The budget killed my daughter’s property plan. Here’s what we’ll do instead

When the budget hit in May, I was starting a book and a social media series with my 22-year-old daughter on how we can give our adult kids an epic start in life without just handing them a wad of cash.

She’s been learning the foundations of budgeting, saving and investing across the kitchen table with me since she returned from her gap year last year. And she’s been studying, working and saving hard for her next meaty goal – buying her first home.

We’d done the maths, and she was fairly confident that when she graduated from university next year, that she’d be able to use a couple of years living in our family home well, saving a healthy deposit, investing it diligently, and that she then would be prepared for her first foray into property within a year or two of graduating.

She had a plan to get on to the housing ladder by about 25, albeit in an investment property, because buying a unit she could afford the mortgage on while living in it as a single person, on a graduate teacher’s wage, was nigh on impossible.

Then she was going to take her time living at home, and see if she could build some equity in that investment property that she could later use to buy her first real home.

Then came the federal budget and that strategy became completely unviable.

But this isn’t really a story about tax change or growth rates. It’s a chance to rethink what ‘help your kids’ actually means.

The budget changed two pretty fundamental things. For established properties, bought after May 12, 2026, rental losses can no longer be offset against salary or wages, only against rental income and eventual capital gains – a major blow to young buyers without investment income to offset against.

And it changed the capital gains tax treatment on all assets held outside super from a 50 per cent discount on assets held over a year, replacing it with a 30 per cent minimum tax on real gains from July 1, 2027. Pretty much every generation is affected, but few more than those like my daughter who haven’t yet got their start in life.

Before the budget, my daughter could, if she saved a healthy deposit, have borrowed up to $700,000 to $750,000 and bought a rental property that gave her a decent spread of options. She could have bought a house or townhouse with room to grow into it, and the ability to rent it out in the early years when she couldn’t really afford to live there.

It’s a strategy that has paid off handsomely for investors. Dwelling values are up 40 per cent across the country over the past five years alone.

Now, with the salary offset gone on established property, her borrowing capacity has dropped to between $500,000 and $550,000. She could still get in using the government’s 5 per cent deposit incentive, but that means taking on more leverage, not less, right as the property market shows serious signs of softening.

Plus, to qualify for any incentives, she has to live in the property, at least for the first six months depending on the schemes. At that price point, she’s really only looking at small properties, and those have a much narrower shot at the kind of growth she’d hoped for. So, the investment property pathway is off the table, and quite probably, so is the owner-occupier conversation, for longer.

And here’s the part that makes this all harder to plan around. Those past growth figures on property – the 40 per cent growth rate over the past five years – were generated under the old rules, with the old negative gearing settings, the old CGT discount motivating purchasers, in a different part of the interest rate cycle. Nobody can now say, with any confidence, what the next five years will look like.

Then, you look at other ways she can get ahead. If she invested in exchange-traded funds, she’d previously have had the opportunity to enjoy healthy growth rates. Over the past five years, Australia’s largest and most popular ETFs have returned close to 8 per cent a year for a broad Australian shares fund like VAS, or closer to 13 per cent for a global shares fund like VGS.

Under the old rules, held for more than 12 months, half of any gain on selling those units was tax-free. Under the new rules, that discount disappears, replaced by inflation indexation and a 30 per cent minimum tax on the real gain.

For a young investor, that is a meaningfully bigger tax impost down the track. Modelling suggests real returns closer to 6.5 per cent per year for Australian shares and around 10 per cent per year for global shares once the new tax treatment bites. That Australian growth rate isn’t much of an incentive to invest at home when banks will give you 5.5 per cent on cash.

But this isn’t really a story about tax change or growth rates. It’s a chance to rethink what ‘help your kids’ actually means, and to separate the money from the mentoring because you can absolutely do both – and more than ever, they need both right now. Unless the rules change back, one thing is almost certain – growth will be slower.

So we have to come back to the basics.

My daughter still wants to own a home one day so she has a place to live that grows over time and enjoys the principal place of residence tax exemption of property that is still extremely valuable.

And she still needs to get a financial start in life and use compound investing to get ahead. So we look at the logic, and it says to separate the two, where previously they might have been conflated.

Therefore, we’re learning the two things separately from here on in: building a deposit for a home she will one day live in; and investing for growth.

Building a deposit, clearing the decks

Her first move after the budget has been to shift her savings from ETFs into superannuation, using the First Home Super Saver Scheme.

It’s a sexy little structure for anyone saving for a home allowing voluntary concessional contributions of up to $15,000 per year and $50,000 over her lifetime, taxed at 15 per cent rather than her marginal tax rate. Getting it in and letting it grow while she’s living at home and her expenses are low is the whole point.

What most people don’t realise about the FHSSS is that it comes with two layers of tax concessions, not one, and the second layer is where the real risk protection is. Going in, that 15 per cent tax is why only 85 per cent of her contributions count towards what she can eventually release.

Coming out, that 85 per cent plus the ATO’s own deemed earning rate, currently at 7.43 per cent for July-September 2026, regardless of how her actual investments perform, get added to her income and taxed again at her marginal rate, less a 30 per cent tax offset (any remaining growth stays in super).

Let’s assume her marginal tax rate as a teacher is 32 per cent including Medicare, that second layer nets out to her paying about 2 per cent tax. Combined, she’d have paid a total of around 17 per cent, well below what she’d pay if she simply saved, and invested in her own name and there’s a secure floor under her returns even if markets dive.

That $42,500 plus deemed earnings is a good start. She’ll be able to save more while she’s living at home, and that means we need to learn about investing too.

Investing for growth

Once the FHSSS caps are used up, the conversation shifts from using a smart tax structure and secure return rates, to something harder and more important, actually learning to invest.

This is where we’ve spent a lot of time at the kitchen table because unlike super, there’s no scheme doing the work for her here and property isn’t an easy leveraged growth target any more.

She has to understand what she’s buying, how it’s taxed, and what her goals are for the timeframe and returns. For the bulk of what she saves beyond her FHSSS contributions, we’ve landed on low-cost ETFs held in her own name, a mix she can choose the weighting of across Australian and international markets.

At her stage of life, with decades ahead of her and a low marginal tax rate, holding growth assets makes sense. Yes, the CGT changes coming in means she’ll eventually pay more tax than she would have under the old 50 per cent discount scheme, but even with that adjustment, owning growth assets and paying tax once, on the way out, will hopefully still beat sitting in cash and losing to inflation every other year.

What matters more than any individual investment product, though, is that she’s learning to make these calls herself, reading a fact sheet, understanding what she owns, knowing why she chose it. That is worth more than any cash handout at 22.

Bec Wilson is author of the bestseller How to Have an Epic Retirement and the newly released Prime Time: 27 Lessons for the New Midlife. She writes a weekly newsletter at epicretirement.net and hosts the Prime Time podcast.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.