Federal budgets do not directly address family law, but they can significantly influence family law property settlements.
This year’s Budget proposes changes to negative gearing, capital gains tax, discretionary trusts, tax deductions and housing policy. These changes could affect valuations, tax advice, settlement structures and the timing of agreements for separating couples.
Investment properties require closer tax scrutiny
The proposed negative gearing changes will impact cases involving investment properties.
From 1 July 2027, rental losses on residential properties acquired after Budget night may no longer be deductible against a party’s broader income in the same way, subject to transitional rules and exemptions. Properties owned before Budget night will likely be protected under grandfathering provisions.
This change could reduce the after-tax value of investment properties. A property that seems affordable on paper may become less attractive if future losses lose their deductibility.
This matters when one party wants to keep an investment property and the other receives cash, superannuation or other assets in exchange.
Revisit capital gains tax assumptions
The Budget proposes replacing the current 50 percent capital gains tax discount for assets held over 12 months with an inflation-based model and a minimum tax on gains, effective from 1 July 2027.
This change could significantly affect family law matters involving investment properties, shares, business interests, trusts and other CGT assets.
Family law settlements often exclude CGT unless an asset sale is imminent. However, when a sale is likely or planned, parties must carefully consider the future tax consequences.
Settlements based on outdated tax assumptions may seem fair now but could lead to unexpected outcomes when the asset is sold.
Trust structures gain added importance
Trusts already complicate family law property settlements, and the Budget may add further complexity.
The proposed minimum tax on discretionary trust income could change how courts and parties assess trust distributions, retained earnings and future income streams.
Couples negotiating settlements involving trusts should obtain updated advice about the trust’s tax profile, control, debts, unpaid entitlements and distribution patterns to properly account for these changes.
Update business valuation assumptions
The Budget introduces measures for small businesses, including making the instant asset write-off permanent and adding a standard deduction for work-related expenses.
While these changes may not immediately overhaul most family law business valuations, they could affect cash flow, depreciation, taxable income and future earnings in some cases.
These impacts are especially important for small businesses where valuations depend heavily on add-backs, tax adjustments, equipment purchases or the owner’s personal effort.
If a business valuation is underway, parties should confirm whether the expert has accounted for the Budget changes and updated assumptions accordingly.
Make timing more strategic
The most immediate impact of the Budget may be on timing.
If measures take effect from Budget night, 1 July 2026, 1 July 2027 or 1 July 2028, the dates of acquisition, sale, transfer or implementation will become more significant.
This does not mean parties should rush settlements, as speed does not guarantee fairness.
However, family lawyers and parties must consider whether timing affects tax, borrowing capacity, asset retention or the commercial benefits of a proposed settlement.
Conclusion
The Budget does not alter the core property settlement process. Courts will still identify the property pool, assess contributions and future considerations, and ensure outcomes are just and equitable.
However, tax and economic settings influence asset values, liabilities and whether settlements make commercial sense.
For separating couples with investment properties, trusts, businesses or significant CGT assets, the Budget highlights that an asset’s headline value only tells part of the story.
If you need help with your property settlement, contact one of our experienced family lawyers.
