Federal Budget 2026–27

Focus on SMEs and Individuals

Message to our Clients

The Federal Government handed down the 2026–27 Budget at 7:30pm on 12 May 2026.

For business owners, investors and private groups, the key takeaway is that this Budget introduces a series of structural tax reforms that have the potential to reshape how wealth is accumulated, how assets are held, and how profits are distributed. A number of the proposed measures are clearly directed at arrangements commonly used across private groups, including discretionary trusts, property investment structures and long-term capital asset holdings.

While many of these measures are not yet legislated and may evolve over time, the broader policy direction is clear. The changes are expected to be phased in over several years, meaning that decisions made in the period before legislation is enacted—particularly in relation to structuring and asset realisation—will be increasingly important in managing future tax outcomes.

We have deliberately taken the time to carefully review the Budget and consider commentary from leading tax specialists and economists, allowing us to form a considered and balanced view.

Importantly, none of the proposed measures are currently law. As such, no immediate or reactive action is recommended at this stage. As legislation develops and greater certainty emerges, we will proactively engage with you to assess the impact on your specific circumstances and outline appropriate strategies.

Capital Gains Tax (CGT) Reform

The Budget proposes a fundamental change to the capital gains tax system. The current 50% CGT discount will be replaced with a model that taxes “real gains”, being gains adjusted for inflation, together with a minimum effective tax rate of 30% applied to net capital gains. These changes are proposed to apply from 1 July 2027, with transitional rules ensuring that gains accrued up to 30 June 2027 remain subject to the current rules, and gains accruing thereafter subject to the new regime.

Importantly, the revised regime will apply broadly across individuals, trusts and partnerships, and will expand to assets acquired prior to 20 September 1985 (pre‑CGT assets)—which have historically been exempt—will effectively be brought into the tax system for any gains attributable from 1 July 2027 onwards.

In practical terms, this represents a meaningful increase in the tax burden on capital disposals, particularly for higher‑income taxpayers. While indexation recognises inflation, the removal of the 50% discount and the application of a minimum tax rate are expected to increase the overall tax payable in many cases.

The period leading up to 30 June 2027 will therefore be critical. Clients with significant unrealised gains—particularly in property, equities or business interests—should carefully consider the timing of proposed disposals and whether bringing forward transactions is appropriate under the current regime. There will likely also be a requirement to obtain a market value of the assets so as to ascertain up to what value the 50% capital gains tax discount will apply when the asset is eventually sold.

Negative Gearing Changes

The Budget proposes to restrict negative gearing to investments in new residential properties from 1 July 2027. Under these rules, investors acquiring established residential property after Budget night will no longer be able to offset rental losses against salary, business or other income. Instead, those losses will only be able to offset rental income or future capital gains on disposal.

Transitional provisions apply such that properties acquired before 7:30pm (AEST) on 12 May 2026will continue to be taxed under existing negative gearing rules. This effectively creates two distinct regimes—one for existing holdings and one for future acquisitions.

In practical terms, these changes reduce the tax effectiveness of investing in established residential property, particularly for leveraged investors. Investment decisions are likely to shift away from tax-driven strategies and towards a greater focus on underlying cashflow, yield and asset quality. Clients should review both their existing property portfolios and future acquisition strategies, including financing arrangements and serviceability under the proposed rules.

Discretionary Trust Measures

The Budget introduces a significant reform to the taxation of discretionary trusts, with a proposed minimum tax rate of 30% applying to trust income from 1 July 2028. Under the proposed model, tax will be imposed at the trustee level, rather than flowing entirely through to beneficiaries as under current arrangements.

Under this framework, individual (non‑corporate) beneficiaries will receive a non‑refundable tax creditfor their share of the tax paid by the trustee. These beneficiaries will be assessed on the grossed‑up amount of income and will pay any additional tax at their marginal rates to the extent that it exceeds the credit received. However, where the beneficiary’s marginal tax rate is below 30%, any excess credit will not be refundable, resulting in a minimum effective tax outcome at the trust level.

This represents a fundamental shift in how discretionary trusts operate. The flexibility historically associated with these structures—particularly in relation to income splitting and tax arbitrage—is expected to be significantly reduced, and many existing structures may become less efficient as a result.

To assist with transition, rollover relief will be available for a limited period commencing from 1 July 2027, allowing trusts to restructure into alternative entities, such as companies or fixed trusts, without immediate tax consequences. Clients using discretionary trust structures should undertake a detailed review well in advance of the 1 July 2028 commencement date, taking into account both taxation and broader commercial considerations.

Business Tax Measures

Instant Asset Write‑Off

The Budget confirms that the $20,000 instant asset write‑off will be made permanent from 1 July 2026, however this concession is limited to businesses with aggregated turnover of less than $10 million. This allows eligible entities to immediately deduct the cost of qualifying depreciating assets below the threshold, rather than depreciating them over time.

Loss Carry‑Back Regime

The Budget proposes to reintroduce the loss carry‑back regime for companies from the 2026–27 income year (commencing 1 July 2026). Under this regime, eligible companies with aggregated turnover of up to $1 billion can apply current year tax losses against taxable profits of prior income years, generally limited to the previous two years.

This enables companies to generate a refund of tax previously paid, effectively converting losses into immediate cashflow. The measure is subject to technical limitations, including the availability of franking credits and satisfaction of continuity rules. From a commercial perspective, it provides valuable support for businesses experiencing earnings volatility or undertaking investment.

Start‑Up Loss Refundability

The Budget introduces a loss refundability mechanism for start‑up companies, expected to apply from the 2028–29 income year. This measure will allow eligible early‑stage businesses to receive a refundable tax offset for losses incurred capped at the amount of withholding tax on employee wages and FBT paid by the company during their initial development phase rather than carrying those losses forward.

This is intended to improve cashflow for start‑ups and support innovation, particularly where significant upfront investment is required before profitability is achieved.

Research and Development (R&D) Tax Incentive

The Budget also signals further reform to the R&D tax incentive regime, with changes expected to apply from 1 July 2028. At a high level, the reforms are intended to tighten eligibility criteria, simplify aspects of the regime, and better target concessions toward genuine R&D activity, while increasing the focus on substantiation and compliance.  In addition, the government will also attempt to widen eligibility and marginally increase the offset for certain expenditure types.

Although the incentive will continue to play an important role in supporting innovation, businesses should expect a greater level of scrutiny and should ensure that appropriate documentation and support for claims is maintained.

Electric Vehicle (EV) Fringe Benefits Tax Changes

The Budget includes changes to the concessional  Fringe Benefits Tax (FBT) treatment of new electric vehicles provided through business or salary packaging arrangements.

The current full FBT exemption for new eligible electric vehicles will continue until 31 March 2027. From 1 April 2027, the exemption will be limited to vehicles valued at $75,000 or less, with higher‑value vehicles instead receiving a 25% FBT discount. From 1 April 2029, the full exemption will be removed entirely, with all vehicles subject to the reduced discount.

Individual Tax Measures

The Budget also includes several individual tax measures. Personal income tax cuts will continue, with the marginal tax rate for incomes between $18,201 and $45,000 reducing to 15% from 1 July 2026, and further to 14% from 1 July 2027.

A new Working Australians Tax Offset of up to $250 per annum will apply from the 2027–28 income year, and a $1,000 standard deduction for work-related expenses will apply from 1 July 2026.

Next Steps

Please reach out if you have any questions but we will be in contact with you as the budget is legislated and more detail comes to light.  We will provide you a detailed strategy which relates directly to your circumstances.