Budget 2026 | Tax changes, clickbait headlines and how to invest in the new world [Video]

If you've been reading the news since budget night, you've been feeling a little bit overwhelmed. If you are, you're in the right place. I've put this presentation together to walk you through what's changing, what's staying the same, and to cut through a lot of the noise, especially a lot of the misinformation and clickbait that is circulating at the moment. So whether you're a property investor or future property investor, there'll be something in this for you. Try to simplify it as much as possible.

I'm also leaving a copy of the full presentation available, there's a link in the description. Please note that this is based on the budget papers and none of this has been put into legislation yet, which means that it could change. And everything that I'm about to go through is educational, it is case study based, and it doesn't apply to your individual circumstances. We're gonna break down six core things today. So first one's gonna be the backdrop, what is informing this budget and the decisions that we made, including conflict in The Middle East, inflation, and what that means for short term borrowing power and interest rates.

Think through the noise. So there's a lot of, let's call them clickbait headlines that are going out at the moment that have no real factual basis and are scaring a lot of people off. So we're gonna unpack them and tackle them head on. What's actually changing? So capital gains tax, negative gearing, discretionary trusts, breaking them down and helping you understand in real English with real examples what those changes look like, then applying it to your situation.

So whether you're cash flow constrained, you're in a strong cash flow position, you're a rentvestor, you're looking at an SMSF, you're grandfathered and so you're not really impacted, or you do hold assets in a trust. We're going to break down how you might be impacted and what property investment strategies you may want to consider moving forward. Numbers, so does property still work with the changes? We're going to walk you through that. Short answer is yes, but you need to adapt to these changes, and the most important thing now is planning your exit, and that will dictate how you purchase and how you sequence things moving forward.

And then from there what to do next? So key dates that you need to be across valuation that you're gonna need before July 2027, and when to call your accountant, solicitor, financial adviser. I initially put this together for our existing clients, and I'm horrible at selling myself. But if you don't know me, my name is Imtiaz Rathar. I'm the founder of HAC Mortgages.

I'm a mortgage broker and a qualified property investment adviser, and this is what me and my team do day in and day out. Before we get into the myths and mechanics, a little bit of context around what's informed this. So the conflict in The Middle East and disrupted energy supply has been a massive driver, and it's given government the opportunity to move on reform that they've had on their agenda for a really long time being negative gearing, capital gains tax, and their objective of balancing out the housing market, making it more accessible to first time buyers. What the government's coming out and saying based on their own modeling is that this should result in an extra 75,000 homes over the next decade, price growth in the short term to reduce by 2% to softening of market, and rent increases to be worst a $2 a week increase. Now whether these numbers stack up or not, we know how many projections are sometimes, but as we work our way through this, it'll it'll become prudent what's achievable and what's not.

So what does that mean for the next twenty four months? Oil prices are modeled to remain at $80 a barrel until mid twenty twenty seven, and governments also modeled a $200 a barrel scenario as a contingency. What this tells us is that their confidence that the conflict in The Middle East is going to be resolved anytime soon is fairly low. And along with that, the RBA doesn't believe that inflation will fall into its target band until mid twenty twenty seven. What that means in plain English is that interest rates are more likely to go up in the near term than they are to go down, and we'll probably see multiple increases.

What this looks like is that there's two forces hitting at the same time, and they multiply in terms of borrowing capacity impact. So what's gonna happen is rate rises will have an impact and reduce borrowing capacity for investors, and the negative gearing changes will also impact their ability to borrow money for existing property in particular. New builds they will still benefit from negative gearing. For existing property, there's probably a window between now and one July next year. So if you've been sitting on the fence about buying, it's probably something to consider that you may want to look at things sooner rather than later because the window is actually tightening.

So what are the three changes that matter for you? Negative gearing is being restricted to new builds, and the CGT 50 discount is being replaced by indexation. Both of these changes will come into play from 07/01/2027. In terms of negative gearing, who's affected? New purchases of established residential property, so people who were looking to buy already built property and invest in that way.

Who's affected by the CGT discount? So all investors who sell after this date, all asset classes are impacted inclusive of shares. And then when it comes down to the 30% minimum tax on discretionary trusts, that comes into play from 07/01/2028. So there's a longer time frame deliberately given for anyone in these structures to look at restructuring if it's relevant to them. And who's impacted?

Anyone who currently has a discretionary trust or was thinking of investing via discretionary trust, they will need to reassess which way they move forward. The important thing to note is that a lot of investors who currently own property are going to be grandfathered under these arrangements for negative gearing. So they will be impacted by the CGT changes, they will be impacted by the discretionary trust changes, but their negative gearing will be preserved so long as they were under contract for a property prior to budget night. Now let's break down 10 myths that are all over the Internet at the moment straight after the budget. So myth number one, rents are going to skyrocket.

I'm seeing this everywhere, and a lot of people are basing it on the last time changes like this came into play, which was in 1985. Rents rose in Sydney and Perth, but in those situations, the vacancy rates were already under 1%, which means that there was barely any housing, and interest rates were above 15%. What that means is that building during that time period was prohibitively expensive, no one was going to do it. And even if there was no tax reform changes, the combination of those two factors plus an increase in population would have resulted in rents going up anyway. Every other major capital didn't actually see rents go up.

They just stayed in line with the way that they were prior to the changes being made. Treasury is modelled less than $2 a week as an increase. I still think that's ambitious. I think that there will be a slight increase in line with the market, but I don't see this making rents go up overnight. The other thing to consider there is with these changes, investors are being incentivised to build here are getting tax benefits from it, so they are increasing the rental supply.

All those factors really mean that rents skyrocketing is likely not going to happen. Second myth that I've seen, the property market crash is coming. I feel like this one pops up consistently, and at the end of the day, it will always boil down to supply and demand. And we have a supply deficit, we don't have enough housing, we're not building quick enough, we've got record migration because we need it, and all existing investors are fully grandfathered. So there's no incentive for them to actually sell.

This rhetoric and it ties into myth three that investors will exit doesn't actually stack up. So it's not really supported by any credible data. Onto myth three. So investors will exit freeing up homes for first time buyers. There's no tax driven reason for investors to sell.

If they've bought already, they've grandfathered from a negative gearing perspective, so cash flow wise they're protected. And CGT wise, as you'll see later on in the presentation, the discount impact on long term hold is actually better off in the new indexation world for a lot of long term investors who are negatively gearing their properties. Myth four, prices will only go up 2%. This is from the government's own projections. Treasury did actually say growth softens.

They didn't actually say that it'll be a firm 2%. What I realistically see happening is a twelve month demand surge as investors look to lock in property before their borrowing capacity tightens up and before the negative gearing changes come into account from 2027. Myth five, Australia's CGT will be amongst the highest in the world. This one is getting a lot of traction on socials at the moment where you're seeing these Stover b roll short videos on TikTok or Instagram where they've got our tax brackets compared to everyone else. Now I'm walking you through only for property, not in regards to anything.

But when we look at how Australia calculates CGT compared to the rest of the world, we calculate it based on the real gain, and based on the real gain it's then adjusted. So if we look at this example over here based on a 300,000 gain on a property, you can see that we're looking at 19.1% with the new indexation if we're using 30% on real gain or 22.6 as the x rate on effective gain because there's discount in play, and there's the ability to increase the cost base of the property claim losses as well that have accumulated. If you compare that with the rest of the world, you know, you've got The US at 24, Canada at 35 and a half. So, no, we're not getting completely pinged on CGT when it comes down to property. Myth number six.

So sell now before the CGT changes hit. This is something, again, just popping up on socials, some people trying to drive sales activity. There's no reason to. The CGT discount is preserved up until the date gets changed over, and then the indexation discount gets applied after that point. So for most investors, selling now is the worst possible response, especially with market confidence dropping because of all these budget changes.

If you rush to sell now, it's very likely that you actually won't get the price that you want, and you also don't get the benefit of any future growth that potentially is gonna happen. Myth number seven, your negative gearing losses are gone. So we'll break this down in more detail, but long story short, the losses aren't gone, they're pushed forward, and they're claimed at a later date. But we've got a working example that I'll run you through in a few minutes. Myth eight, investing in new builds means direct competition with first home buyers.

The first home super saver scheme and first home buyer schemes and all the incentives available, they operate under certain price caps. And what's gonna be happening here is a lot of the infrastructure spend from the government is going to enable build under these price caps. There's not often where a long term investor is going to be competing with a first home buyer price point wise. There's some overlap in regional areas, and that will cause direct competition between investors and first home buyers for new builds. But on balance in more established markets closer to capital cities, you're not going to be seeing investors and first home buyers trying to build the same type of property, and that's probably something really important to take on board.

Myth number nine, property investment isn't viable for young Australians anymore, and it's more out of reach than ever. We've got a full working example later, but the long and the short of it is that it's still a very strong investment vehicle, it just needs to be done differently. When we modelled it out compared to a savings account for example over a ten year period there's still a $233,000 difference, and we'll go through those numbers in a little And myth 10, just buying a company, a 30% tax rate solves the trust problem. You're gonna see this all over social media, buyer's agents in particular who are gonna be pumping companies is the best thing of sliced bread. Companies don't receive the CGT discount and indexation discount for property.

So main thing with companies is that if you've got positively geared property, or you're self employed, or you have complex family structures, a company may make sense in that situation, and realistically that is 5% of people. If you look at the breakdown of the table, getting the profit out of a company after a property sells, if it's just a mom and dad doing it, the effective tax rate is actually so much higher compared to doing it as an individual because those profits need to be pulled out as a dividend and then get added to your marginal tax rate. Now this can be managed through tax smoothing with your accountant, but again for most long term buy and hold investors, a company is not worth In essence, company can be the most expensive option available, and before you look at doing anything, speak to an accountant. Do not speak to a mortgage broker or a buyer's agent about tax implications of buying in a company. Let's dive into negative gearing and how it works today so you can understand the future changes.

So to understand the changes, you need to understand how it works at the moment. What it is is it's a tax treatment of losses of investment property that's allowed to be applied to your income. An example of this is, let's say your property was running at a $20,000 a year loss after all expenses, you could take that $20,000 and deduct it from your salary. So if you're earning a $100,000 your taxable income would to 80,000, and that would trigger a tax saving that you got back in the form of a cash refund at tax time every single year. Negative gearing on residential properties will be restricted to new builds and government affordable housing programs.

For new purchases of established property, so any established property purchase moving forward, the losses are quarantined and carried forward. Now the difference here is that the losses can't be used to reduce your individual taxable income. They can only be used against property income, so rental income or offsetting capital gains when you sell. Apart from that it can't offset anything else. No salary, no unrelated income.

With what's not changing is any properties held before budget night fully grandfathered. Same for any contracts that have been exchanged but not settled, same thing. There's a transitional window for negative gearing, so any properties that are purchased between budget night, so just after budget night, and 06/30/2027 can claim negative gearing for that financial year, but then after that they'll no longer be able to claim negative gearing unless they're a brand new property. And an important thing to note is that commercial property shares are all unaffected. Shares in particular is an interesting one, which we will touch on a little bit later because they may form part of more people's wealth building strategies moving forward.

Let's walk through an example of the changes in effect. So Jason here, he's bought an established property after 07/01/2027, so when the changes come into effect, and his annual losses are $10,000 straight out of the gate. In year one when he loses that $10,000, he can't claim it against his income. There's no tax return benefit that there would have been previously. What that means is that 10,000 loss is then carried forward into year two.

Now let's say Jason, very lucky man, and paid down a whole chunk of his debt, and his property was $6,000 positively geared in year two. What happens here is that there's no tax payable on that rent because the $10,000 in initial losses are used up, and Jason can then carry forward an additional $4,000 in carry forward losses. If we would apply that example to a year three, what would happen is that in year three if Jason made $6,000 again, he could claim 4,000 in carry forward losses and then only pay tax on the $2,000. There's another thing to consider here as well is that if Jason was to sell, he could actually apply those carry forward losses to reduce taxable gain on the property at sale, which we have a working example of later on. How capital gains tax works today is for any assets held longer than twelve months, a 50% CGT discount is applied for individuals, trusts, and partnerships.

So the taxable gain is halved, and then it is applied to you at your marginal tax rate. So for example, if you're on a 100,000 salary and you sold a property and made 300,000, you'd get a 50% discount applied so long as you held up for longer than twelve months, which means that your taxable amount is a 150,000. What that means is that it doesn't actually matter how long you hold the property for so long as you hold it for longer than twelve months, you still get that 50% discount. Now what's changing is we're going to cost base indexation. What that means is only the real inflation adjusted gain is taxed.

Now if that sounds really dense, bear with me, we've got a working example actually showing what an inflation adjusted gain actually looks like, and what that's based to do is to tax you on the real gain of the property price. So if inflation is 3% every year and your property goes up 5%, you should only be taxed on the 2% true gain and not the 3% that was inflation. Now the second layer of this is a 30% minimum tax on the real gain. So just now I touched on the real gain being 2% in that example. The important thing to understand is that this is not an additional tax, and if your marginal tax rate, so your salary tax rate is already higher, we just pay your marginal tax rate.

It just gets added together at the end of the year, and the government goes, okay. You earned $200,000. We don't care from who, where, what, what taxable income is 200,000, and so you're into this marginal tax bracket, and that's how it's calculated. Now what's not changing is main residence is still exempt from CGT. CGT inside super and SMSFs that hold property are changing as well.

This next slide is the most important slide for existing investors. It's making sure that you maximise your position before the rules change. So pre July 1, your 50% CGT discount will apply, and then after July 1 you'll go to indexation and a 30% minimum. Now the key thing here is that you need a defensible way to demonstrate your market value on the July 1. In plain English what that means is look to get a professional valuation done on your property before 07/01/2027.

That way you have documented proof of the value of the property when you do go to sell further down the line. The reason why I lean everyone towards a professional valuation and not an agent appraisal is that it's more defensible in the eyes of the ATO and in a court of law. Rolling into the indexation environment, you wanna have the highest possible valuation for your property on record before that rollover date so you don't unnecessarily pay extra tax. So Sarah purchased a property prior to the CGT changes, but is selling it after the CGT changes. Now in this scenario here, I won't go through the numbers in too much depth because you'll be able to see them and you can download the slide deck to pull them apart, but you see here that on Sarah's property that she sold for 900,000 that she got valued properly before the cutoff period, Her total taxable gain was a $154,000, and when you look at the CGT treatment in the new world versus the old world, you can see a difference here of just under $12,000.

So in this scenario, because Sarah hasn't held on to the property long during the indexation period, she is susceptible to paying more tax compared to the 50% discount environment. Before I dive into this slide because it's pretty in-depth, I wanna start with the most likely audience of this video, who's a mom and dad investor, young couple accumulator who may own property in a trust, but it's owned with your spouse and it was potentially done for asset protection reasons or borrowing. Those types of clients, the trust changes aren't going to be catastrophic. The main things to keep in mind that will impact you will be that there's a 30% minimum tax on all distributions, which is paid by the trustee. What that means is that any money going out of the trust will always be taxed at 30%.

Now I'm not gonna go through this slide line by line. I would highly recommend if you're interested in these changes to download the slides and go through it in detail because they are quite complex, and for most everyday investors, they don't actually need to be across these changes in detail. These changes have been put into place to stop income splitting, which is a strategy where a family, for example, will have a discretionary trust with multiple people, let's say a family of five adults, and the primary breadwinner is a surgeon who gets taxed at 47%. And what happens then with their investment income is that it'll go into discretionary trust, and the income may be split off to their daughter who's in uni who's working two days a week at Colts, who's obviously in a much lower tax bracket. And it's not a structure that's readily available or utilised by most everyday families because it's not worth the setup costs and costs.

But my biggest takeaway is if you do own property in a discretionary trust or your tax strategy is heavily dependent on a discretionary trust, I would be speaking to your accountant in terms of whether a restructure would be in your best interest. Now this next section is probably the most important section if you were looking at buying an investment property. It's a walkthrough of what the indexation cost based discount actually results in after holding a property. Now most property investors will leverage fairly high, and what that means is that they'll borrow 80 to 90% of the loan amount. They'll have the loan on interest only, and it'll be negatively geared for cash flow reasons, not tax saving reasons.

That's just a bonus. And aim of the game is to get capital growth to increase and then sell, and the cash flow loss that you have year to year is something that you understand is worth the trade off over the long term. For this example, it's based off a single individual on a $100,000 income, a $700,000 purchase price. They've held it for ten years, and they've got an annual shortfall of just under $20 every single year. They're topping up expenses to run the property $19.09 50 a year for ten years.

Now realistically, as rent goes up, this figure would go down, but I wanted to pick a firm realistic figure based on what most people enter the market with right now. Ten years time, if the property has grown at 6%, so fairly conservatively, sale price is just over 1.2 mil. Now the original cost base, which is made up of purchase price, stamp duty, and sales costs, plus a few other bits and bobs your accountant will add in, 753,000. Now what happens is this cost base has the indexation applied to it. So if inflation was 3% annually over the ten years, it's indexed at 3% over the ten years, which means once inflation's accounted for, we're at a million dollars as the cost base, which means your inflation adjusted return is $246,000.

So these two figures put together, which means your real return after indexation aka accounting for inflation is $246,000. Now bringing us back to the negative gearing situation is that previously this person would have benefited from negative gearing every single year. What's happened here is that those losses have carried forward every single year instead. So over the ten years, just under $200,000 worth of carry forward losses are accumulated. So what that means is when the property sells, the taxable gain is actually $47,158, because we've got a discount from indexation, and then you've got a reduction in your gain from the carry forward losses, which gets you to a taxable gain of about $47,000.

Now for this person who's on a 100 salary, what that means is that they've got about $19,000 tax payable based on the sale of this property. But what that actually looks like is on the gain that they've made of $500,000, so the actual cash that they get after sale, they're only paying 4%, 3.9% acts on that nominal gain. In summary, if there's a long term horizon and the property is still running at a loss every single year, there is still significant light at the end of the tunnel. In terms of what hasn't changed, we've covered that in fair detail throughout, so I'll quickly skim past this section. The important thing to do is actually identify where you sit in these six investor profiles.

So if you're cash flow constrained, you rely on annual tax return to fund your monthly holding costs, so negative gearing is really important to you. If you've strong cash flow, and this is where we put a lot of our clients as we try to base them in a strong cash flow strategy, you can fund the pretax shortfall on your property without the benefit of an annual tax top up. You've got the rentvestor, SMSF investor, grandfathered existing property owner, and the person who owns property inside of a trust. Most investors will strongly identify with one, maybe you fall into two categories, but what we're gonna do is break down what you might wanna consider moving forward strategically. All the cash flow constrained investor, you're relying on tax return every year to hold the property.

What issue you're gonna run into moving forward is you might have a forced sale during a market downturn or when a lifestyle event happens because of the nature of carry forward losses, indexation, and the market that we're about to move into. In all honesty, if the strategy only worked from a negative geared baseline, the strategy probably needs to be changed in the first place, whether that's reducing property price, increasing tolerance, or not investing in property altogether. In terms of strategic guidance, new builds can be a way to manage this risk. If you are looking at purchasing established property, you need to have strong cash buffers in place to cover the shortfall comfortably, including vacancies and repairs. And you might wanna also start looking at high yield properties, noting that chasing a high yield sometimes can also mean that you get lower capital growth.

So you might end up looking at a unit or a townhouse to make your cash flow position stronger, knowing that that helps you hold the property longer and understanding that it may not appreciate as well as a house in the same area. But if you are looking at new builds, it has to be driven by fundamentals. And what I mean by that is the infrastructure in the area, population growth, all of the things that drive capital growth, and not purely because you want to buy an asset that can be negatively geared. We're gonna see a lot of people spruking new property as the best thing since last bread, and that can be extremely dangerous because it's a recipe for developers to make money and investors to lose a lot of money. The strong cash flow investor.

This cohort is probably in the strongest position, which sounds a bit weird. The reason why ties back to our previous case study that we just walked through is that by funding the loss and running costs upfront and accumulating carry forward losses, when you go to sell you may end up in a much stronger position depending on what your exit strategy is and how your accountant maps it out. But you can see here from the figures that are broken down, the tax impact with the current rules and the old rules, the effective rate for any amount of cash that they keep is actually higher. And again, this scenario and the details of it are in the appendix, which is at the back end of this puzzle. We're in a good position to look at established property.

Established property is gonna see a reduction in competition with these changes, which means potentially you could a, buy at an extremely good price, and b, end up in areas that have even higher own occupier demand, which are both a terrific recipe for success. Keeping mind holding for long periods of time is where you take advantage of these new rules. And if you're in a strong cash flow position, it opens up the opportunity to actually have a sustainable multi property portfolio. Having multiple properties becomes more viable. As these changes take full effect, everyone who's been relying on negative gearing to boost their loan serviceability is going to be restricted in terms of how many properties that they can purchase.

So strong cash flow is always gonna be the fundamental reason that helps you build a portfolio and it's even more important moving forward. For the rentvestor, so the person who's renting typically in a market that's too expensive to buy in and investing in more affordable markets, or they're just looking a way to maximise their borrowing capacity. The goal for a lot of them is to rentvest to then buy and own occupy property, or rentvest to then have capital to redeploy somewhere else. The biggest thing here that they're gonna have to factor in is cash flow. If cash flow is manageable for them and stress tested, established property is gonna be a great route to look at.

If cash flow is the concern and they still wanna rentvest, then a new build looks like the better direction for them to go in. In terms of one more thing to consider is that for new builds, people will get the choice between keeping the 50% CGT discount or indexation. And so if you're going to be holding the property for let's say less than five years, may want to model a scenario with your accountant that has you taking the 50% discount, whereas if you're looking at indexation as an option then it would be a longer term hold. Again, just highlighting the emphasis that the exit and the timeline becomes even more significant to think about now moving forward. MSF investors, pretty simple for you guys.

Nothing's really changed in terms of what this budget does. Just keep doing what you're doing, and in accumulation, you're still at 10% CGT, and in pension, you're still at 0% moving forward. It's still the most tax efficient way to buy property, but it is also being infiltrated with a lot of bad actors who are trying to use that fact to sell bad property. So if you were looking at SMSF, I would definitely be speaking to your financial adviser, your accountant, and modelling out multiple scenarios whether you do buy or don't buy. Because although it's a great opportunity, it's also a significant risk if you double down and do it the wrong way, especially for mom and dad investors who don't start out with a lot of super to begin with.

For the grandfathers or grandmothers in the room, so the existing investors, you're extremely protected through this change. Your negative gearing best still stay in place throughout, and the indexation only comes into account after July 1. So before then, you still get the 50% CGT discount. The key thing for you to consider and not even consider, definitely action, is making sure that you get a property valuation sorted out before the changeover date so you have most defensibility on your property value. The other things to consider is something I've been asked pretty regularly since the changes have come into play is if I put a granny flat on my existing property, can also have negative gearing applied to it?

The answer to that is no. But if you were to knock down and rebuild one of your existing properties with a duplex, for example, that could have negative gearing applied to it because you're contributing to housing stock, and that goes for anyone. So if you've purchased an existing property and you do wanna do a duplex development or a triplex, that can have both CGT concessions and negative gearing applied to it and count as a new property. For people who are trust holders, critical that you speak to your accountant have beaten that point to death and won't continue to go through it, but just make sure you organize a call with them and speak to them about your structure. With these changes, what I think is gonna happen for a lot of existing property owners is bracing debt recycling.

The reason why I can see this happening is shares are still able to be negatively geared after these changes, and the combination of that and being able to use tax deductible debt is what's going to make that recycling more appealing. Now if you don't know what debt recycling is, is you make additional repayments against your own occupier property, so this is all based on you owning your own home with a mortgage. And then over time, you draw a second investment loan from the property, so the same way that you would if you were buying an investment property. But what happens then is that that redrawn loan amount, and this has to be a new loan, it can't just be funds that you pull from redraw. Very important to make that clear.

You then use those funds to invest in shares. Now this strategy needs to be overlooked by a financial adviser. I will never tell a client what to buy, what to do, I will help them structure debt recycling in the best possible way for them, but the execution side definitely needs to be looked at by a financial adviser. And what happens is once the shares are invested in you get dividends and franking credits from the shares which actually help you pay down your own occupier property sooner, or you can reinvest those funds and the share portfolio just compounds over time. And then essentially you repeat.

So you pay down the home loan in big chunks over let's say twelve months, and then you do an equity release in twelve months time, and then you repeat that process over and over again until your owner occupier loan is predominantly just investment debt. And I can see this being the road forward for people who own their home and are nervous about cash flow and don't want to be building or buying new and don't have the cash flow tolerance to purchase existing. Debt recycling may actually be the route that you take moving forward. I know I've said it many, many times, but exit planning is now the most crucial part of the process. Understanding what your actual game is, you know, how long are you holding for?

Why are you investing in property? Is it to for an occupier purchase? Is it to retire early? Is it to fund a business venture? Is it to just accumulate over and over and over again to have the biggest asset base possible?

Or do you plan on dying with it and it going to your kids? And that one in particular is one of the biggest considerations when it comes down to structures and exit planning. But it's definitely something that you need to discuss with your advisory team at the start, and have a fixed end point. Because the consequences of a incorrect purchase or incorrect structure will now compound over time even more. So let's bring it all together with a real example that shows whether property is still viable or not.

In this situation, we're comparing a high interest savings account versus investing in property and with the new rules, current rules, and investing in a company structure. Now in this situation, this person has a $105,000 that they have as seed money, and they've bought a $700,000 property. For the savings account example, they've obviously just put it in savings, and they're contributing about $20,000 a year in additional payments because the property is running at a loss. Now if you look at the breakdown here, what I'll do is I'll bring you just straight over to year 10. You can see after ten years their savings account balance has grown to 370,000.

With the current ecosystem with annual negative gearing benefits and the CGT discount, their net position ends up at 586,000. With the new changes, because they've been running at a loss and they've held the property for an extended period of time, they're actually in a better position compared to the person who invested under the current rules. Not by much, but it's definitely worth noting that it's not punitive if you're holding property long term and it's cash flow negative. But obviously your circumstances are individual, so just make sure you model this out with your accountant. And then the last one that I included was company structure, and you can see here that if they just bought the property in a company and then ripped the profit straight out, let's say they were rent vesting and they wanted to use the money towards a deposit for an owner occupied property, so they needed to sell their property in a hurry and get those funds out.

Because they would need to pull out the funds all at once and not be able to spread it out over multiple years, what happens in that situation is that then their position is actually almost no better than using a savings account because the amount of tax that they'll need to eat on the gain and the lack of an indexation benefit, which is why I'm just encouraging everyone to be very mindful when it comes down to company structures be in the new build space. Government is not hiding their intent. They want everyone funneling their money towards new construction. So the opportunity is real in terms of being able to take advantage of better tax concessions, but as we've gone through, you need to focus on the fundamentals and not just because tax treatment is favourable. Investing to save tax is not a strategy that pays off very often.

The main risks that I want to call out for everyone to be across is a surge in demand, in particular new estates, new suburbs will cause vacancy rate risk and slow capital growth from day one. We're seeing this in new suburbs in Regional Victoria where vacancy rates are as high as 70% and properties are failing their valuations by 15 to 20% because there's just a pure oversupply of stock, and those people would have been sold the dream around, you know, tax benefits, depreciation, and negative gearing. So it's just very important to fundamentals. From an off the plan perspective, that creates risks around lenders, loan approval, and actually you being able to get finance, as well as delays and builds. The other thing to really keep an eye out on is the builder that is actually doing your work.

We saw it during COVID in particular where a lot of builders went insolvent, a lot of projects didn't get done, and now we're going to see, I'd imagine, a lot of small construction companies pop up overnight. So just vet the builder that you're going with in incredible detail, and if you don't have someone in your circle who can do that, reach out to someone who can. What this all really boils down to though is fundamentals. Right? And our philosophy when working with clients is their strategy should work on their worst day, not their best day.

And it should focus on real cash flow, so not best case scenario, not optimistic spreadsheets, but what happens if the yield isn't as good as you think it'll be, what happens if you're out of work, what happens if you have a massive repair you need to work through, and really modelling that out. Picking the right assets and not just maxing out borrowing capacity because you feel like it's the right thing to do or the best thing to do. There's a point in every property investor's journey where costs involved with borrowing more money and picking a subclass property actually set your journey back compared to simply paying down your debt or working with a financial planner on a super strategy. And on that note, no single point of failure. So not being built around negative gearing or not being built around, you know, unlimited trust lending, which was a buzzword for a little while, or investment strategy can't have a single point of failure.

And thankfully, what we found with our clients through this journey is that through the ups and downs of the last twenty four to thirty six months, no one has had to sell in distress. Everyone's done really well and no one's really needed to worry, but it all started with the start. Then And just ensuring your long term asset selection is taken into account, and we're not just looking at a hotspot that's going to burn out in twelve months time, which then leads to diversifying at the right time. A comprehensive property investment strategy is a wealth building strategy. They're not two different things, and everyone who invests in property is doing so with the goal to build wealth.

And we aren't biased to just property, which is why we make sure that we maintain strong relationships with financial planners who hate property, for So when the time comes for diversification or making sure that your super's on track because most people overlook that considerably, all possible levers are pointing in the direction to get you where you want to go in the most efficient way and not just stacking properties for the sake of stacking properties. And the last part of it really is risk management. It's not optional. It's crucial, and even more so in the new environment that we're about to go into. So making sure that you have a comprehensive risk management plan and your exit is mapped out from day one is gonna be absolutely crucial for anyone watching this moving forward.

Now let's talk key dates and action items for you to consider. So you can see from here, brain fathering was locked in at 07:30 on budget night. The CGT split happens from July 1, then you've got the negative gearing changes and discretionary trust rollover happening at the same time as well all on July 1, and then you've got the discretionary trust changes coming to effect from July 2028. Again, for existing property owners, just make sure you lock in that valuation before July 1. And that brings us to a close.

So if you've made it this far, hopefully, you've gotten some value out of this and come out of it with some clarity and less day to day stress so you can avoid the clickbait and put your phone away. Again, just to recap, everything that we've gone through has been educational and case study and avatar based. If you do need specific advice, reach out to your financial adviser, your accountant, your solicitor, or if you need help on the lending side of things or don't know where to go, feel free to reach out to us. We'll point you in the right direction in terms of what you wanna do. And again, if you want the full slide deck for reference, there's a download link in the description.

Thanks.