The 2026–27 Federal Budget is the most consequential rewrite of Australia’s tax landscape I’ve seen in my career. Capital gains tax fundamentally reworked. Negative gearing narrowed. Discretionary trusts facing minimum tax thresholds. Pre-1985 assets no longer untouchable. These aren’t tweaks at the edges, they represent a structural rethink of how capital, property and intergenerational wealth are taxed in this country.
Now, the legislative reality. These measures must still pass the House of Representatives, survive the Senate, and receive Royal Assent. Labor has the numbers in the House comfortably, so the Senate is where the real horse-trading happens, and that’s where it gets interesting. Many of these measures, particularly on negative gearing, CGT reform and trust taxation, align closely with long-standing Greens policy positions. So while nothing is locked in, the odds of meaningful reform actually landing are higher than in previous Budget cycles, where similar ideas have quietly died on the order paper.
What I find genuinely interesting is the framing. The Treasurer has anchored this Budget heavily to the global oil shock and a conflict barely two months old. The economic backdrop is real – inflation, supply chains, energy prices, but a reform package of this scale doesn’t get drafted in eight weeks. These reforms have been sitting in policy drawers for years, waiting for the political weather to turn. The oil shock didn’t create this Budget. It gave Treasury the permission slip to release it.
For those who know me, I’m an optimist by personality and a capitalist by trade. I also believe, genuinely, that where there’s change, there’s opportunity, and rarely have I seen a change cycle with this much of both. Yes, the 2027 macro outlook is challenging. Inflation is forecast to peak around 5%, growth has been revised down, and the lagged effects of global conflict will continue to filter through energy, freight and food. Discipline, planning and deliberate capital decisions are going to matter more in the next 18 months than they have in years. Brace for a cold winter, but cold winters reward those who prepared in autumn, and we are squarely in autumn right now.
Most of these measures don’t commence until 1 July 2027. That is a runway, not a cliff, and a generous one by reform standards. The clients who’ll come out of this best won’t be the ones who waited to see if it passed, nor the ones who panicked and restructured everything in week one. They’ll be the ones who used the next 12 months to model scenarios, stress-test their structures, and make deliberate, unhurried decisions.
We’ll be reaching out to clients individually over the coming weeks to start exactly that work. Modelling, reviewing structures, and mapping what these changes mean for you specifically. If anything in this commentary raises immediate questions, please don’t wait for our call.
This is my ear to the ground. Now for the real work, tailored advice on what it means for your structures, assets and family.
The landscape is changing. We have time to change with it and the clients who think clearly and lean in now will be the ones writing a very different story by 2028.
Effective from 1 July 2027
The Government will replace the widely used 50% CGT discount on assets held for more than 12 months with cost base indexation for assets from 1 July 2027.
A 30% minimum tax on net capital gains has also been announced.
These changes apply to individuals, trusts and partnerships across all asset classes. Critically, and in a move not previously reported in the press, these changes will also apply to pre-CGT assets acquired before 1985. That last point is a significant shock to many long-standing succession planning arrangements.
Assets must be disposed of prior to 1 July 2027 in order to still access the 50% discount, provided they have been held for more than 12 months. This creates a short window for clients currently considering asset sales.
Effective date: 1 July 2027. The 50% CGT discount remains available for assets disposed of before that date, provided they have been held for more than 12 months.
The changes will significantly impact the after-tax return on investment properties, shares and other capital assets held by individuals and trusts. The minimum tax required to be paid on sale of these assets will move to 30%, broadly in line with assets held by companies.
This measure is not limited to one sector. It will most affect industries and client groups where value is created through capital appreciation rather than operating income.
The key impacted groups include:
For startups and early-stage companies, the concern is not simply the founder’s tax outcome. Investor behaviour may also change if after-tax exit returns are reduced or become less certain. This may affect how investors price risk, how founders think about liquidity, and whether businesses are pushed towards profitability earlier.
For assets that will straddle the 1 July 2027 line, it is not yet settled whether gains will be split via time-based apportionment or formal valuation.
The ATO is expected to release tools to assist with compliance, which may reduce the cost burden of valuation for some clients, particularly on property. However, our view is that clients with significant pre-CGT assets or large capital positions should begin thinking about independent valuations now, regardless of what tools the ATO makes available.
The apportionment method, whether days-based or valuation-based, matters significantly. A valuation at 1 July 2027 may lock in the pre-change gain and may be the safer approach for clients with assets that have appreciated heavily in recent years.
Clients with significant unrealised gains, pre-CGT assets, investment properties, trust-held investments, business sale plans or large equity portfolios should begin strategic review discussions well before the proposed 1 July 2027 commencement date.
For many private clients and family groups, the valuation methodology ultimately adopted at 1 July 2027 may become one of the most commercially important aspects of the entire reform package, particularly for assets that have appreciated materially over long holding periods.
In our view, clients with substantial capital positions should begin considering independent valuations, structure reviews and succession planning implications now, rather than waiting for final legislation or ATO guidance to be released.
Effective from 1 July 2027
Grandfathering cut-off: 7:30pm, 12 May 2026
From 1 July 2027, losses incurred from established residential properties acquired after 7:30pm on 12 May 2026 will only be deductible against rental income or capital gains from residential property.
Losses in excess of residential property income will be quarantined and carried forward to future years, similar to how capital losses are currently treated. Those carried-forward losses can be offset against rental income or capital gains from residential property in the future.
Investment properties acquired prior to 7:30pm on 12 May 2026 are grandfathered under the rules currently in place and will remain exempt from the changes until the property is disposed of.
The policy draws a clear line. It protects existing holders while directing new capital toward new housing supply rather than competition for established properties.
The political framing is consistent with the intergenerational narrative. Existing investors are not penalised, but the path for younger investors entering via established property has changed materially.
For clients who have been relying on negative gearing losses to offset other income on newly acquired established properties, the economics of that strategy change from 1 July 2027.
The grandfathering cut-off has already passed. All new purchases of established residential property are now subject to the incoming rules, assuming they clear Parliament.
The most directly affected sectors and client groups include:
The measure may redirect investment interest away from established residential property and toward newly built residential property, other asset classes or different ownership structures.
For the construction sector, the policy may have two different effects. It may reduce investor demand for established properties, but it may also support demand for new builds if investors seek assets that remain exempt from the changes.
The negative gearing changes should not be viewed in isolation. For property investors, the combined effect of reduced negative gearing benefits and changed CGT treatment may materially alter after-tax returns.
A client considering new residential property investment will need to assess:
The grandfathering window for established residential property has already closed. In practical terms, investors acquiring established residential property from this point forward should assume materially different after-tax economics from 1 July 2027 onwards if the legislation proceeds.
The reforms appear deliberately designed to redirect investor capital toward new housing supply, meaning the distinction between established property and new builds will become increasingly important from both an investment and structuring perspective.
For many clients, the more significant issue will not be negative gearing in isolation, but its combined interaction with the proposed CGT reforms, trust taxation changes, succession planning and long-term asset ownership strategy.
Proposed start date: 1 July 2027
Rollover period to 30 June 2030
The Government has proposed a minimum 30% tax rate on discretionary trust distributions, bringing the taxation of trust distributions in line with the current corporate tax rate.
This change has significant implications for private business owners and family groups that use discretionary trusts for income distribution.
The announcement is light on detail. Based on what has been announced and reported, the expected mechanics are:
Financial press reporting on budget night indicated that companies may not receive the credit.
If that interpretation holds, the corporate beneficiary structure, commonly used to hold capital-appreciating assets in a trust while fixed-interest income sits in the company, may need to be reconsidered entirely.
This is still unconfirmed and the devil is in the detail.
This is not strictly an industry measure. It is a structure measure.
The change will affect clients based on how they are structured, not necessarily what sector they operate in. That means the impact will cut across a wide range of private client groups, including family businesses, professional services firms, property groups, investment entities and trading businesses.
The most likely affected client groups include:
The following trust types are explicitly excluded from these changes:
A rollover period will be provided from 1 July 2027 until 30 June 2030 to support small businesses intending to restructure from a discretionary trust into another type of entity.
The Budget announcement also indicated that some exemptions around restructuring will be made available, but the scope and eligibility of those exemptions is yet to be clarified.
Key unresolved questions include:
Even with restructuring relief potentially available, our view is that clients with significant trust-held assets should consider getting independent valuations in place ahead of the 1 July 2027 effective date, regardless of how the rollover relief ultimately applies.
While the detail remains incomplete, the direction of policy is clear — Treasury is seeking to reduce the long-standing flexibility and tax efficiency traditionally available through discretionary trust structures, particularly where income streaming and corporate beneficiaries are involved.
The unresolved treatment of corporate beneficiaries is likely to become one of the most commercially important aspects of the reform package. If no effective credit mechanism is introduced, many existing trust and bucket company structures may require fundamental reconsideration.
For many clients, this will extend well beyond annual tax outcomes. The interaction with succession planning, asset protection, intergenerational wealth transfer, CGT reform and long-term ownership structures may be significant, particularly for larger family groups and private investment structures.
Importantly, discretionary trusts are unlikely to disappear altogether. Trusts still provide significant non-tax benefits around asset protection, succession planning, family wealth management and ownership flexibility. However, the balance between tax efficiency and broader commercial structuring benefits may shift materially if these reforms proceed in their current form
Mixed picture — some genuine wins alongside structural change
From 1 July 2026, the $20,000 instant asset write-off for small businesses with annual turnover below $10 million will become a permanent feature of the Australian tax system.
Previously, this measure required annual renewal, creating uncertainty for businesses planning equipment purchases.
This is a practical cashflow lever for any SME that regularly purchases equipment, tools, vehicles, technology or fit-out assets near the $20,000 threshold.
Making it permanent ends years of last-minute extensions and allows small businesses to plan with confidence.
The measure is likely to be most useful for asset-heavy SMEs, including:
From 1 July 2026, companies with annual turnover below $1 billion will be able to carry back tax losses and offset them against tax paid in up to the two prior years.
The loss carry-back applies to revenue losses only and is limited by the company’s franking account balance.
This provides meaningful cashflow relief for businesses experiencing cyclical profitability.
This measure is particularly relevant for businesses exposed to volatility, margin pressure or investment cycles, including:
The ability to recover tax previously paid may provide important short-term liquidity for businesses that move from profit to loss because of investment, downturn, project timing or market disruption.
From 1 July 2028, start-up companies with aggregated turnover below $10 million that generate a tax loss in their first two years of operation can use that loss to generate a refundable offset.
The refundable offset will be limited to the value of fringe benefits tax and withholding tax on wages paid to Australian employees in the loss year.
This measure is particularly relevant for early-stage companies that are investing ahead of profitability and already employing Australian staff.
This provision should be considered alongside the R&D Tax Incentive reforms.
For some startups, the combined effect of R&D refundability, tax loss support and CGT changes will determine whether the Budget is ultimately positive or negative.
Businesses that invest heavily in people, development and commercialisation before revenue should review:
The Government is reducing the fringe benefits tax discount that electric cars currently receive.
| Measure | From | Detail |
|---|---|---|
| $20,000 instant asset write-off | 1 July 2026 | Made permanent for SMEs with turnover below $10 million |
| Tax loss carry-back | 1 July 2026 | Companies below $1 billion can offset revenue losses against tax paid in the prior two years |
| Start-up loss refundable offset | 1 July 2028 | Refundable offset for companies below $10 million turnover in their first two years |
| EV FBT exemption phase-down | 1 April 2029 | Full exemption ends; 25% discount to apply going forward |
For SMEs, this section of the Budget is one of the more commercially practical outcomes announced.
The permanent instant asset write-off and return of tax loss carry-back provide genuine planning certainty and short-term cashflow support, particularly for businesses investing in equipment, technology, expansion or operating through cyclical profitability.
However, many SME owners will simultaneously be exposed to the broader structural reforms around CGT, trusts and long-term investment structures. In our view, the larger strategic review for many business owners sits beyond annual tax savings and into how wealth, business assets and future succession plans are structured over the next decade.
Individual tax settings, offsets, and Medicare thresholds
The Government will introduce a $1,000 instant tax deduction allowing workers to deduct up to $1,000 from their taxable income for work-related expenses without needing to retain receipts.
Union and professional memberships, charitable donations and other non-work-related deductions can continue to be claimed in addition to this instant deduction.
Taxpayers whose work-related expenses exceed $1,000 can still claim deductions under the ordinary rules, provided they maintain appropriate records and receipts.
A permanent annual $250 Working Australians Tax Offset will be introduced from 1 July 2027.
The offset applies to wages, salaries and sole trader business income.
| Key Criteria | Detail |
|---|---|
| Offset amount | $250 per year, permanent |
| Eligible income | Wages, salaries, sole trader business income |
| New effective tax-free threshold for work income | $19,985, up approximately $1,800 |
| With Low Income Tax Offset also applied | $24,985 |
The Government will increase the Medicare levy low-income threshold by 2.9% for singles, families and seniors.
| Category | Previous Threshold | New Threshold |
|---|---|---|
| Singles | $27,222 | $28,011 |
| Single seniors and pensioners | $43,020 | $44,268 |
| Families | $45,907 | $47,238 |
| Family, seniors and pensioners | $59,886 | $61,623 |
| Per dependent child/student, addition to family thresholds | $4,216 | $4,338 |
The direct tax benefit sits with individuals, but employers and payroll teams should be aware of the downstream implications.
Affected groups include:
The $1,000 instant deduction may simplify tax return behaviour for many employees, but it may also create communication questions for payroll and HR teams.
The Working Australians Tax Offset from 1 July 2027 will also affect withholding calculations once updated tax tables are released.
The $1,000 instant deduction and updated Medicare thresholds may affect how employees approach their tax returns.
The Working Australians Tax Offset from 1 July 2027 will also affect withholding calculations. Payroll teams should prepare for updated tax tables.
Compared with the broader structural reforms elsewhere in the Budget, these measures are relatively modest and largely focused on cost-of-living relief and administrative simplification.
The $1,000 instant deduction may reduce compliance friction for many employees, while the Working Australians Tax Offset and updated Medicare thresholds provide incremental relief for lower and middle-income earners.
For employers, the more practical impact will likely sit with payroll communication, updated withholding processes and managing employee expectations around how these measures apply in practice.
Effective from 1 July 2028
Two years to prepare
On 12 May 2026, the Australian Government announced sweeping reforms to the R&D Tax Incentive, taking effect from 1 July 2028. While the changes promise higher offsets for core research activity, they also narrow the programme’s scope considerably.
The Government’s case rests on cost and effectiveness. Programme costs have risen approximately 70% over five years to reach $4.4 billion in 2023–24, largely driven by supporting activity claims, such as literature reviews, equipment maintenance, data collection, rather than genuine experimental work.
Research for the Government’s Ambitious Australia report found that incentives for core R&D generated $1.58 of additional R&D per dollar of offset, while subsidies for supporting activities generated none, despite accounting for 29% of all claims in 2023–24.
For SMEs and young firms, the changes are broadly positive: higher rates, a higher turnover threshold and continued refundability. For larger businesses, the increased expenditure cap and lower intensity threshold are welcome. However, the removal of supporting activities will require all claimants to review how their R&D is scoped and documented.
The reforms are most relevant to software, biotech, medtech, advanced manufacturing, clean energy, pharmaceuticals and related sectors. Businesses where genuine R&D depends on regulated processes, data collection or manufacturing trials may find significant work no longer qualifies.
The Government is clearly targeting genuine experimental work rather than the administrative scaffolding around it. A few concerns remain.
The complete removal of supporting activities goes further than Ambitious Australia recommended, which proposed a deemed rate rather than full elimination. Legitimate costs including literature reviews, data collection that informs experimental design, and GMP manufacturing will no longer attract the offset.
Australia also risks moving out of step with OECD peers that widely recognise supporting activities as part of the R&D process, potentially encouraging businesses to conduct R&D offshore.
The 10-year refundability cut-off needs clarity on whether it applies at entity or group level, a detail that matters considerably for restructured businesses and startups within larger corporate families.
With a 1 July 2028 effective date, there is time to reassess claim structures and strengthen documentation for core activities.
For genuine innovation-focused businesses, many aspects of these reforms are positive. Higher offset rates, expanded SME thresholds and increased support for younger companies reinforce the Government’s intention to direct funding toward core experimental activity and commercial innovation.
However, the removal of supporting activities is a significant structural shift and may materially change how many businesses assess eligibility, particularly in software, biotech, medtech and regulated industries where experimentation often relies heavily on documentation, data gathering, testing and manufacturing support processes.
In our view, the next two years should be used proactively. Businesses currently claiming the R&D Tax Incentive should begin reviewing claim methodologies, technical documentation standards and group structures well before the proposed 1 July 2028 commencement date.
Proposed reforms to reduce regulatory burden and compliance costs
The Australian Government has proposed reforms aimed at reducing regulatory burden and compliance costs for businesses, with estimated savings of up to $780 million.
A key component of the proposal is to increase the financial thresholds used to classify a proprietary company as “large” under the Corporations Act 2001. Specifically:
Consistent with the current framework, an entity would be classified as “large” where it meets at least two of the three thresholds.
Implications
Entities that fall below the revised thresholds would be reclassified as a “small proprietary company”, and (subject to other triggering conditions such as foreign control or ASIC direction):
This represents a material reduction in statutory reporting obligations, particularly for privately held mid-market groups.
The Government has also flagged reforms to streamline climate-related financial reporting requirements, while retaining core disclosure objectives.
Key focus areas under consultation include:
These reforms aim to balance transparency objectives with operational feasibility, particularly given the complexity of Scope 3 and supply chain data collection.
The Government is also proposing to simplify existing group reporting relief mechanisms.
Current position
Entities seeking relief from standalone financial reporting typically rely on ASIC Class Order relief requiring:
Proposed reform
The proposal would:
Implications
This reform is likely to:
Many of our clients recognise the value of undertaking an audit of the financial report to ensure that the financial information presented is robust, reliable, and capable of being relied upon by key stakeholders.
A primary concern for privately held businesses, however, is not necessarily the audit itself, but rather the requirement to lodge audited financial information with ASIC, making it publicly accessible. In many cases, this raises commercial sensitivities around confidentiality, competitor visibility, and broader stakeholder scrutiny.
The proposed reforms will address this concern by allowing proprietary companies that fall below the revised thresholds to avoid public lodgement of financial information, while still retaining the flexibility to undertake an audit where there is a commercial or governance benefit to do so.
In addition, while climate-related financial disclosures have only recently been legislated and are mandatory from 2028 onwards, the proposed increase in large proprietary company thresholds will be welcomed by those private companies that fall below the revised thresholds, as it may remove the requirement to prepare climate-related disclosures in accordance with AASB S2.
We look forward to reviewing the detailed legislation and associated guidance as it becomes available and would welcome the opportunity to discuss the potential implications of these reforms for your business, including the ongoing role of voluntary audits and alternative assurance options.
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