2026-27 Australian Federal Budget: Key Insights

On 12 May 2026, the Treasurer Hon Dr Jim Chalmers MP handed down the 2026-2027 Australian Federal Budget.  The budget delivers significant reforms to Australia’s tax system , with substantial changes to negative gearing, capital gains tax, and the taxation of discretionary trusts.

There has never been a more important time to consult with your advisor given the proposed changes significantly impact business structures, all capital investments and estate planning.

Many of the proposed reforms are subject to further consultation and have not yet been legislated. The Government has indicated it will consult on the detailed mechanism for collecting the minimum tax on trusts, how trustees use excess franking credits, details of rollover relief for restructuring and the treatment of early-stage and start-up businesses under the CGT reforms.

1.    Capital Gains Tax (CGT) Reforms

Key changes:

• From 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships will be replaced with cost base indexation.
• A 30% minimum tax on real capital gains will also apply from 1 July 2027. Even where a taxpayer’s marginal rate would otherwise fall below 30% (for example, in a year of low income or post-retirement), a minimum rate of 30% will apply to real capital gains.
• Income support recipients, including Age Pension recipients, will be exempt from the 30% minimum tax.
• Transitional arrangements will limit the impact on existing investments. The 50% CGT discount will continue to apply to gains that accrued before 1 July 2027. For assets held prior to that date but sold after, the gain will be split: gains accruing before 1 July 2027 attract the 50% discount, while gains accruing from 1 July 2027 will be calculated under the new regime.
• To determine an asset’s value at 1 July 2027, taxpayers can either seek a valuation or use a specified apportionment formula.
• Pre-1985 CGT assets will be brought into the CGT regime for gains accruing from 1 July 2027. Capital gains on pre-1985 assets accruing before 1 July 2027 will remain exempt.
• New residential builds will be exempt. Investors who purchase new residential properties can choose either the 50% CGT discount or the new indexation and minimum tax arrangements on sale.
• Small business CGT concessions will continue unchanged. Presumably, the 30% minimum tax would apply to any net capital gain that is not disregarded under the small business CGT concessions.
• These changes apply to all CGT assets (not just property), including shares, commercial property, and other capital assets held by individuals, trusts and partnerships.
• The Government will consult with stakeholders on key details including the treatment of early-stage and start-up businesses.

Impact:

• For properties that have appreciated well in excess of inflation, the indexed cost base will provide a smaller deduction than the flat 50% discount, resulting in a higher tax liability on disposal. For properties where appreciation has broadly tracked inflation, investors may be better off under indexation.
• The 30% minimum tax will particularly affect investors who planned to sell in a low-income year (such as post-retirement) to reduce their CGT liability. This strategy will now be significantly less effective. Interestingly carving out Age Pension recipients means certain investors might still be unaffected by the 30% minimum tax.
• Investors holding property through trusts or partnerships are equally affected.
• Pre and/or post sale CGT advice is even more important to ensure correct amounts are reported in returns and we expect increased compliance action from the ATO in this area given the complexity.

Seek further advice if you:

1. have sold or are going to sell property with a realised gain;
2. hold significant unrealised capital gains on any asset;
3. are approaching retirement and planned to dispose of assets in a low-income year;
4. hold pre-1985 assets, on the basis that the asset has maintained pre-CGT status prior to 1 July 2027; or
5. are investing in new capital assets with very long holding periods and want to model the comparative outcome of indexation versus the current 50% discount before 1 July 2027.

2.   Negative Gearing Reform

Key changes:

• From 1 July 2027, negative gearing for residential property will be limited to new builds only. Losses from established residential investment properties will no longer be deductible against other income such as salary or wages.
• Net rental losses from established residential properties acquired after 7:30pm AEST on 12 May 2026 will, from 1 July 2027, only be deductible against rental income or capital gains from residential properties. Excess losses can be carried forward to offset residential property income in future years.
• Properties held at 7:30pm AEST on 12 May 2026 (including contracts entered into but not yet settled) are grandfathered and will retain current negative gearing arrangements until disposed of.
• Properties acquired after Budget night but before 1 July 2027 may be negatively geared during that interim period but not in subsequent years.
• Eligible new builds will remain exempt from the restrictions. Investors in new residential property can continue to deduct rental losses against all income.
• Properties in widely held trusts and superannuation funds will be excluded from the restrictions, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs.
• Commercial property and other asset classes (such as shares) remain subject to existing negative gearing arrangements.

Impact:

• Existing investors are grandfathered. No action is required for properties acquired before Budget night.
• Investors acquiring established residential property after Budget night will face a materially less favourable tax position on leveraged investment. The after-tax benefit of highly geared established property investment is substantially reduced.
• Investors in new builds are unaffected and retain both full negative gearing and a choice of CGT regime on disposal, creating a strong incentive to redirect investment toward new supply.
• When a grandfathered property is eventually disposed of, the new CGT regime (indexation plus 30% minimum tax) will still apply to gains accruing after 1 July 2027.
• Given the changes will not apply to other asset classes including commercial property, there is a greater tax incentive to invest in these asset classes if intending to negatively gear.

Seek further advice if you:

1. acquired or contracted to acquire established residential property after 7:30pm AEST on 12 May 2026; or
2. are weighing up whether to invest in commercial, established or new residential property and want to understand the comparative tax treatment.

3.    Discretionary Trust Minimum Tax

Key changes:

• From 1 July 2028, a 30% minimum tax will apply to the taxable income of discretionary trusts. The tax will be paid by the trustee.
• Beneficiaries (other than corporate beneficiaries) will receive non-refundable credits for tax paid by the trustee, which can be used to offset current year income tax liabilities. Importantly, this prevents double taxation similar to franking credits in companies however unlike franking credits, these will be non-refundable (preventing a refund and therefore <30% rate for low income beneficiaries).
• The minimum tax will not apply to:
• fixed trusts (including fixed testamentary trusts);
• widely held trusts;
• complying superannuation funds;
• special disability trusts;
• deceased estates; or
• charitable trusts.
• Certain income types are also excluded:
• primary production income;
• certain income relating to vulnerable minors;
• amounts to which non-resident withholding tax applies; and
• income from assets of discretionary testamentary trusts existing at announcement.
• Expanded rollover relief will be available for three years from 1 July 2027 for those wishing to restructure out of discretionary trusts into another entity type (e.g. a company or fixed trust). This relief covers income tax consequences, including capital gains tax.
• The Government will consult with stakeholders on the mechanism for collecting the minimum tax, how trustees use excess franking credits, and details of rollover relief for restructuring.
• We hope that the Government consults with industry and States to provide for similar roll-over relief for other impacts of restructuring such as stamp duty.

Impact:

• Clients who run businesses or hold property through a discretionary (family) trust and distribute income to beneficiaries on lower marginal tax rates (below 30%) will be directly affected. The tax benefit of distributing rental income or capital gains to adult children, retired family members, or non-working spouses will be eliminated unless those beneficiaries are already on a marginal rate of 30% or above.
• Non-refundable credits mean that beneficiaries with tax liabilities below the credit amount will not receive a refund of the excess.
• Clients who convert from a discretionary trust to a fixed trust may avoid the minimum tax, but will lose the flexibility of discretionary distributions.
• Primary production income is excluded. Property investors who also hold farming land in a discretionary trust should note this carve-out applies to the farming income only.
• Income from assets of discretionary testamentary trusts existing at announcement is excluded, protecting existing testamentary trust arrangements.
• The discretionary trust minimum tax commences a full year later (1 July 2028) than the CGT and negative gearing reforms (1 July 2027), providing additional lead time for planning and restructuring.

Seek further advice if you:

1. operate a business via a discretionary trust or have a discretionary trust in your structure;
2. hold investment property or other income-producing assets through a discretionary trust, particularly where distributions are directed to beneficiaries on marginal rates below 30%;
3. want to consider restructuring into a company, fixed trust, or other entity type during the three-year rollover relief window (1 July 2027 to 30 June 2030);
4. have a discretionary testamentary trust and need to confirm whether the existing-asset exclusion applies;
5. are a small business operator using a discretionary trust and want to consider incorporation; or
6. are considering utility on the use of trusts or companies in your private group structure, such as for asset protection purposes.

4.    Estate and Succession Planning

Clients with estate plans relying on testamentary trusts should review whether existing arrangements remain fit for purpose. The proposed reforms call into question the use of testamentary trusts in estate plans going forward.  Unlike inter vivos discretionary trusts, minors receiving income from a discretionary testamentary trust are taxed at adult marginal rates, making the first $18,200 tax-free.  Presumably, this will be abolished in light of the 30% minimum tax rate.

Seek further advice if you:

1. have testamentary trust provisions in your estate planning documentation;
2. have a discretionary testamentary trust and need to confirm whether the existing-asset exclusion applies;
3. are undertaking estate and succession planning;
4. want to evaluate whether converting to a fixed testamentary trust (or another vehicle) is appropriate in light of the minimum tax.

5.    Small Business Tax Relief and Concessions

Key changes:

• The $20,000 instant asset write-off for small businesses (turnover below $10 million) will be made permanent from 1 July 2026.
• Permanent two-year loss carry back for all companies with aggregated annual global turnover of less than $1 billion, from income years commencing on or after 1 July 2026. Applies to revenue losses only, limited by the company’s franking account balance.
• Loss refundability for small start-up companies (turnover below $10 million) from income years commencing on or after 1 July 2028. Start-ups that generate a tax loss in their first two years can convert that loss into a refundable tax offset, capped at the value of FBT and PAYG withholding tax on wages.
• Expanded rollover relief from income tax consequences (including CGT) for small businesses restructuring out of discretionary trusts, available for three years from 1 July 2027.
• Expansion of access to dynamic PAYG instalment calculations from 1 July 2027, enabling small and medium businesses to opt in to monthly reporting using ATO-approved software that reflects real-time business activity.

Impact: The permanent $20,000 instant asset write-off extension will continue the status quo however is more limited than the prior $100,000 write-off that was once available – these benefits are just timing in any event given they avoid the need to depreciate an asset however can assist businesses from a cashflow and compliance perspective.

Loss carry-back may benefit businesses that experience temporary losses in a year and profits in prior years, again this is a cashflow benefit and only benefits those in a loss position where they have recent profits. The expanded rollover relief is directly relevant to investors restructuring out of discretionary trusts.

6.    Electric Vehicle Fringe Benefits Tax

• The current full FBT exemption for eligible electric cars valued up to $75,000 will continue for arrangements commencing before 1 April 2029.
• From 1 April 2027, electric cars valued above $75,000 (up to the fuel-efficient luxury car tax threshold) will receive a 25% FBT discount (applied as a 15% statutory formula rate).
• From 1 April 2029, a permanent 25% FBT discount will apply for all eligible electric cars up to the fuel-efficient luxury car tax threshold. The full exemption will cease for new arrangements from that date.
• All eligible electric cars will retain the FBT discount rate that was in place when the arrangement commenced (grandfathering).

7.    Other Tax and Integrity Measures

• Temporary reduction of fuel excise: 60.9% reduction in excise rates (equating to 32 cents per litre for petrol and diesel) and reduction of the heavy vehicle road user charge to zero, for three months from 1 April 2026 to 30 June 2026.
• Venture capital tax incentives expanded from 1 July 2027: VCLP investee asset cap increased to $480 million (from $250 million); ESVCLP investee asset cap increased to $80 million (from $50 million); ESVCLP tax incentive cap increased to $420 million (from $250 million); maximum ESVCLP fund size increased to $270 million (from $200 million).
• Better targeting of the Research and Development Tax Incentive from 1 July 2028: Offset rates increase by approximately 25-50% for core R&D; supporting activities expenditure removed from eligibility; intensity threshold reduced from 2% to 1.5%; turnover threshold for refundable offset increased to $50 million; minimum expenditure threshold increased from $20,000 to $50,000.
• Abolition of 497 more nuisance tariffs from 1 July 2026, with further tariff abolition under consultation.