Budget Benefits Private Credit

Implications of the 2026–27 Federal Budget for Investors

The 2026–27 Australian Federal Budget represents one of the most significant shifts in investment taxation in more than two decades. While much of the public focus has centred on housing affordability and cost-of-living measures, the more consequential impact for investors is a fundamental rebalancing of how different types of returns are treated.

At its core, the Budget alters the relative attractiveness of capital gains versus income. It reduces the tax advantages historically enjoyed by growth-oriented strategies and, in doing so, increases the relative appeal of assets that generate steady income.

A Structural Change in the Tax Treatment of Investment Returns

The centrepiece of the reform is the overhaul of capital gains tax. The long-standing 50% discount on capital gains for assets held longer than twelve months will be replaced with a system based on inflation indexation and a minimum 30% tax rate on gains.

At the same time, the Budget restricts negative gearing to new residential properties, limiting investors’ ability to offset investment losses against other income. These changes are accompanied by the introduction of a 30% minimum tax on discretionary trust income, reducing the effectiveness of common tax structuring approaches.

The combined impact represents a coordinated policy shift. The Government is moving away from a system that implicitly encouraged leveraged, tax-optimised investment strategies toward one where returns are more directly linked to underlying economic performance. Treasury commentary has emphasised that the intent is to ensure investment decisions are driven by economic fundamentals rather than tax outcomes.

Repricing Capital Growth Strategies

For much of the past two decades, Australian investors have benefited from a framework that favours capital appreciation. Property investors, in particular, have been able to combine negative gearing with favourable tax treatment on eventual capital gains.

The removal of the CGT discount increases the effective tax paid on realised gains. At the same time, the restriction of negative gearing reduces the attractiveness of investments that generate low or negative income in their early years. One likely outcome is a period of subdued growth in Australian real estate.

As capital gains become less tax-efficient, the value of income increases. Investors who previously relied on a combination of low running yield and strong capital growth must now reconsider that balance. The after-tax advantage of growth has narrowed, while the predictability and immediacy of income have become more meaningful.

We see this as supportive of strategies that generate regular yield and rely less on capital appreciation, instead focusing on the consistent compounding of cash flows.

Credit Investing: A Natural Beneficiary

Within this context, credit strategies, particularly those focused on consistent income, stand out as clear beneficiaries. At Remara, our credit funds are designed to deliver returns primarily through contractual cash flows, including interest income, rather than relying on asset revaluation or exit-driven gains.

This spans a range of strategies: from the Remara Investment Grade Credit Fund, which focuses on lower-risk, capital-stable exposures, to the Remara Credit Income Fund, which targets enhanced yield from diversified loan portfolios, and the Remara Credit Opportunities Fund, which seeks higher returns through more complex assets.

While each strategy sits at a different point on the risk–return spectrum, they are unified by a common feature: returns are realised progressively through income rather than deferred capital appreciation. This structure means they are inherently less exposed to changes in capital gains tax and are well aligned with an environment in which investors are increasingly focused on predictable income and the compounding of real cash flows over time.

The reduction in tax-driven investment activity may also lead to a reallocation of capital. Strategies that previously benefited from negative gearing and discounted CGT may attract less demand, particularly at the margin. As that capital seeks alternatives, income-generating assets become a natural destination.

Credit investments, particularly pools including private credit assets are well positioned to absorb this shift. They offer yields that are typically higher than traditional fixed income, supported by contractual cash flows and underlying borrower obligations. In an environment where investors are increasingly focused on after-tax cash returns, this combination is compelling.

The 2026–27 Federal Budget marks a turning point in the Australian investment landscape. By reducing the tax advantages associated with capital gains and limiting the use of negative gearing, it shifts the balance of incentives toward income-generating investments.

In this environment, private credit stands out as a structural beneficiary. Its reliance on contractual income rather than capital appreciation aligns naturally with the new framework, and its relative attractiveness is enhanced as competing strategies lose some of their historical advantages.

Gwion Moore
Chief Investment Officer