13 May 2026
22 min read
#Funds Management & Financial Services
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The 2026-27 Federal Budget delivered the most significant changes to the taxation of capital gains in 25 years. Coming off the back of the ASIC instruments registered on 1 May 2026 amending stamp duty and portfolio holdings disclosure requirements, fund managers, responsible entities and superannuation trustees and service providers including Australian Financial Service Licensees are facing a coordinated set of disclosure, operational and structural challenges that will require substantial work over the next 12 to 18 months. This article sets out what has changed, what needs to be done, and the practical issues that will arise along the way.
From 1 July 2027, the 50% capital gains tax (CGT) discount in Division 115 of the Income Tax Assessment Act 1997 (ITAA 1997) will be replaced for individuals, partnerships and trusts with cost base indexation and a 30% minimum tax on real capital gains. Companies are unaffected as they were never entitled to the discount. Complying superannuation funds are also unaffected and will retain their CGT discount of 33⅓% and more generally the concessional CGT regime under Division 295 of the ITAA 1997.
For widely held trusts including most managed investment trusts, the reform flows through the trust to the unit holder. The trust itself is generally a flow-through entity for tax purposes, and the capital gains tax treatment in the unit holder's hands depends on the unit holder's own status. Australian resident individuals and trust unit holders will move from the 50% discount to indexation, plus the minimum tax. Australian resident corporate unit holders continue to be taxed at corporate rates with no discount. Foreign resident unit holders continue to be taxed under the existing rules applicable to them, which have substantially excluded the 50% discount since the 2012 reforms.
The transitional rules are particularly noteworthy for fund managers. For assets held by the fund before 1 July 2027 and sold on or after that date, the gain is bifurcated. The portion of the gain attributable to the period before 1 July 2027 retains the 50% discount benefit for those unit holders entitled to it. The portion attributable to the period from 1 July 2027 is subject to indexation and the minimum tax. The value of each asset on 1 July 2027 will be determined either by professional valuation or by an ATO apportionment formula based on the asset's growth rate over the holding period.
In practical terms, this means every Australian managed fund that holds assets across the 1 July 2027 commencement date is moving into a two-phase CGT system. Every asset acquired before that date and sold afterwards generates two taxable components, calculated on different bases, attributable to different unit holder cohorts, in different proportions depending on the asset's value trajectory. The complexity is significantly greater than the move from indexation to the discount in 1999, because the new regime operates two systems concurrently for as long as pre-2027 assets remain in the fund.
For property funds, infrastructure funds, and unlisted equity funds with long-held assets, the two-phase system will be a permanent feature of the tax accounting landscape until those assets are fully disposed of. For listed equity funds, the bifurcation will work its way through the portfolio over a number of years as turnover occurs, but the system must be built and maintained for as long as any pre-2027 asset remains.
The valuation question is arguably the single largest operational issue arising from the reform for fund managers.
The Government has signalled that taxpayers may choose one of two approaches. One approach is to obtain a valuation of each asset as at 1 July 2027, which the ATO has indicated will include using quoted prices for listed securities. Alternatively, taxpayers may use a specified apportionment formula based on the asset's growth rate over the holding period, with ATO tools to be provided. The choice between these two approaches will need to be made on an asset-by-asset basis, and the choice will have material tax consequences for unit holders.
For listed assets, the valuation question is largely administrative. Quoted prices at 1 July 2027 will be readily available.
For unlisted assets, including direct property, infrastructure assets, unlisted equity, private credit and unlisted units in feeder structures, the valuation question is substantive. Fund managers will need to commission valuations as at 1 July 2027 for every unlisted asset held at that date. The valuations must be defensible at the time and must remain defensible against ATO scrutiny for as long as the asset remains in the fund, potentially many years into the future. The cost of obtaining these valuations will be material. The question of how that cost is allocated as between the fund and unit holders, and as between pre-2027 and post-2027 unit holders, is not straightforward.
Several practical considerations follow. Fund managers should begin scoping the valuation workstream now, well before the commencement date. Valuation firms will be in demand across the industry from mid-2027 and capacity will be constrained. Valuation methodologies will need to be consistent across the fund's asset base, internally consistent across vintages of acquisition, and externally consistent with the methodologies used for unit pricing and financial reporting purposes. A divergence between the tax cost base valuation and the financial reporting valuation will raise questions and is best avoided where possible.
The choice between valuation and the ATO apportionment formula is itself a planning question. For an asset that has grown steadily over its holding period, the formula will produce a result close to a market valuation and the formula is cheaper. For an asset that has grown unevenly, or has been substantially repositioned, redeveloped or recapitalised during the holding period, the formula will likely produce a skewed result, and a valuation will be required to reflect the actual value as at 1 July 2027. Fund managers will need to make this assessment asset by asset.
Responsible entities of registered managed investment schemes need to consider their continuous disclosure obligations under section 1017B and section 675 (if applicable) of the Corporations Act 2001, and ASIC Regulatory Guide 198. Investor notification may be required to be given in relation to the impact of the tax changes on the scheme.
For wholesale funds, the fiduciary and other obligations of the trustees may give rise to a range of obligations in the current environment. This may include in the immediate term, communications with investors.
For both registered and unregistered schemes and other investment vehicles, the tax changes potentially give rise to an obligation on the fund operator to undertake a strategic review of the fund’s investment strategy and to consider what, if any, adjustments may be required to the strategy, and actions that need to be taken. In each case, the question of whether those adjustments and actions are permissible need to be thoroughly considered.
The possibility of increased investor redemptions will be a key consideration for many funds. The fund operator’s obligations to provide redemptions, sources of available liquidity, whether asset disposals before 1 July 2027 are desirable or required, whether other sources of liquidity are available, the possibility of needing to gate or freeze redemptions, or potentially even terminate a fund, are all potentially relevant. Trustee and responsible entity powers need to be checked and the exercise of discretions considered in the context of the trustee’s and responsible entity’s duties and obligations. Investor best interests are central to all of these considerations. Trust Deeds and constitutions should be checked for the trustee’s and responsible entity’s rights to rely on advice from independent legal counsel in relation to the exercise of any discretion.
Every product disclosure statement (PDS) and information memorandum (IM) currently in market will need to be reviewed and updated for the CGT reform.
The starting point is the tax summary in the PDS or IM, which describes how Australian taxation applies to unit holders in respect of distributions and disposals of units. For most existing funds, this section is drafted on the assumption of the 50% discount being available to Australian resident individual and trust unit holders. Every such reference will need to be replaced with the new regime: indexation and the bifurcation of gains across the 1 July 2027 date, and the practical mechanics of how the fund will determine and report cost base information to unit holders.
Work will also be needed in relation to the risk factor disclosures, and the description of how the fund manages tax. PDSs and IMs typically include risk factor disclosures relating to changes in tax law, the tax efficiency of the fund's investment strategy, and the impact of fund turnover on after-tax returns. These disclosures need to be updated to reflect the new regime and, importantly, to flag the bifurcated nature of the cost base for pre-2027 acquisitions. Sophisticated investors and their advisers will expect clear disclosure of how the manager intends to handle the bifurcation, what valuation methodology the fund will use as at 1 July 2027, and how that methodology will affect investor outcomes on subsequent disposals.
The fees and costs disclosure also needs attention. The indirect cost ratio and related disclosures under RG 97 reflect the underlying tax cost of the fund's operations. Where the new CGT regime materially changes the tax cost of asset turnover, the indirect cost component of disclosed fees and costs will be affected. Section 1012J of the Corporations Act 2001 requires the PDS to be kept up to date and the issuer to consider, by the end of each financial year, whether disclosures need to be updated to ensure the PDS is not misleading.
For information memoranda issued to wholesale clients, the legal framework is different but the practical position is similar. Most IMs in market contain undertakings or representations as to the accuracy of tax descriptions at the time of issue, and most managers prefer to keep IMs current as a matter of best practice and risk management. Wholesale investors and their tax advisers will expect updated IMs reflecting the new regime before they commit further capital after the commencement date.
The timing of PDS and IM updates needs careful thought. A piecemeal approach, with separate updates for the ASIC stamp duty changes in mid-2026 (discussed below), the CGT changes in early-to-mid 2027, and any further RG 97 changes flowing from the review ASIC has announced for 2026-27, will be expensive and will produce a disclosure document that reads as a series of overlays. A coordinated single update that captures all the changes in one refresh may be more efficient and produces a cleaner document however, the misalignment in commencement dates across the reforms will likely mean that managers will need to undertake a series of amendments.
For registered schemes, periodic statements provided under section 1017D of the Corporations Act 2001 will also need to be reviewed and considered, particularly the obligation in section 1017D(5)(f) – the obligation to provide details of any change in circumstances affecting the investment that has not been notified since the previous periodic statement.
For both registered schemes and wholesale funds, steps should be taken to ensure that marketing collateral is carefully reviewed and considered in the context of the tax changes.
On 1 May 2026 ASIC registered two instruments amending the disclosure regime for superannuation funds and registered managed investment schemes.
ASIC Corporations (Amendment) Instrument 2026/337 amends ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 so that stamp duty paid in a financial year is disclosed in the Fees and Costs Summary of a product disclosure statement as an averaged amount over seven years, rather than as the actual annual sum. The change addresses a longstanding industry concern that irregular one-off stamp duty events, typically driven by large property or infrastructure acquisitions, distorted the Fees and Costs Summary in a way that misrepresented the ongoing fee structure of the product. The new approach smooths the disclosure across a seven-year window, producing a presentation more representative of the fund's typical cost profile.
ASIC Corporations (Portfolio Holding Disclosure) Instrument 2026/338 provides class relief for superannuation trustees, aligning the portfolio holdings disclosure obligations for internally managed private debt assets with those applicable to externally managed private debt. Under the previous rules, trustees managing private debt internally were required to disclose the value of individual assets by issuer or counterparty, raising confidentiality concerns particularly where a small number of transactions had been entered into with identifiable counterparties. The new instrument permits aggregated disclosure of internally managed private debt consistent with the treatment of externally managed private debt.
Both instruments take effect immediately and require updates to PDSs, fees and costs summaries, and portfolio holdings disclosures published on trustees' websites. ASIC has also announced that it will commence a full review of Regulatory Guide 97 during 2026, with the expectation of further changes to the fees and costs disclosure regime over the 2026-27 and 2027-28 horizon.
For fund managers and superannuation trustees, the immediate practical issue is updating disclosure documents to reflect the new stamp duty averaging approach. This is most acute for funds with significant unlisted property or infrastructure exposure where stamp duty is a material component of transaction costs. The mechanics of the seven-year averaging require historical and forward-looking data inputs that not every manager will have readily available. The work should be commenced now rather than left to coincide with the CGT reforms.
The portfolio holdings disclosure change is more narrowly relevant but helpful for those superannuation trustees with substantial internally managed private credit allocations. The sector has grown significantly over the past five years and the previous disclosure regime had become an operational impediment to deploying capital efficiently in private debt strategies.
ASIC Regulatory Guide 94, issued jointly by ASIC and APRA in 2008 and still operative, requires responsible entities and superannuation trustees to maintain a documented unit pricing policy with robust treatment of asset valuations, transaction costs, and tax effects. The unit pricing system integrates investment tax information including future income tax benefits (FTB), capital gains tax, imputation credits and foreign tax credits into the unit price each pricing day.
The capital gains tax provisioning model needs to handle the bifurcation of gains across 1 July 2027 for every asset held at that date. The model must track, asset by asset, the cost base or valuation as at 1 July 2027 and the indexed cost base going forward. For each disposal post-commencement, the model must allocate the gain between the pre-2027 portion (entitled to the 50% discount for eligible unit holders) and the post-2027 portion (subject to indexation and the minimum tax). This is materially more complex than the current model and requires system developments.
The FTB provisioning for unrealised gains also needs to be reconsidered. Under the 50% discount, the FTB calculation for unrealised gains in respect of Australian resident individual and trust unit holders was straightforward as an effective tax rate that is approximately half the headline marginal rate. Under a bifurcated CGT regime, the effective tax rate on a future realisation depends on the CGT discount applying to gains accrued up to 1 July 2027 and indexation from that date. A single point estimate of effective tax rate for FTB purposes may no longer be reasonable and managers will need to consider what assumptions to adopt, how to disclose them, and how to update them as the fund's circumstances change.
Buy and sell spreads under RG 94 must equitably recover the actual transaction costs imposed on the fund by an investor's joining or leaving. The embedded tax component of the buy and sell spread reflects the future tax cost of the assets that will need to be sold to fund redemptions or that have been acquired to deploy applications. The new CGT regime changes the tax cost of asset turnover and the buy and sell spread calculation will need to be recalibrated from 1 July 2027.
Responsible entities and trustees must ensure that any discretions relating to valuations of assets and unit pricing are otherwise also exercised in accordance with the constitution or trust deed, and the broader obligations of the responsible entity or trustee, as applicable. This may include consideration of applicable ASIC instruments.
The reforms will require review and in many cases amendment of trust deeds and scheme constitutions.
Many existing constitutions of registered managed investment schemes and unregistered wholesale unit trusts contain definitions tied to the 50% CGT discount. Common drafting includes ‘discount capital gain’ definitions, attribution and streaming provisions that distinguish between discounted and undiscounted gains, and beneficiary entitlement provisions drafted on these definitions. From 1 July 2027 these provisions may become cumbersome as particular aspects of the drafting become redundant.
AMIT attribution provisions deserve particular attention. The attribution managed investment trust regime in Division 276 relies on the trustee determining attributed amounts of taxable income, including the trust components for discounted capital gains. The interaction of these provisions with the new indexation and minimum tax mechanics will need to be worked through. Industry consultation will likely produce technical amendments to Division 276, but constitutions drafted by reference to current Division 276 concepts may need updating in parallel.
Trustee powers to amend constitutions vary in scope. Some constitutions confer broad amendment powers exercisable by the trustee or the responsible entity without unit holder approval, unless the rights of investors will be adversely affected. While a trustee or responsible entity may have power to amend a constitution, any decision to do so without investor approval is the exercise by trustee and responsible entity of a discretion which gives rise to additional trustee obligations. Some constitutions and trust deeds require unit holder resolutions for any amendment, or for amendments going beyond defined categories. Managers will need to identify early which of their constitutions can be amended administratively and which will require unit holder processes, and to plan accordingly.
An important question from foreign investors and their advisers will be whether the CGT reform affects their position. The short answer is that it does not, but the long answer is worth being able to explain to inbound investors who may be unsettled by media coverage focused on Australian domestic taxation.
The 50% CGT discount was accessible by Australian resident individuals, and to partnerships and trusts of those individuals but not to companies, whether Australian or foreign. Foreign and temporary residents have been substantially excluded from the discount since the 2012 reforms, with Division 115-B of the ITAA 1997 providing no discount or a pro-rated discount calculated by reference to days of Australian residency over the holding period.
Foreign capital invested into Australian managed investment trusts and attribution managed investment trusts continues to be taxed under the existing MIT withholding regime. Foreign capital invested through corporate structures continues to be taxed at corporate rates. Foreign capital invested through Australian limited partnerships continues to be taxed under existing rules. None of these arrangements have been affected by this Budget.
For Australian fund managers operating internationally focused, or foreign investor-facing mandates, the position should be communicated clearly to investors. The Australian taxation framework for inbound investment, including the MIT withholding regime, the thin capitalisation rules, the tax treaty network and the corporate tax rate, has not been affected by these changes. Foreign investors remain in substantially the same CGT position they have occupied since the 2012 reforms.
The foreign resident CGT regime did receive one important Budget clarification that warrants flagging to foreign investors. The government has clarified that the concept of "real property" in Australia for foreign resident CGT purposes is determined by Commonwealth legislation rather than by state and territory laws. The clarification has retrospective effect from 12 December 2006, when the regime was introduced, and is stated as protecting existing revenue. Foreign investors with direct or indirect holdings in Australian real property and infrastructure assets, and those involved in disposals already in progress, should review their position against the clarified definition.
In the context of the removal of the 50% CGT discount for individuals and trusts, the venture capital limited partnership (VCLP) and early-stage venture capital limited partnership (ESVCLP) concessions warrant consideration. The relative tax advantage of these structures increases under the new regime.
From 1 July 2027, the investee asset size cap for VCLPs rises from $250 million to $480 million, the ESVCLP investee cap rises from $50 million to $80 million, the ESVCLP tax-exempt return cap rises from $250 million to $420 million, and the maximum ESVCLP fund size rises from $200 million to $270 million. Returns to eligible investors in registered ESVCLPs continue to be tax-exempt and returns through VCLPs flow through with their character preserved.
For Australian investors who will no longer have access to the 50% CGT discount across their general investment portfolios, an allocation to a registered ESVCLP produces a tax outcome that compares favourably to indexation under the new regime. Fund managers planning new vehicles should note that further design changes may flow from the consultation on early-stage and start-up CGT settings flagged in the Budget papers, and should consider progressing registration and structuring in the near term. The venture capital concessions now represent one of the few remaining concessionally taxed capital growth structures available to Australian investors.
Australian Financial Service Licence holders are subject to extensive obligations under section 912A of the Corporations Act 2001, and in relation to the conduct of their businesses. This includes an obligation to company with the financial services laws and to take reasonable steps to ensure that its representatives comply with the financial services laws.
In view of these obligations, the compliance and risk frameworks of AFSL holders should be reviewed and updated if necessary to ensure they are appropriately tailored for the new tax and stamp duty environment. Staff training for AFSL holders is vital to ensure representatives are adequately trained to provide accurate financial product advice having regard to the tax changes in relation to securities and interests in managed investment schemes, if authorised to do so.
Arrangements with investment managers and fund administrators are also relevant to ensure delivery of services that are consistent with the new tax rules, including (crucially) accurate unit pricing as noted above. The investment funds industry is currently managing implementation of Prudential Standard 230 (Operational Risk Management) and the tax changes are likely to be relevant to superannuation trustees and other APRA regulated entities as they seek to pass through obligations under CPS 230 to service providers.
The Budget contains funding of an additional $17.8 million over to strengthen governance, supervision and enforcement of the managed investment scheme sector.
The term of current ASIC Chair, Joe Longo will finish on 31 May 2026, when Sarah Court will take up the role. Ms Court is currently Deputy Chair and has an extensive background in regulatory enforcement proceedings.
Fund managers should be acutely aware of this additional resourcing, the new ASIC Chair and the potential for ASIC to take further firm regulatory action including having regard to events relating to the Shield Master Fund and the First Guardian Master Fund.
The cumulative work facing fund managers, responsible entities and superannuation trustees over the period from mid-2026 to mid-2028 is substantial. A coordinated approach will reduce duplication and the risk of inconsistency across disclosure documents.
Managers should commission a scoping review of all PDSs, IMs and constitutions in market to identify references to the 50% CGT discount, the existing fees and costs treatment of stamp duty, and the existing portfolio holdings disclosure approach for internally managed private debt where relevant.
By the end of 2026, the ASIC stamp duty and portfolio holdings disclosure changes should be reflected in updated PDSs and Fees and Costs Summaries. Where a manager intends a single coordinated PDS refresh, this work can be staged for completion in line with the broader refresh, with interim disclosure addressing the change in the meantime.
Through 2026 and into early 2027, the CGT valuation workstream should be commenced. Valuation firms should be engaged for unlisted assets requiring valuation as at 1 July 2027. Methodologies should be settled and consistency across the fund's asset base and across the manager's fund range should be ensured.
Alongside the disclosure and unit pricing workstreams, managers operating or contemplating venture capital strategies should progress their planning.
By mid-2027, unit pricing systems should be updated to handle the bifurcated CGT regime. PDSs and IMs should be updated to reflect the new regime, with the updates timed to come into effect on or before 1 July 2027.
Through 2026, constitutions should be reviewed and amended where required. The amendment process should be planned with regard to whether unit holder approval is required, the timing of any unit holder meetings, and the interaction with any AMIT consultation amendments that may emerge from Treasury.
The ASIC review of RG 97 announced for 2026 will produce further changes. Managers should engage with the consultation process and monitor developments closely, particularly given that the RG 97 review is likely to address the broader question of how transaction costs and tax effects are presented in fees and costs disclosures.
The volume of work is significant. Managers who begin planning now and take a coordinated approach across the various workstreams will be better placed to meet the relevant deadlines and to produce disclosure documents that are internally consistent and reflect the reformed regime accurately.
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Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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