Navigating the new tax landscape – The shift from capital growth to income yield and the case for private credit

Navigating the new tax landscape – The shift from capital growth to income yield and the case for private credit

The Federal Labor Government’s 2026-27 Budget tax reform package represents the most sweeping overhaul of Australia’s investment tax landscape in nearly three decades. By winding back the traditional pillars of wealth creation – specifically the 50 per cent Capital Gains Tax (CGT) discount and negative gearing on established residential property – the government has fundamentally altered the math of investing.

While today’s major policy concessions (including exemptions for testamentary trusts and a step back from sweeping ministerial discretionary powers) provide some targeted relief, the core framework remains intact.

The clear takeaway for investors is a systemic structural shift: the traditional focus on heavily leveraged capital growth has been severely compromised, making high-yielding income generation far more appealing.

This paper outlines why high-quality private credit has emerged as a premier, sensible alternative for navigating this transition, offering strong income returns and the structural flexibility required while the legislative dust settles.

The new tax paradigm: Growth under fire

For decades, Australian wealth strategies relied on a predictable formula: use negative gearing to offset property losses against high-salary incomes, and for all investors, rely on the 50 per cent CGT discount to preserve wealth upon exit.

From 1 July 2027, that framework will be dismantled to enable future investments. The table below illustrates how the structural incentives are shifting.

Table 1. The structural shift in Australian investment tax

Note on recent concessions: While the Treasurer’s recent announcements rolled back certain elements – carving out testamentary trusts from the 30 per cent minimum tax and offering concessions to small businesses and start-ups – the broader crackdown on property and broad capital gains remains unchanged.

With capital gains taxed more aggressively and the tax-effectiveness of property leverage neutered, the mathematical incentive flips. Maximising reliable, high-quality regular income is now more competitive than chasing heavily taxed nominal capital gains.

Why Private Credit fits the new paradigm

Private credit involves non-bank corporate lending. Instead of buying equity in a company or physical property, investors act as lenders or invest with lenders, capturing regular interest income from corporate borrowers.

We believe wealth advisers will increasingly view private credit as a vital tool for this new era for three primary reasons: 

1. Superior yield in an income-focused world

Because private credit distributions are paid out as regular income (interest), they do not rely on a future “CGT event” to crystallise value. In a world where real capital gains face a minimum 30 per cent tax rate, turning toward predictable, contractual income streams represents a highly efficient alternative.

2. Capital preservation and inflation protection

Under the new rules, investors only receive a tax break for inflation via cost base indexation. Private credit naturally hedges against inflation without the tax complexity. Most private corporate loans are structured with floating interest rates. If inflation and interest rates rise, your investment yield may increase, helping protect your purchasing power in real time. 

3. Structural seniority

Unlike equity investments where you rank last in being paid – upon windup, for example – private credit managers typically originate senior secured loans. This means your investment is backed by first-ranking security over corporate assets or real estate. If a borrower faces distress, corporate lenders are paid out ahead of all equity holders.

The strategic advantage: Optionality while the dust settles

One of the greatest risks investors face right now is regulatory risk. The Treasury Laws Amendment Bill 2026 is still moving through Senate inquiries, and the fine print regarding transitional valuations, small business concessions, and exact implementation timelines will continue to evolve over the coming months.

Locking your capital into an illiquid, 5- to 10-year property project or a rigid infrastructure fund based on today’s half-written laws carries risk.

This is where the unique structure of high-quality private credit managers provides an invaluable tactical advantage:

• Liquidity and flexibility: Premier private credit funds offer monthly liquidity features. Unlike physical real estate, which can take months to sell and incur substantial stamp duty and transaction costs, private credit enables cleaner capital mobility.
• Earn while you wait: While the market adjusts to the post-CGT discount reality, private credit allows you to park capital in a defensive, higher-yielding asset class. You continue to generate strong monthly distributions while waiting to see exactly where the legislative dust settles.
• Dynamic reallocation: When the final regulations are fully codified later this year or early next year, having liquid, income-producing capital means you’re well positioned to pivot into mispriced assets or fresh opportunities without being locked down.

Conclusion & next steps

The era of relying on structural tax distortions to make low-yield property investments profitable appears to be coming to an end. Auction clearance rates are already falling as are real estate investment returns. Meanwhile, stock market valuations appear stretched and dependent on a perfect outcome for artificial intelligence (AI) hopes and dreams. 

Success in the post-2026 landscape may require a pivot toward assets that offer intrinsic, high-quality cash flow.

Private credit can provide the senior security, floating-rate inflation protection, and crucial portfolio flexibility required to thrive during this period of fiscal transition.

We recommend asking your adviser to review your current portfolio exposure to low-yield, established property and long-term capital growth assets, and to discuss potentially allocating a portion of your wealth to premier, first-lien private credit strategies, especially those like the Aura Core Income Fund, which has been externally AA-rated.

For more information, please visit our private credit landing page here.

Alternatively, if you would like to be contacted by a member of our team regarding our private credit offerings please fill out the form below. 

Disclaimer:

You should read the relevant Product Disclosure Statement (PDS) or Information Memorandum (IM) before deciding to acquire any investment products.  

Past performance is not a reliable indicator of future performance. Returns are not guaranteed and so the value of an investment may rise or fall.  

This information is provided by Montgomery Investment Management Pty Ltd (ACN 139 161 701 | AFSL 354564) (Montgomery) as authorised distributor of the Aura Core Income Fund (ARSN 658 462 652) (Fund). As authorised distributor, Montgomery is entitled to earn distribution fees paid by the investment manager and may be issued equity in the investment manager or entities associated with the investment manager.  

The Aura Core Income Fund (ARSN 658 462 652)(Fund) is issued by One Managed Investment Funds Limited (ACN 117 400 987 | AFSL 297042) (OMIFL) as responsible entity for the Fund. Aura Credit Holdings Pty Ltd (ACN 656 261 200) (ACH) is the investment manager of the Fund and operates as a Corporate Authorised Representative (CAR 1297296) of Aura Capital Pty Ltd (ACN 143 700 887 | AFSL 366230).   

You should obtain and carefully consider the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the Aura Core Income Fund before making any decision about whether to acquire or continue to hold an interest in the Fund. Applications for units in the Fund can only be made through the online application form that accompanies the PDS. The PDS, TMD, continuous disclosure notices and relevant application form may be obtained from www.oneinvestment.com.au/auracoreincomefund or from Montgomery.  

The Aura Private Credit Income Fund is an unregistered managed investment scheme for wholesale clients only and is issued under an Information Memorandum by Aura Funds Management Pty Ltd (ABN 96 607 158 814, Authorised Representative No. 1233893 of Aura Capital Pty Ltd AFSL No. 366 230, ABN 48 143 700 887).  

Any financial product advice given is of a general nature only. The information has been provided without taking into account the investment objectives, financial situation or needs of any particular investor. Therefore, before acting on the information contained in this report you should seek professional advice and consider whether the information is appropriate in light of your objectives, financial situation and needs.    

Montgomery, ACH and OMIFL do not guarantee the performance of the Fund, the repayment of any capital or any rate of return. Investing in any financial product is subject to investment risk including possible loss. Past performance is not a reliable indicator of future performance. Information in this report may be based on information provided by third parties that may not have been verified. 

MORE BY RogerINVEST WITH MONTGOMERY

Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.

Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances. 

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.