At first glance, these proposed Budget changes felt like a potential “bloodbath” for investors, business owners and family groups alike.
However, once we moved past the headlines and dug into the finer detail, a more balanced picture started to emerge. While the proposed reforms are significant, there are also transitional rules, grandfathering provisions, and strategic planning opportunities that may help reduce the long-term tax impact for many Australians.
Let’s dig in.
Capital Gains Tax (CGT)
One of the most significant announcements is the proposed reform of Capital Gains Tax from 1 July 2027.
Currently, individuals, trusts, and partnerships may access a 50% CGT discount on assets held for more than 12 months. Under the proposed changes, this would be replaced with:
- Cost base indexation; and
- A 30% minimum tax on net capital gains
Importantly, transitional provisions are expected to apply:
- The new rules would only apply to gains accruing from 1 July 2027 onwards
- Assets sold before 1 July 2027 remain fully subject to the current rules
- For post-CGT assets held before 1 July 2027 and sold after that date, gains accrued up to 30 June 2027 are expected to retain access to the current 50% CGT discount, with the new indexation method applying to gains accruing from 1 July 2027 onwards
- Pre-CGT assets (acquired before 20 September 1985) will no longer be exempt. Instead, they are expected to assume a market value cost base as at 1 July 2027, with indexation applying from that point and the 30% minimum tax applying to gains accruing after that date
New residential property carve-out
The Government has also proposed a special carve out for new residential property investments, where investors may be able to choose between:
- The existing 50% CGT discount; or
- The new indexation method with the 30% minimum tax
What remains unchanged at this stage
- The main residence exemption remains unchanged
- Small business CGT concessions remain unchanged
- The CGT treatment for complying superannuation funds, including SMSFs, does not appear to have been addressed in the Budget announcements, but we will provide further clarity as details emerge
Negative Gearing
The Government has also proposed major changes to negative gearing from 1 July 2027.
Under the proposed rules, losses from affected residential investment properties would no longer be able to reduce taxable income such as wages or business income. Instead, those losses would be quarantined and used against future positive gearing income from residential property investments. Any residual loss remaining at the time of sale can be added to the indexed cost base of that asset, reducing the assessable capital gain.
These proposed changes apply to individuals, companies, trusts, and partnerships holding established residential properties acquired after 7:30pm AEST on 12 May 2026.
Grandfathering provisions
Importantly, existing investors are largely protected:
- If you owned, or had already entered a contract for, an established residential property before the announcement time, the current negative gearing rules are expected to continue until the property is sold
- Established residential properties acquired between 12 May 2026 and 30 June 2027 may continue accessing negative gearing until 1 July 2027
- New residential builds are expected to remain exempt from the changes
While these proposed changes are aimed more at future property purchases than existing investors, they may change how people think about borrowing, managing cash flow, and structuring future investments.
Trust Tax Changes
From 1 July 2028, the Government has proposed introducing a minimum 30% tax on discretionary trust income.
Currently, discretionary trusts generally distribute income to beneficiaries, who then pay tax at their own marginal tax rates. The proposed changes would reduce the ability to distribute income to lower income beneficiaries for tax planning purposes.
How it works
- Trustees would pay a minimum 30% tax on trust income at the trust level
- Individual beneficiaries would receive a non-refundable tax credit for the tax already paid by the trustee, which can reduce but not eliminate their personal tax liability
- Corporate beneficiaries would receive the after-tax distribution without a gross-up, meaning no imputation credit would be available to pass through to shareholders
Exemptions are expected to apply for:
- Primary production income
- Assets held in testamentary trusts as at budget night (12 May 2026)
- Deceased estates
- Charitable trusts
- Special disability trusts
Restructuring relief
One particularly important announcement is the proposed restructuring relief. The Government intends to provide a three-year rollover relief period from 1 July 2027, allowing eligible businesses and family groups to restructure out of discretionary trusts into other entity types (such as companies or fixed trusts) without triggering immediate CGT consequences.
For many business owners, this may create an important planning window to review whether their current structures remain appropriate under the proposed trust tax regime. Given the changes don’t take effect until 1 July 2028, there is time to consider your options carefully.
Other Key Measures
Other announcements from the Budget include:
- Permanent extension of the $20,000 instant asset write-off for eligible small businesses
- Reintroduction of loss carry back provisions for eligible companies
- Changes to electric vehicle FBT concessions from 2029
- A new $250 Working Australians Tax Offset
- A proposed $1,000 standard work-related deduction for employees
What This Means for Business Owners
What this Budget reinforces more than ever is the importance of proactive tax planning and business advisory support.
Many of these proposed changes are complex and may significantly impact how business owners, investors, and family groups structure their affairs moving forward. Waiting until tax time to review your position may no longer be enough.
The businesses likely to navigate these changes best will be those regularly reviewing their structure, tax position, cash flow and long-term plans with their adviser, rather than reacting after changes become law.
If you are not currently receiving ongoing business advisory and tax planning support, now is the time to start the conversation. Book a call with our team for a chat.
Note: All measures described in this newsletter are Budget announcements only. They are yet to be passed as legislation and may be subject to future change. This blog is general in nature and does not constitute financial or tax advice. Please speak with your adviser before making any decisions.
