Federal Budget 2026–27: key tax changes and what clients need to know

 

Key points

From 1 July 2027, the 50 per cent CGT discount will be replaced with cost base indexation for assets held over 12 months, together with a 30 per cent minimum tax on net capital gains.

These CGT changes apply to all CGT assets, except new residential property.

Negative gearing will be restricted for established residential properties acquired from 7:30pm on 12 May 2026, with the new rules applying from 1 July 2027.

From 1 July 2028, discretionary trusts will be subject to a 30 per cent minimum tax, with expanded rollover relief available for three years from 1 July 2027 to support restructuring.

 

On Tuesday, 12 May 2026, the Treasurer, Dr Jim Chalmers, handed down the 2026–27 Federal Budget. The Federal Budget introduces the most significant tax reforms aimed at reshaping how income and wealth are taxed in Australia. The Government is seeking to rebalance the system by reducing tax on income from work and increasing tax on income from assets, and then using that difference to fund personal tax relief and influence housing behaviour.

Several measures will be particularly relevant for private clients, family groups and business owners operating through trusts.

1. Capital gains tax and negative gearing reforms

From 1 July 2027, the Government proposes to fundamentally change how capital gains and property losses are taxed.

It will replace the 50 per cent CGT discount for individuals, trusts and partnerships with cost base indexation, while also introducing a 30 per cent minimum tax on real capital gains. These changes apply prospectively, with past gains preserved.

For assets acquired before 1 July 2027 and sold after that date, gains accrued up to 1 July 2027 will continue to access the 50 per cent discount. We expect many taxpayers will consider bringing forward transactions before 1 July 2027. Gains accruing from that date will be taxed under the new indexation and minimum tax framework. Taxpayers will need to reset the cost base at 1 July 2027 using either a valuation or specified apportionment formula that estimates the asset’s value based on its average return over the holding period (supported by ATO tools).

Assets acquired before 20 September 1985 (pre-CGT) are no longer outside the CGT regime. Importantly, the CGT changes will also apply to pre CGT assets, with gains accruing from 1 July 2027 becoming taxable on disposal. While pre-CGT gains prior to 1 July 2027 remain non assessable and non exempt (NANE), complex transitional arrangements must be navigated when Division 149 (underlying ownership) and CGT Event K6 (integrity measure) interact with the new indexation and minimum tax rules.

Negative gearing will also be curtailed. From Budget night, investors who acquire established residential property will no longer be able to offset rental losses against salary or other income. Losses will be quarantined and carried forward to offset future residential rental income. Existing arrangements are preserved for properties held or contracted before 7.30pm (AEST) on 12 May 2026. Negative gearing is available for commercial property and other asset classes, such as shares.

To support housing supply, investors in new builds will be able to choose either the existing 50 per cent CGT discount or the new indexation and minimum tax regime on disposal.

2. Discretionary trusts: minimum 30 per cent tax

From 1 July 2028, trustees of discretionary trusts will be subject to a minimum tax rate of 30 per cent on the trust’s taxable income. This is the largest single revenue raising tax measure in the Budget.

Under the proposal:

• the trustee will pay the tax;

• individual beneficiaries will receive non refundable credits; and

• corporate beneficiaries will not receive credits.

The minimum tax will not apply to certain categories, including primary production income of farms, some income relating to vulnerable beneficiaries, and income from testamentary trusts in existence at Budget night. However, the detail is not clear whether income from assets of testamentary trusts after Budget night will be subject to the minimum 30% tax or the excepted trust income provisions under 102AG for minors will continue to apply. Other types of trusts including fixed and widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts will not be subject to the minimum 30% tax.

Most ordinary family, investment and business trusts will otherwise fall within the regime.

Trusts may still play an important role beyond tax outcomes, particularly for asset protection and for preserving succession and control. Taxpayers should therefore review their existing trust structures carefully and avoid dismantling them purely in response to the new measures, as trusts can continue to deliver non‑tax benefits that remain commercially and strategically valuable. Interestingly, a flat 30 per cent minimum tax may also reduce the practical relevance of some long‑standing integrity regimes, such as section 100A, the Family Trust Distribution Tax and elements of the personal services income rules. The Federal Budget does not propose any direct reform to those provisions.

3. Business Restructures from discretionary trust to companies or fixed trusts

Many business owners use discretionary trusts for asset protection, flexibility and succession planning. Restructuring these arrangements is often complex and can trigger CGT, stamp duty, refinancing issues and commercial disruption. While the Government proposes limited CGT rollover relief for restructures between 1 July 2027 and 30 June 2030 to fixed trusts and companies. The practical operation of these concessions is likely to be narrow. Significant detail remains unresolved.

The current small business CGT concessions will continue unchanged with a missed opportunity to increase the net asset value test from $6 million.

4. Workers and households

Revenue raised from trusts, CGT and negative gearing changes will directly fund tax relief for workers. This includes a $250 Working Australians Tax Offset from the 2027–28 income year and a $1,000 instant tax deduction from 2026–27, allowing workers to claim deductions without receipts.

The Budget explicitly links higher taxation of asset based income with lower taxation of work.

5. Business and innovation measures

For businesses, the Budget focuses on targeted support rather than broad concessions.

The Government will reshape the Research and Development Tax Incentive, narrowing eligibility to genuine core R&D activities and improving how benefits are targeted.

It will expand venture capital concessions to support growing and innovative businesses, while companies with turnover under $1 billion will gain access to a permanent loss carry back regime.

Eligible start ups will benefit from refundable losses in their early years, improving cash flow when it matters most. The decision to make the $20,000 instant asset write off permanent gives small businesses greater certainty when planning capital investment.

6. Electric vehicles and FBT

The Government is moving away from a permanent fringe benefits tax exemption for electric vehicles.

From 1 April 2027, eligible EVs will generally receive a 25 per cent reduction under the FBT statutory formula, rather than a full exemption. Transitional relief applies, with EVs valued at up to $75,000 continuing to receive a full exemption where salary packaging arrangements commence before 1 April 2029.

This reflects a shift from early adoption incentives to more targeted, sustainable support.

7. Housing and first home buyers

The Budget commits $47 billion to housing measures, including:

·         funding to support an additional 75,000 homeowners over the next decade,

·         $2 billion for housing enabling infrastructure, and

·         an extension of the ban on foreign buyers purchasing established homes until mid 2029.

8. International tax and trade

Internationally, Australia will move to implement the OECD’s Pillar Two global minimum tax, aligning domestic law with global tax reform. The Government will also abolish a further tranche of nuisance tariffs and expand the Australian Trusted Trader program to reduce red tape and improve trade efficiency.

9. ATO funding and compliance focus

The 2026–27 Federal Budget allocates around $1 billion of additional funding to the ATO to strengthen compliance and tax integrity. This funding extends the Tax Avoidance Taskforce, the shadow economy program and personal income tax compliance activity, with a particular focus on private groups, high wealth individuals, multinationals and cash based businesses.

The Government expects the measures to raise more than $3 billion in additional revenue, signalling sustained ATO scrutiny rather than a short term compliance push. Private groups should expect increased data matching, earlier engagement and more intensive reviews where risk indicators are present.

10. What clients should do now

Budget announcements outline proposed measures only and may change following consultation or as legislation progresses through Parliament.

Clients should:

• review existing trust, ownership and succession structures;

• assess exposure to trust taxation, CGT and negative gearing changes; and

• avoid rushed restructures until legislation and guidance are settled.

We will continue to update clients as details emerge. Please contact the author if you would like to discuss how these changes affect your circumstances.

Author: Lisa To

 

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.