The 2026–27 Federal Budget has announced significant proposed reforms. This newsletter provided a summary of these major tax related measures in 4 areas according to the budget paper.

1. Capital Gain Tax
2. Negative Gearing
3. Minimum Tax on Discretionary Trust
4. Business Taxation

The measures are subject to legislation.

CAPITAL GAINS TAX
From 1 July 2027, the 50% capital gains discount (CGT discount) for individuals, trusts and partnerships will be replaced with cost base indexation for assets held for more than 12 months, with a 30% minimum tax on net capital gains applying from that 1 July 2027.

Timing (acquisition & disposal)

There will be no changes in arrangements for assets purchased and sold prior to 1 July 2027.

Assets purchased after 1 July 2027 will be treated wholly under the new arrangements.

Assets owned prior to 1 July 2027 and sold after 1 July 2027 will be treated under current arrangements on gains made prior to this date, and under the new arrangements for gains made after this date (with no impact until gains are realised).

Existing CGT assets grandfathering provisions
The CGT reforms are proposed to apply only to gains accruing after 1 July 2027. For assets already owned before that date, the gain will effectively be split:
Valuation method
The taxpayer can seek a valuation of the asset as at 1 July 2027. The 50% CGT discount will apply to the difference between the asset’s cost base and its value at 1 July 2027. Indexation and the minimum tax will be used to calculate the CGT on gains accruing from 1 July 2027 (using the asset’s value at 1 July 2027 as the asset’s cost base).

Specified apportionment formula
Alternatively, taxpayers can use a specified apportionment formula that estimates the asset’s value on 1 July 2027, based on its growth rate over the asset’s holding period. The ATO will provide tools to estimate this value for taxpayers.

Pre CGT Assets
Gains on pre-1985 assets accrued before 1 July 2027 will continue to be exempt. However, gains accruing after 1 July 2027 on such assets will be subject to CGT.

New build exemption from CGT changes
Investors who buy new builds will be able to choose either the 50 per cent CGT discount or indexation and the minimum tax when they sell the property.

New builds are residential properties which genuinely add to supply. This will include:  dwellings constructed on vacant land, or where existing properties are demolished and replaced with a greater number of dwellings (eg: duplex, townhouses, units).
Knock-down rebuilds or substantial renovations that do not increase supply (eg: a new freestanding house) will not be eligible. A new build cannot have been previously sold, unless first owned by the builder and not occupied for more than 12 months. Subsequent purchasers of the dwelling will not be able to access the 50 per cent CGT discount.
Other exemptions from CGT changes
The main residence will continue to be exempt for CGT purposes. The four small business CGT concessions will also be unchanged. For Tech and start up sector, the Government will consult on the interaction of the capital gains tax reforms and incentives for investment in early-stage and start-up businesses.

NEGATIVE GEARING
Negative gearing for residential property will be limited to new builds (see definition above) from 1 July 2027. Losses incurred from established residential properties will only be deductible against rental income or capital gains arising from residential properties. Any excess losses will be able to be carried forward and offset against income from residential property in future years.
Changes to negative gearing only apply to residential properties. Commercial property and other asset classes, such as shares, will remain eligible for negative gearing.
Grandfathering provisions
These changes will apply to any established residential properties acquired from 7:30pm (AEST) on 12 May 2026. Any residential properties acquired prior to this time will be grandfathered and will therefore be exempt from the changes until disposed of. Residential properties acquired between 7:30pm (AEST) on 12 May 2026 and 30 June 2027 may be negatively geared during this period, but not from 1 July 2027.

MINIMUM TAX ON DISCRETIONARY TRUSTS
What is changing
A minimum tax rate of 30% has been introduced on discretionary trusts from 1 July 2028.
Individual and other non-corporate beneficiaries will receive non-refundable credits for any tax payable by the trustee. This effectively means the minimum income tax rate applicable to the distributions received by an individual and other non-corporate beneficiaries will be 30% from 1 July 2028.

However, corporate beneficiaries will be assessed based on the trust income to which they are entitled, without being able to claim credits for tax payable by the trustee. This would mean the effective income tax rate applicable to distributions received by corporate beneficiaries will be well above the current top marginal rate.

When does the change start
The proposed start date for the discretionary trust minimum tax is 1 July 2028. The Government has also announced three years of rollover relief from 1 July 2027 for small businesses and others that wish to restructure out of discretionary trusts into another entity type, such as a company or fixed trust.
Exclusions
The minimum tax will not be applicable to:
other types of trusts (eg: unit trusts or widely-held trusts)
complying superannuation funds
special disability trusts
deceased estates, and
charitable trusts.
Income from assets of discretionary testamentary trusts existing as at 7:30pm (AEST) on 12 May 2026
Review & Planning – Discretionary Trading Trust
From 1 January 2027, the Australian Small Business and Family Enterprise Ombudsman will be available to assist small businesses to understand the options available. Please contact this office to have a preliminary discussion.

Review & Planning – Discretionary Investment Trust
Please contact this office to discuss the impact of the reform to your discretionary investment trust(s).  The areas of review should include for example, current ownership structure of each asset class, income and capital profits, unrealised capital gain position, current income the capital profit distribution strategies, individual beneficiaries’ income position, bucket company arrangements and potential restructure opportunities subject to tax outcome and rollover options.

Asset protection & succession planning
Trusts are widely used for asset protection and succession planning purposes. We strongly recommend a comprehensive review of the objectives before implementing any adjustments to the asset holding structure and/or ownership.

BUSINESS TAXATION
Tax loss carry-back and loss refundability for startups
The Budget reintroduces loss carry back for small business and loss refundability for start-ups. From 2026–27, eligible companies who make a loss will be able to use that loss to get a refund against tax paid in the prior two income years. The Government is also introducing loss refundability to support new start-up businesses.

Small business depreciation
The instant asset write-off of $20,000 for small businesses applying the simplified depreciation rules has been extended permanently.
 

Important: Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. Client Alert is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.