WHAT DOES THE 2026 FEDERAL BUDGET MEAN FOR YOU?

The 2026 Federal Budget has delivered a series of proposed tax changes that, in our view, are not minor adjustments.

They represent a significant shift in how the Government intends to tax investment, property, trusts, capital gains and business structures.

While some measures have been presented as reform or fairness measures, the practical effect for many business owners, investors and family groups is likely to be more complexity, less flexibility and higher tax exposure over time.

Many of these announcements are not yet law. The final detail may change. However, the direction is clear enough that you should start reviewing their position now, not after the rules commence.

1. Capital Gains Tax changes from 1 July 2027

The Government has announced major changes to the CGT system from 1 July 2027.

The current 50% CGT discount is proposed to be replaced with cost base indexation for assets held for more than 12 months, together with a minimum 30% tax on net capital gains.

This is a major and unfavourable change for many investors.

At present, individuals and trusts can generally access the 50% CGT discount on eligible assets held for more than 12 months. This recognises that long-term investors take risk, tie up capital and are often taxed on gains accumulated over many years.

Under the proposed rules, that position changes. The 50% discount would be removed and replaced with an indexation-style system, but with a minimum 30% tax rate on net capital gains.

The changes are expected to apply to individuals, trusts and partnerships.

A particularly concerning part of the announcement is the proposal to bring pre-CGT assets into the tax system for gains that accrue from 1 July 2027. These are assets acquired before 20 September 1985, which have historically been outside the CGT regime.

Existing gains up to 1 July 2027 are expected to remain protected, but future gains may no longer be fully exempt.

What this means:

This could materially affect long-held assets, family wealth, investment portfolios, business sale planning and succession strategies.

For anyone holding property, shares, units, business assets or long-held family assets, this is not something to leave until 2027.

The right response is not panic. It is review, modelling and planning.

2. Negative gearing changes for residential property

The Government has announced that negative gearing for residential property will be limited to new housing.

From 1 July 2027, losses from established residential properties acquired after 7:30pm AEST on 12 May 2026 will no longer be deductible against salary, wages or other general income.

Instead, those losses will generally only be deductible against rental income or future capital gains from residential property. Excess losses may be carried forward.

Existing investments are expected to be grandfathered until sold.

New residential properties will continue to be eligible for negative gearing.

What this means:

This is likely to make established residential investment property less attractive from a tax and cash flow perspective.

For many investors, the ability to offset rental losses against other income has been a key part of managing holding costs in the early years of ownership.

Removing that benefit for established properties may reduce after-tax returns, reduce borrowing capacity and make cash flow harder to manage.

It may also push investors and first home buyers into the same new-build market, where supply is already constrained.

That is a real concern.

If supply does not keep up, demand may simply be redirected into a smaller part of the market, placing more pressure on new housing prices rather than improving affordability.

3. Discretionary trusts: proposed 30% minimum tax from 1 July 2028

The Government has announced a 30% minimum tax rate on taxable income of discretionary trusts from 1 July 2028.

Individual beneficiaries are expected to receive non-refundable credits for tax paid at the trustee level.

This measure is aimed at reducing the ability to distribute income to beneficiaries on lower marginal tax rates.

The measure is not expected to apply to all trusts. Fixed trusts, widely held trusts, complying superannuation funds, deceased estates, charitable trusts and certain testamentary trusts are expected to be excluded.

There are also proposed exclusions for specific categories of income, including primary production income and certain income connected with vulnerable individuals.

The Government has also announced proposed expanded rollover relief for three years from 1 July 2027 to allow some restructuring out of discretionary trusts.

What this means:

This is one of the most significant and problematic changes for family groups and business owners.

Discretionary trusts are not only used for tax purposes. They are commonly used for asset protection, succession planning, family wealth management, business risk separation and flexibility.

A minimum 30% tax rate does not automatically make trusts redundant, but it may reduce their effectiveness in some situations.

It may also create a major review burden for families and business groups that have operated through trusts for many years.

The proposed rollover relief may help in some cases, but restructuring is rarely simple. It can trigger stamp duty, CGT issues, financing complications, asset protection concerns, succession issues and commercial disruption.

If you have a trust it will be vitally important to review your structure and discuss your options with us. 

4. Personal income tax cuts and the Working Australians Tax Offset

The Government has confirmed further personal income tax cuts.

The tax rate applying to the $18,200 to $45,000 income bracket is proposed to reduce:

From 16% to 15% from 1 July 2026; and

From 15% to 14% from 1 July 2027.

A new $250 Working Australians Tax Offset is also proposed from the 2027–28 income year.

This offset is intended to apply to income from work, including wages, salaries and sole trader business income.

What this means:

These measures provide some relief, but it is modest.

They do not offset the scale of the proposed changes to capital gains, trusts and property investment for many.

For business owners, planning is still the most important issue. Wages, dividends, trust distributions, superannuation, retained profits and drawings all need to be considered together.

5. $1,000 instant tax deduction for individuals

From the 2026–27 income year, individuals who earn income from work are expected to be able to claim an instant tax deduction of up to $1,000 without substantiating work-related expenses.

Taxpayers with work-related expenses above $1,000 may still claim under the existing rules, provided they keep the required records.

What this means:

This may simplify returns for some taxpayers, but it also creates a risk.

If taxpayers stop keeping records and their actual deductions exceed $1,000, they may miss out.

For anyone with motor vehicle costs, home office costs, tools, equipment, professional costs or other work-related deductions, proper record keeping will still matter and most people will have over $1,000 in deductions which will make this measure ineffective. 

6. Medicare levy low-income thresholds

The Medicare levy low-income thresholds are proposed to increase from 1 July 2025.

This is intended to ensure low-income individuals, families, seniors and pensioners continue to be exempt from the Medicare levy or pay a reduced amount.

This is a targeted measure and will mainly benefit lower income earners.

7. Electric vehicle FBT changes

The Government has announced changes to the electric car discount.

From 1 April 2029, a permanent 25% FBT discount is proposed for eligible electric cars valued up to and including the fuel-efficient luxury car tax threshold.

There are transitional rules.

Eligible electric cars provided before 1 April 2029 and valued up to $75,000 may continue to receive the existing 100% FBT discount, effectively through a 0% statutory formula rate.

Electric cars valued above $75,000 and up to the fuel-efficient luxury car tax threshold, provided between 1 April 2027 and 1 April 2029, may be eligible for a 25% FBT discount.

Reportable fringe benefits will still need to be considered.

What this means:

The current EV FBT benefit is being wound back over time.

For anyone considering an electric vehicle through a company, trust or salary packaging arrangement, timing matters.

The current arrangements may still be valuable, but future concessions appear less generous.

Before entering into an arrangement, you should consider the purchase price, timing, FBT treatment, reportable fringe benefits, GST, income tax treatment and whether the vehicle genuinely suits the business or personal need.

8. Instant asset write-off made permanent

The Government has announced that the $20,000 instant asset write-off will be permanently extended from 1 July 2026 for small businesses with aggregated turnover of less than $10 million.

Assets costing $20,000 or more can continue to be placed into the small business simplified depreciation pool.

What this means:

This is one of the more practical measures in the Budget.

However, it should not be overstated.

A tax deduction does not make unnecessary spending worthwhile. Spending $20,000 to get a deduction is still a cash outflow.

Asset purchases should be driven by commercial need, productivity, efficiency and return on investment, not tax alone.

9. Loss carry-back and start-up loss relief

The Government has announced the reintroduction of loss carry-back provisions from 1 July 2026.

Companies with aggregated annual global turnover of less than $1 billion may be able to carry back tax losses and offset them against tax paid up to two years earlier.

This will apply to revenue losses and will be limited by the company’s franking account balance.

From 1 July 2028, eligible start-up companies with turnover of less than $10 million may be able to access a refundable tax offset for losses incurred in their first two years of operation.

The offset will be limited to the value of FBT and PAYG withholding paid on wages to Australian employees in the loss year.

What this means:

This may help companies that have paid tax in prior years and then suffer a loss.

However, the benefit depends on the detail. It may be less useful for start-ups without employees or without PAYG withholding and FBT obligations.

It is helpful, but it does not remove the need for strong cash flow management.

10. Research and development changes

The Government has announced proposed reforms to the Research and Development Tax Incentive from 1 July 2028.

The changes include:

Increasing the offset for core R&D expenditure;

Reducing the intensity threshold from 2% to 1.5%;

Removing supporting R&D expenditure from eligibility;

Increasing the refundable offset turnover threshold from $20 million to $50 million;

Increasing the maximum R&D expenditure threshold from $150 million to $200 million;

And increasing the minimum expenditure threshold from $20,000 to $50,000.

What this means:

Some larger or more R&D-intensive businesses may benefit.

However, some smaller claimants may find access harder, particularly where claims rely on supporting R&D activities or lower levels of expenditure.

Businesses involved in innovation should review eligibility, project documentation and records early.

11. Venture capital tax incentives

The Government has announced proposed changes to expand venture capital tax incentives from 1 July 2027.

These changes are aimed at supporting early-stage and growth businesses by increasing various investment and fund size thresholds.

What this means:

This may assist some growing businesses seeking investment.

However, most small and medium businesses will see little immediate benefit.

For businesses seeking capital, the fundamentals still matter: structure, shareholder arrangements, intellectual property ownership, governance, reporting and investor readiness.

12. Fuel excise reduction

The Government has announced a temporary reduction in fuel excise and excise-equivalent customs duty rates for most fuel products for three months from 1 April 2026.

The reduction is equivalent to 32 cents per litre for petrol and diesel.

The heavy vehicle road user charge has also temporarily reduced from 32.4 cents per litre to zero.

What this means:

This provides short-term relief only.

Businesses should be careful not to build long-term pricing, margin or cash flow assumptions around a temporary reduction.

When the reduction ends, fuel costs may rise again quickly.

Transport-heavy businesses should continue reviewing margins, pricing and fuel recovery mechanisms.

13. Increased ATO compliance and fraud funding

The Government has announced additional funding for the ATO to strengthen fraud prevention and detection across the tax and superannuation systems.

This includes expanded real-time monitoring, additional protections for individuals, increased scrutiny of tax agents and intermediaries, and further compliance activity in areas such as R&D.

What this means:

The ATO’s compliance capability continues to increase.

You should expect more data matching, more real-time review and more targeted compliance activity.

Good records are no longer optional.

Businesses should ensure:

Bank reconciliations are up to date;

Source documents are retained;

Payroll and super are correct;

GST coding is reviewed;

Private use is properly recorded;

Loans and reimbursements are documented;

Division 7A positions are managed;

And tax planning decisions are supported by evidence.

Our view

This Budget introduces significant proposed changes, particularly for capital gains tax, negative gearing, discretionary trusts and long-term investment planning.

While some measures may create extra complexity, there is no need to panic. Many are not yet law and several do not start immediately, which gives us time to review, plan and make informed decisions.

The proposed CGT changes may affect long-term investment and future sale planning.

The negative gearing changes may alter the cash flow and after-tax return of some residential property investments.

The discretionary trust changes may require family groups and business owners to review whether their current structures remain appropriate.

The personal tax cuts provide some modest relief.

The business measures, including the permanent instant asset write-off and loss carry-back rules, may still create useful planning opportunities.

This is not a Budget to ignore, but it is also not a reason to make rushed decisions.

For many of you, the real risk is not immediate tax payable tomorrow. The bigger risk is making decisions over the next 12 to 24 months without understanding how the rules may change.

What you should review now

We recommend reviewing:

Your current business structure;

Any discretionary trusts in your group;

Property investment cash flow;

Unrealised capital gains;

Pre-CGT or long-held assets;

Company retained earnings and franking credits;

Division 7A loans;

Asset protection and succession planning;

Vehicle and EV arrangements;

Planned asset purchases before 30 June;

And your expected tax position for the 2026 financial year.

Some of these measures do not start immediately, but the planning window has already opened.

If you are unsure how the budget may affect you, we can help you work through it. Our role is to help you understand the changes, review your options and make decisions that are considered, practical and aligned with your broader financial and business goals.

Please contact our office if you would like to discuss how the budget may affect your personal tax position, business structure or investment planning.

General advice warning: This update is general in nature and does not take into account your personal circumstances, objectives or financial position. You should seek advice before acting on any of the measures discussed. Many of the announced measures are not yet law and may change before commencement.