We recently held a webinar with James Carey, Partner at Prime Partners, walking through everything announced in the 2026-27 Federal Budget in detail. This article summarises the key changes. If you’d like to watch the full session, click the link below.
The Federal Budget handed down by Treasurer Jim Chalmers on 12 May 2026 is one of the most consequential in decades, particularly for investors, property owners and anyone who holds assets through a trust or company structure. Framed by the Government as addressing intergenerational inequity and rebalancing the tax system toward labour rather than assets, it contains changes that will directly affect how investments are taxed, how rental losses can be used and how income flowing through discretionary trusts is treated.
For individuals and business owners with complex financial positions, this is a budget that warrants careful attention and, in some cases, prompt action before certain changes take effect.
Tax Cuts: More Money in the Pocket for Workers
The most immediately positive news for individuals is further tax relief. From 1 July 2026, the 16 per cent tax rate on taxable income between $18,201 and $45,000 drops to 15 per cent, with a further cut to 14 per cent legislated for 2027-28.
The Government is also introducing the Working Australians Tax Offset, a permanent annual tax cut of up to $250 from the 2027-28 income year for all Australian workers, benefiting over 13 million people. For an Australian worker on average earnings, the combined benefit of the Government’s five tax cuts could be up to $2,816 per year.
The $1,000 Instant Work-Related Expense Deduction
From the 2026-27 income year, an instant tax deduction of up to $1,000 will be available for work-related expenses. Workers won’t need to itemise and substantiate individual claims if their total work-related expenses fall below that threshold. Those with expenses above $1,000 can continue to claim the higher amount in the usual way. Charitable donations, union fees and professional association memberships can still be claimed separately on top of this deduction.
For most employees, this simplifies tax time considerably. For those with significant work-related expense claims, it’s worth checking with us whether itemising still produces a better outcome.
Capital Gains Tax: The Most Significant Change in Decades
This is the area of the budget that will have the broadest and most lasting impact on investors and asset holders and it requires careful thought.
From 1 July 2027, the 50 per cent Capital Gains Tax discount will be replaced with cost-base indexation and a new minimum 30 per cent tax on net capital gains. In practical terms this is a return to the pre-1999 approach, where inflation adjustments to the cost base rather than a flat discount determined the taxable gain. The changes apply to all CGT assets held by individuals, trusts, and partnerships, including pre-1985 assets.
Critically, the changes only apply to gains arising on or after 1 July 2027. The 50 per cent discount continues to apply to gains realised before that date, giving investors a defined window to consider whether realising gains under current rules makes sense for their position.
What remains unchanged
- The main residence CGT exemption is fully retained
- The CGT discount for superannuation funds is not expected to change
- Small business CGT concessions, including the 15-year exemption, retirement exemption, active asset reduction, and rollover, are all unchanged
- New residential builds: investors can choose either the 50% discount or the new indexation approach
- Income support recipients including Age Pension recipients are exempt from the 30% minimum tax
If you are holding assets with significant unrealised gains and have been considering selling, the window before 1 July 2027 is now a live planning consideration. This is not a decision to make without modelling your specific position. We’d strongly encourage affected clients to reach out so we can work through the scenarios with you.
Negative Gearing: Existing Investors Are Protected, New Purchases Are Not
The cut-off for grandfathered negative gearing treatment is 7:30pm AEST on 12 May 2026, which was the moment the Budget was delivered. Any established residential investment property acquired before that time remains subject to the current rules and is not affected by these changes until it is sold.
From 1 July 2027, losses from established residential properties acquired after the budget cut-off will only be deductible against rental income or capital gains from residential property. If rental losses cannot be fully absorbed in a particular year, they may be carried forward and applied against future residential property income or gains.
Commercial property and other asset classes such as shares are not affected by these negative gearing changes. Eligible new builds are also exempt, as are widely held trusts and superannuation funds.
The practical implication is clear. If you own existing investment property purchased before budget night, nothing changes while you hold it. If you were considering purchasing an established residential investment property, the tax treatment going forward is materially different from what applied before 12 May 2026.
Discretionary Trusts: A New Minimum Tax From 2028
This is a significant change that will affect a large number of our clients. From 1 July 2028, trustees will pay a minimum tax of 30 per cent on the taxable income of discretionary trusts. There are currently over 900,000 family trusts in Australia, many of which may be affected.
The current model taxes beneficiaries at their individual marginal tax rates, which is what makes discretionary trusts effective as an income-splitting vehicle. The new minimum tax of 30 per cent fundamentally changes that arrangement for many family groups, particularly where some beneficiaries are on lower marginal rates.
What is excluded from the trust minimum tax
- Primary production trusts
- Widely held trusts including most managed investment trusts
- Superannuation funds including SMSFs
- Fixed trusts
The Three-Year Restructure Window
The Government has announced an expanded rollover relief for trustees who wish to restructure out of a discretionary trust before the minimum tax takes effect. The window runs from 1 July 2027 to 30 June 2030, giving three years to transfer assets to a company or fixed trust without triggering income tax or CGT consequences.
The detailed scope of the expanded rollover is subject to consultation in the second half of 2026, but the destination options are explicitly a company or a fixed trust. This gives affected clients meaningful lead time, but the structural review of how your trust is being used should start now, not in 2027. We will be in touch with affected clients specifically on this issue.
For Small Business Owners
The budget contains genuinely good news for small businesses.
Permanent $20,000 instant asset write-off: Small businesses with turnover up to $10 million can now plan multi-year capital expenditure with certainty, immediately deducting eligible assets costing less than $20,000. This is estimated to save small businesses around $32 million per year in compliance costs.
Loss carry-back reinstated: From the 2026-27 income year, companies with aggregated global turnover below $1 billion can carry losses back up to two years and receive a refund of tax paid in those prior years, limited by the company’s franking account balance. Up to 85,000 companies per year are expected to benefit.
Start-up loss refundability: From 2028-29, eligible early-stage Australian companies will be able to receive a cash refund of unused losses rather than carrying them forward. This targets the cash-flow gap that affects R&D-heavy businesses before they reach profitability.
Monthly PAYG opt-in: From 1 July 2027, businesses can opt in to monthly PAYG instalments calculated through ATO-approved accounting software, aligning tax payments more closely with real-time business activity.
Tariff abolitions: A further 497 nuisance tariffs are being abolished from 1 July 2026, saving businesses an estimated $157 million per year in compliance costs.
Other Measures Worth Knowing
Fuel Excise Relief
The Government has halved the fuel excise for three months from 1 April 2026, with excise falling from 52.6 to 20.6 cents per litre and the heavy vehicle road user charge reduced to zero for the same period. For businesses with significant vehicle or logistics costs, this provides short-term but meaningful relief.
EV FBT Wind-Back
The full FBT exemption for electric vehicles will be wound back from 1 April 2029, moving to a 25 per cent FBT discount for EVs up to the fuel-efficient luxury car tax threshold. EVs provided before 1 April 2029 and valued at $75,000 or below retain the full exemption. Existing salary-packaged leases retain the rate that was in place at commencement.
Foreign Investment
The ban on foreign purchases of established dwellings has been extended to 30 June 2029. A 30-day approval target for low-risk foreign investment will apply from 1 January 2027.
ATO Counter-Fraud Powers
The ATO has been given expanded powers to pause debt recovery for victims of tax-agent fraud and to waive debts in appropriate cases. Garnishee powers have been extended to jointly-held assets, and additional compliance activity on R&D claims is expected.
The Broader Economic Picture
Treasury forecasts the impact of the global oil shock will slow Australia’s economic growth from 2.25 per cent in 2025-26 to 1.75 per cent in 2026-27. Cost of living pressures are expected to remain elevated, with CPI peaking at 5 per cent in 2025-26 before falling to 2.5 per cent in 2026-27.
The budget’s defining tension is between cost-of-living relief for workers and increased tax burden on investment assets. The changes to CGT, negative gearing, and trust taxation represent a structural shift in how wealth held in assets and structures is taxed in Australia, and the planning implications are real and immediate for many of our clients.
Key Dates at a Glance
Now through June 2026
- Confirm contract dates for any property acquisitions in progress
- Identify assets with significant unrealised CGT gains and assess whether realising before 1 July 2027 makes sense
- Review discretionary trust structures and begin assessing restructure options
1 July 2026
- $20,000 instant asset write-off becomes permanent
- Loss carry-back for companies commences
- Tax rate on income between $18,201 and $45,000 drops to 15%
1 July 2027
- CGT reform begins: 50% discount replaced by cost-base indexation and 30% minimum tax
- Negative gearing limits apply to established residential properties acquired after budget night
- Trust restructure rollover window opens
- Working Australians Tax Offset commences
1 July 2028
- Discretionary trust minimum tax of 30% applies
- Start-up loss refundability commences
- R&D Tax Incentive overhaul begins – read our full article here.
30 June 2030
- Trust restructure rollover window closes
What to Do Now
The changes announced in this budget create genuine time pressure for some decisions, particularly around capital gains and property purchases. We recommend any client who holds significant investment assets, operates a discretionary trust, or owns residential investment property to contact us for a conversation before the end of the current financial year.
The CGT window before 1 July 2027 is meaningful. The trust tax changes arrive in 2028, but the structural review of how your trust is being used should start now. For small business owners, the permanence of the instant asset write-off and the loss carry-back extension are worth factoring into your investment and planning decisions for the year ahead.
If you missed our webinar and would like to watch the full recording click here. If you’d like to talk through what this budget means for your specific position, reach out to your Prime Partners adviser. These are significant changes and we want to make sure every client has the information they need to make the right decisions.