at that rate. That structure has worked well for years.
The Broader CGT Reform from 1 July 2027
From 1 July 2027, the 50% CGT discount is proposed to be replaced for individuals, trusts and partnerships. Instead, a CPI-based cost base will apply to gains accruing from 1 July 2027. Your cost base will be indexed for inflation each year, which reduces the taxable gain. A minimum 30% tax rate will apply to realised capital gains on gains accruing after 1 July 2027.
This is not just a bucket company issue. It affects how all trust-held property is taxed on sale, regardless of who receives the distribution. If you hold an investment property in a trust and sell it after 1 July 2027, the way your gain is calculated and taxed will change.
The CPI indexation may soften the blow in high-inflation periods, but the 30% minimum tax rate means that even beneficiaries on lower marginal rates will pay at least 30% on the portion of the gain accruing after 1 July 2027.
If you hold investment property in a trust, now is the time to understand how the proposed CGT changes might affect your future sale. Call one of our team or book an appointment at a time that works for you.
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The Transitional Rules for Property Held Before 1 July 2027
Property bought and sold before 1 July 2027 is not affected. The current rules apply. For assets held before 1 July 2027 and sold after, gains will be apportioned. Gains accruing before 1 July 2027 will be taxed under current rules, meaning the 50% discount may apply. Gains accruing after 1 July 2027 will be taxed under the new rules, with indexation and the 30% minimum tax.
A valuation at 1 July 2027 will be required to split gains. You can use either a formal valuation or an ATO-approved apportionment method. If you hold property in a trust now and plan to sell in the future, you should be aware of this requirement and plan ahead. A formal valuation at 1 July 2027 will give you certainty about how much of your gain falls under the old rules and how much falls under the new rules.
In a scenario where a trust holds a property purchased several years ago, the gain from the original purchase price to the 1 July 2027 valuation is taxed under the old rules. The gain from the 1 July 2027 valuation to the eventual sale price is taxed under the new rules. That split can make a significant difference to the final tax bill.
The New Build Exception for Eligible Properties
Investors in eligible new residential builds can choose between the 50% CGT discount or CPI indexation when they sell. This makes new builds a more attractive option from a CGT perspective compared to established properties. A property that has been previously sold, other than by the original builder within 12 months, will not be eligible.
If you are considering buying your first investment property or expanding your property portfolio, a new build may offer tax advantages that an established property does not. The ability to choose between the discount and indexation gives you flexibility depending on inflation and your marginal tax rate at the time of sale.
What This Means for Bucket Company Arrangements Specifically
If a trust nominates a bucket company for 100% of distributions under the election, and then sells a property, the full capital gain flows to the company. The company pays tax on the full nominal gain. It cannot access the 50% CGT discount or the CPI indexation concession. Distributing rental income to a bucket company may still make sense, but doing so for capital gains from property sales may cost significantly more in tax.
Investors may need to consider whether a split nomination is more appropriate. You might direct rental income to a bucket company to retain funds at the 30% company tax rate, but direct capital gains to individual beneficiaries to access the 50% discount before 1 July 2027 or the indexation concession after that date. This requires careful planning and advice.
In a scenario where a trust sells a property with a large capital gain and the entire gain is distributed to a bucket company, the tax cost could be substantially higher than if the gain had been distributed to individual beneficiaries. The bucket company election needs to be reviewed in light of your long-term exit strategy, not just your short-term cash flow needs.
The Main Residence Exemption Remains Unchanged
The main residence exemption is not affected by these proposed changes. Investors who also own their own home can take some comfort that this key protection is unchanged. If you live in your property as your main residence, the capital gain on sale remains tax-free.
This does not help property investors who hold assets in a trust for investment purposes, but it does mean that your own home remains outside the scope of these reforms. If you are thinking about your overall wealth strategy, the main residence exemption continues to be one of the most valuable tax concessions available.
If you hold investment property in a trust, now is the time to understand when you acquired it and model the likely tax outcome of a future sale under both the old and new rules. The valuation requirement at 1 July 2027 is something to plan for now, not at the last minute. Speak with your adviser about how the CGT changes affect your exit strategy. If you are refinancing an investment loan or restructuring your holdings, factor these proposed changes into your decision.
Call one of our team or book an appointment at a time that works for you. We can help you understand how these changes might affect your situation and what steps you can take now to prepare.
Frequently Asked Questions
How will the proposed CGT changes affect property held in a trust?
From 1 July 2027, the 50% CGT discount is proposed to be replaced with a CPI-based cost base and a 30% minimum tax rate on gains accruing after that date. For property held before 1 July 2027, gains will be apportioned between the old and new rules.
Do I need a valuation at 1 July 2027 for property held in a trust?
Yes, if you hold property in a trust before 1 July 2027 and sell after that date, a valuation will be required to split gains between the old and new rules. You can use a formal valuation or an ATO-approved apportionment method.
Can a bucket company access the CGT discount or indexation?
No. If a trust nominates a bucket company for 100% of distributions and sells a property, the company pays tax on the full nominal gain without access to the 50% discount or CPI indexation.
Are new builds treated differently under the proposed CGT changes?
Yes. Investors in eligible new residential builds can choose between the 50% CGT discount or CPI indexation when they sell, making new builds more attractive from a CGT perspective.
Is the main residence exemption affected by the proposed changes?
No. The main residence exemption is not affected by the proposed CGT changes. If you live in your property as your main residence, the capital gain on sale remains tax-free.
