What The Federal Budget Means For Landlords And Small Business

In this episode, Mai and Lee break down the key announcements from the latest Federal Budget. Importantly, they explore what these changes actually mean for business owners, property investors, and everyday Australians. With headlines creating panic and confusion, this episode cuts through the noise to focus on what matters and what actions should be taken.

Mai walks through the three major proposed changes dominating the conversation: the removal of the 50% Capital Gains Tax (CGT) discount, changes to negative gearing, and new rules around the taxation of family trusts. 

Mai unpacks how negative gearing currently works, why many “investors” are actually everyday Australians taking on risk, and what removing these incentives could mean for housing supply, rental prices, and borrowing capacity. The conversation also explores how these changes may affect younger Australians trying to enter the market, and why the proposed reforms could have broader economic consequences beyond tax.

In this episode, Mai talks about:

• The proposed removal of the 50% CGT discount and shift to indexation
•  How negative gearing currently works and why it exists
•  What the changes mean for everyday property owners (not just “investors”)
•  How borrowing capacity may be reduced without negative gearing benefits
•  Why first-home buyers could be indirectly affected
•  The proposed changes to family trust taxation and how income distribution may shift
•  How these reforms could impact small business structures and cash flow flexibility
•  Why policy changes like these can influence long-term investment decisions

This episode is a timely reminder that not all headlines tell the full story. Before making any decisions, it’s critical to understand how proposed changes apply to your specific situation. If you’d like help understanding how these proposed changes may affect you, reach out to our team or speak with your accountant before taking action.

You can also submit questions or topic ideas via the Ask Mai link at the top of the show notes.

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Disclaimer

The advice contained in this presentation is general in nature only and should not be acted on without first seeking professional advice.

Your personal circumstances have not been taken into account, and you should consider the appropriateness of the advice to your individual needs.

Transcript

Welcome And Why Everyone Panics

Speaker 1 0:00

Hello and welcome to the podcast My Accounting Advantage. Today we've got the cameras on as we're going to discuss what came out of the budget. Everyone's panicked, they've gone nuts, they've gone crazy, they're worried, but they didn't get sound advice from their accountant before taking any action. So a lady who's had a thousand questions this week from the general consumer is the star of our show, Mai Harris. Mai, welcome back to your own podcast.

Speaker 0:30

Thank you, Lee, and it's nice to be here. And yes, the federal budget um just landed on Tuesday, and it's a hot topic for the week.

Speaker 1 0:40

Well, take us into it because you're very much into property, so am I. And I've heard so many things this week in noise. What is it they actually need to know and what's the truth of the matter?

CGT Discount Scrapped For Indexation

Speaker 0:51

Okay, so there are three major changes really. What's um involved the property market is the 50% CGT discount that will actually be abolished and replaced with the indexation instead. Will be um introduced on the 1st of July 2027. Given that the law, you know, has to go through the process of being law, we don't really have the final, you know, a definite say whether or not it will become law, but very highly

Negative Gearing Explained And Fallout

Speaker 1:28

likely. So the next one is massive one, which is negative gearing. And yes, that's on everyone's mind.

Speaker 1 1:37

Is a big one because for people who and let's look at negative gearing. The rental providers, and I want to use this word, the word investor, people think of someone with 50 properties and they're earning all this money. In Australia, most investors own 1.3 properties. The normal mums and dads who've worked all their life want to get one more investment property because they think they're doing the right thing. As soon as they do that, they're a rental provider to the community. And the property is negative geared because it's making a loss. I think people forget that. Yes, it's actually losing money in the hope that it may go up and people get this very, very foggy. So take us into this.

Speaker 2:22

So basically, negative gearing, how it works, is basically you borrow, you know, you you took the risk to actually invest in the property market. To be a rental provider. That's right, to be a rental provider. But a lot of people think that no, they're investors and they have lots and lots of money. To me, it's a bit warped perception because the people who actually worked really, really hard to be in that position, they didn't used to have it before either. So they sacrificed at some stage in their lives and also saved and worked hard in order to be in that position to invest. It doesn't mean that they have loads of money. No. It just means that they're willing to take the risk, have enough saving to actually put that down as a deposit, for example, or have the equity in their home so that they can release it in order to extend their investment. It doesn't mean that reflects into their cash. There's wearing it by actually paying, you know, the the gap of paying the loan off. Because often that's why it's called negative gearing, because the debt level, which translates to high interest, actually exceeded the level of income received, which is rental income. So the rental income doesn't actually cover the cost of having that investment property. And so property owner will be forced to actually do a top-up position, which means you know they have to top up the cash, pay the home loan off, and wear that losses in the meantime. The negative gearing allows people to use that rental losses against the other income, which often is salary, salary and wages. So that's an incentive to, you know, making that investments still. They still have a gap that they they they're trying to meet for that repayment. And it's not until they do sell that property that's when they're seeing the real gain on that investment.

Speaker 1 4:35

We hope so.

Speaker 4:36

Well, and some in some cases it doesn't work that way. And they're going to stop that now. Which means that if you acquire basically an existing home, already built home, not a new home, incur rental losses, that's no longer can be used against your other income. Will not be an incentive or subsidies, which um you're not gonna get any tax back, which means that your you know top-up position, the gap is even larger.

Speaker 1 5:08

Which is gonna make people say, I just can't do this anymore. No. Which means there's gonna be no rentals because the rental provider it can't keep providing a rental or a loss. Deterred the investment. And the government thinks that's gonna help people buy a property. How does that add up?

Speaker 5:24

And that's the one thing they're trying to provide the level playing field for younger um generation and first home buyers. But to me, you know, you actually don't realize what it's doing to those people who's trying to enter the market in the first place, and often they are the renters. Correct. Yeah. So now they're going to be looking at perhaps an increase in um, you know, their rent that they're paying to the landlord because the newer landlords will not be able to subsidize the gap by um using the losses against their other income. So they're going to jack the the rent up. Again, because a lot of young people who want to own a home, they don't have the privilege of saving that money. So they don't really have the deposit. And often they opt to purchase the property as an investment in order to, you know, gain. So you're trying to better yourself by investing first. Normally you would get, okay, if you sell the assets, for example, a lot of people, young people, only have say $20,000, $10,000, and they can invest that in shares, um, held the asset for over 12 months and they get the 50% CGT discount. That doesn't happen anymore. So where do they invest to get, you know, that tax break and you know, increase the level of investment that they have. So they can't double their money, for example, and um because they're gonna be paying a lot more tax. Yeah. Yeah. And then, or a lot of people go, oh, well, I'm just I don't have the current borrowing capacity to purchase my own home at the moment as a first home buyer, because I don't have the borrowing capacity to do so. So they often would opt to borrow um as an investment.

Speaker 1 7:33

Yeah.

Speaker 7:33

Because the bank can actually factor negative gearing into it and to uplift their borrowing capacity.

Speaker 1 7:42

And it's tight as it is, to take a component away is you don't qualify.

Speaker 7:47

Absolutely. And now, unfortunately, for those um people, uh the borrowing capacity goes right down because they can no longer use negative gearing um to factor into their borrowing capacity. So there's a lot of you know a lot going on.

Family Trust Tax Proposal Shock

Speaker 8:07

What was the third one? The third one is um still a proposed law, which is the taxing of family trusts. Wow. Yes. So family trust um at the moment allows you to split income between the family members. So many um small businesses at the moment will trade under the family trust structure, and then they can distribute income to their family members. And often it's it's set up that way, not to do income splitting but uh but to um doing asset protection. It they set it up for asset protection purposes and also flexibility in um accessing cash within the business. Because, you know, um if it goes into a company structure, it's a little bit more difficult to access the cash because you can either take it out as wages or dividends. But um for trust you can distribute. Trust doesn't pay tax, and once it distributed the income, it will be taxed at the beneficiary's um marginal tax rates. And often you can distribute to a family member who's within in the business, and um they might be just getting $20,000, so you they're not really paying tax. So that is the tax-free component of that income.

Speaker 1 9:41

Look at my wife and my uh my wife and myself. All our kids have worked in the business at some point in their career. They all start with us, learn the ropes, and then do something, but that is why you have that sort of setup.

Speaker 9:55

And you are a provider. I you are the you are providing them um, you know, um for their cost of like you are paying for their cost of living, yeah. You are paying for, you know, their their food, you are paying for the accommodation, and yeah. So that's what the distribution is, and they they're also helping the business. So that's what the distributions are for.

Speaker 1 10:21

Every one of my children have packed envelopes, packed boxes, send things out. It's part of the family way that you work in the fence. But not And Australia's built on family business.

Speaker 10:32

That's right. And and now they're going to be taxed at, you know, 30% regardless. So it and the tax is proposed to be um in the hands of the trustee before it reaches the the beneficiaries.

Why The Budget Feels Unfair

Speaker 1 10:49

So what was your final conclusion of the federal budget? That all happened this week, which the whole country is speaking about. What was your final thoughts?

Speaker 10:57

To me, this budget is uh it's unfair. And it hurts a lot of people, investors, people who wanted to invest, and um it discouraged you know investors and long-term growth. And let's face it, you know, in investors and or whoever comes into the country to invest creates jobs. But the government wants to take a minimum of 30% cut on everything without allowing you know making allowance to those who pour their hard work, blood, sweat, and tears into the business to build it to what it is today and just take all the incentives away from them and left them and discourage them to better themselves, that's in my opinion. Yeah. And and and it's it's a minimum tax on you know ambition to be best financial position.

Speaker 1 12:12

Yeah. Well, Mai we're very, very fortunate that you are doing this podcast, My Accounting Advantage. And for anyone out there, it doesn't matter what business we are all in, we are trying to contribute to society, provide jobs, be a rental provider, cover life for our families, and it all comes down to this one moment of what we can hold and what we can do. But your podcast has been of so much help. I get so many phone calls, everyone's sharing it and sharing it. We hit 500 downloads the other day, which was just amazing. And Mai for those people that haven't seen you speak before, because uh usually the podcast is just in audio on Apple, Spotify, and so forth. But we wanted to turn the cameras on today to have a chat about uh the federal budget. But you've got a massive ambition in life yourself that you want to do with school leavers. Take us into that.

Financial Literacy For School Leavers

Speaker 13:06

Yeah, so um that is my sort of my legacy that I want to leave behind. And the dream is, well, it's not gonna be a dream, it's more like a mission to me. To um, you know, being able to run a financial literacy program for um young, they're not young, they actually, you know, teenagers, you know, who's about to leave school. Young adults, yeah, I call them. And I I feel that at the moment we don't have a system in place to educate them. There there might be, you know, um some little program out there, but it's not widely available to everyone, like, you know, our school system. That teaching um young adults before they leave school the financial literacy, the simple things like budgeting, the simple things like, you know, this is our tax system, and this is what you have to do once you earn money, you actually pay tax. And um how do you manage the leftover? Yeah, the leftover. And um, how do you manage, you know, how um at the best you can. And what are the costs of living? A lot of people just don't realize, you know, how much it costs because they've been living at home for a long time. And perhaps, you know, the parents don't really know how to manage money either. So you fall back into the same um cycle. So we want them to be smarter, we want them to be self-sufficient, we want them to be able to manage, you know, their finances um efficiently and at the best ability that they can. So then don't become a burden to the society.

Speaker 1 15:03

Absolutely massive cause. And I know I want all my children to have gone through that course because no one talks about it, no

Small Business Course And Wrap

Speaker 1 15:11

one teaches it. And then finally, we've got no dates uh booked yet, but we've confirmed that May and I will be doing the How to Run and Market a Small Business course, which is going to be at the Voco Hotel here in Gosford, which we're very excited about, which is a wonderful big new thing that's happened. But if you're out there and you've ever thought, I want to have my own business, there is things you do need to know, especially in lead generation, lead conversion, and client fulfillment, and then more importantly, the numbers of a business. Mai, you look after all types of business owners, uh be it trades, professional speakers, whoever is out there has a set of numbers. Why do you think this course will be so beneficial?

Speaker 15:53

This course will be so beneficial for um, you know, just any level of entrepreneurs, any level of um business owners. As long as you want to actually scale your business, be a better leader for your team. And you don't know what you don't know. So perhaps, you know, you will learn a lot of tips and tricks and you know, all all the things that you need to know a framework in order to operate the business. The framework in order to make the fine business decisions, and that in itself will help you, you know, grow your business, and it's also really good for personal development and financial development as well. So it it will cover a lot in terms of, you know, um the overall um health of you know the business and also for the owner of the business. So it's a I think the program is for business owners and entrepreneurs and the want to bes.

Speaker 1 17:04

Absolutely amazing. And I've had so many senior business people reach out to me and say, Lee, I wish I knew all that stuff when I started my business. I didn't. I'm gonna make sure my son, my daughter, my son-in-law goes to that course. They've all started trades or little businesses or sole operators and and structures uh in your podcast when we did that a couple of weeks ago. Are you set up correctly? So, Mai thank you for appearing. It's this podcast grows every week, and thank you for watching. And this is our first one of the cameras on for my accounting advantage. Mai, I will see you next week.

Speaker 17:43

See you next week and listen on.