Our take: How the Budget reshapes structured product priorities
- Protected Equity Lending (PEL) is the time-sensitive winner. The window combining upfront interest deductibility, leverage, downside protection and the existing CGT discount closes on 1 July 2027.
- Defined income structured products are the long-term beneficiary. Income paid and banked beats theoretical future growth when CGT becomes less favourable.
- Growth-focused structured products remain relevant but the case shifts from tax efficiency to payoff design.
- The Budget does not reduce the need for structured products. It changes which structured products investors should prioritise.
The Budget resets the investor playbook
The 2026 Federal Budget delivers the biggest shake-up to investor tax rules in decades. Negative gearing will be limited to new builds, the 50% CGT discount is being replaced by inflation indexation, and changes are coming to the tax treatment of trust distributions.
While the headlines will focus on property, the bigger story is how advisers and investors respond.
When growth is taxed less favourably and property gearing loses some of its tax advantages, investors will look harder at alternatives that can deliver clearer outcomes: income, capital protection, equity exposure and tax-aware structuring.
The impact is not uniform for structured products. Some products are clear winners. Others are steady beneficiaries. Some need to adapt.
The Budget does not reduce the need for structured products. It changes which structured products investors should prioritise.
Protected Equity Lending: the last window for the double benefit
From a pure investment and tax-efficiency lens, Protected Equity Loans (PELs) are the clearest short-term winner from the Budget.
Investors can gain exposure to the equity market, use leverage, protect their downside, and claim an upfront interest deduction under the ATO's Capital Protected Borrowing rules. For eligible investors, PELs maturing before 1 July 2027 should also still qualify for the existing 50% CGT discount on capital gains, provided the investment has been held for at least 12 months.
This makes the next 12 months particularly important. For investors who were already considering a PEL, the Budget has created genuine urgency. This is the final window where investors can combine upfront deductibility, leveraged equity exposure, capital protection and access to the existing CGT discount in one structure.
Advisers have been calling the desk asking us about the longer term implications for PEL post 1 July 2027.
Once the new CGT regime applies, investors may become much more reluctant to sell growth assets and crystallise taxable gains. For many high-net-worth investors, the preferred strategy may be to hold quality assets for longer, build equity over time, and borrow against the portfolio when liquidity is needed.
That shift could make PELs and other portfolio lending strategies more relevant, not less. The product story moves from a tax-timing opportunity to a broader portfolio strategy: maintain equity exposure, protect downside risk, and access liquidity or leverage without being forced to sell.
Defined Income Structured Products: the quiet achiever
Income products are the quiet achiever from the Budget. In a world where growth returns are less tax-advantaged and property gearing is less powerful, investors will place more value on defined income.
If traditional growth assets are expected to deliver long-term returns in the high single digits, then income strategies targeting similar levels of return, with defined and regular coupons, become increasingly compelling. That is especially true in a tax environment where future capital gains may be less attractive than income that is earned and paid along the way.
Typical structured investments that provide defined and regular income include Fixed Coupon Notes with Barriers and Smart-Entry Income Notes. These product types do not rely on the 50% CGT discount to make sense. They do not depend on a property gearing strategy. They are simple, transparent and outcome-driven. A coupon that has been paid is banked. It is not dependent on a future sale price, the preservation of the CGT discount, or a future capital gain.
"Income, once paid, cannot be taken away."
These defined income strategies may appeal to investors looking for alternatives to property yield, bank hybrids and traditional fixed income.
In uncertain markets, income may become more valuable than theoretical future growth.
Growth products: still relevant, but no longer automatic winners
Growth-focused structured products still have a place, but the after-tax case becomes more important.
Examples include:
- Enhanced Growth Notes (call warrants)
- Participation notes (unprotected and capital protected)
- Discount-Entry Notes
The Budget changes the hurdle. If capital gains are taxed less favourably, growth-focused structures need to be justified by their investment payoff rather than simply their tax outcome.
Growth products are not uniquely disadvantaged. They sit broadly within the same post-Budget CGT framework as other growth assets. The difference is that structured products can shape the payoff through features such as protection, discount entry, participation rates, caps, barriers and defined terms. That means the investment case shifts from tax efficiency to payoff design.
Summary
The Budget does not reduce the structured products opportunity. It makes it more important.
PELs are the time-sensitive opportunity, particularly where investors can still access upfront deductibility and the existing CGT discount on gains realised before the new regime commences. They also enable long-term wealth creation without forcing realisation of gains.
Income products are the long-term beneficiary. In a market where growth is less tax-advantaged and property gearing is less powerful, defined income becomes more valuable.
Growth products remain relevant, but the case shifts from tax efficiency to payoff design. Protection, discount entry, participation rates, barriers, caps and defined terms become the features that justify their place in a portfolio.
If you would like to discuss how the Budget changes the structured product mix for your client book, book a consultation with our investment desk.
Ben Streater, COO, Stropro
The Budget measures referenced are subject to legislation and may change. Tax outcomes depend on individual investor circumstances and should be discussed with a qualified tax adviser. This article is general information only and is not personal financial or tax advice.
For wholesale, sophisticated and professional investors only.
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