The Federal Treasurer Jim Chalmers handed down the 2026 Federal Budget on 12 May 2026. With some major changes announced to capital gains (CGT), negative gearing and discretionary trusts, this is a budget that is sure to impact all taxpayers.
With the majority of the changes not taking effect until July 2027 or later, planning and making informed decisions will be crucial.
If you have any questions or want to discuss how the budget could impact you or your business, please email hello@prescottsolutions.com.au or contact our office on 08 6118 6111.
The proposed changes are not yet law and subject to approval.
Business
30% Minimum Tax on Discretionary Trusts
From 1 July 2028, a 30 per cent minimum tax on discretionary trusts will be introduced.
The tax will be paid by the trustee as it is the trustee who controls distributions. Beneficiaries will still need to declare their trust income in their tax returns, but beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee.
Salary or wages paid to beneficiaries working in the business are not subject to the minimum tax.
The minimum tax will not apply to fixed trusts, superannuation and deceased estates. Some types of income such as primary production (farming) income will also be excluded.
Key aspects of the changes will be finalised following consultation with stakeholders. As well as the mechanism for collecting the minimum tax, stakeholder views will also be sought on how the trustee uses franking credits that exceed the minimum tax liability, and on the rollover relief provided to support restructuring.
Small Business Rollover Relief
Businesses wanting to restructure out of discretionary trusts, will have rollover relief available.
This will provide expanded relief from income tax consequences, including capital gains tax, for those who choose to restructure, and will be available for three years from 1 July 2027.
$20,000 Instant Asset Write-Off
A welcome change is the $20,000 instant asset write-off will be a permanent available. This means small businesses with turnover up to $10m will be able to claim an expense for equipment purchases rather than depreciating over several years.
Loss Carry Back
For tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid up to two years earlier. Loss carry back will apply to revenue losses only and will be limited by a company’s franking account balance.
PAYG Instalment Reform
From 1 July 2027, small and medium businesses can opt in to monthly PAYG instalment reporting and payment, using an ATO-approved calculation embedded directly in accounting software. This means instalments better reflect real-time business performance — a genuine cash flow benefit during tough periods.
Businesses with a history of non-compliance will be required to report monthly.
Electric Vehicle Fringe Benefits Tax (FBT)
After being exempt form FBT for several year, electric vehicles will also be facing changes.
Importantly, all electric cars valued up to and including $75,000 that are provided before 1 April 2029 will continue to be eligible for a 100 per cent discount on FBT.
From 1 April 2029, a permanent 25 per cent discount on fringe benefits tax (FBT) will be available for all electric cars valued up to and including the fuel‑efficient luxury car tax threshold.
While the electric vehicles will have lower or no FBT payable, the reportable fringe benefits will still be applicable.
Personal Tax
Working Australians Tax Offset
A $250 Working Australians Tax Offset (WATO) will be introduced from 1 July 2027. This will apply to wage income and sole trader businesses.
$1,000 Instant Tax Deduction
Another change for wage earners is $1,000 deduction for work related expenses. The instant tax deduction allows employees to reduce their taxable income by up to $1,000 without keeping receipts when they lodge their 2027 tax return.
Taxpayers claiming more than $1,000 in work-related deductions will still be able to do so, but must have receipts to justify the claims.
Charitable donations, union and professional association membership fees and other non‑work related deductions can still be claimed on top of the instant tax deduction.
Property & Investment
Negative Gearing on Residential Property
Negative gearing (rental losses) will have a major overhaul, with two key dates – 7:30pm AEST 12 May 2026 (budget night), and 1 July 2027.
From 1 July 2027, the Government will:
- limit negative gearing for residential property investments to new builds; and
- replace the 50 per cent CGT discount for individuals, trusts and partnerships with cost base indexation and a 30 per cent minimum tax rate on capital gains.
Properties held before budget night, can continue to negative gear, and claim the losses against their other income.
Properties purchased after budget night, will only be able to use the rental losses against other rental income (note: there is an exception for new builds). Any additional rental losses will be carried forward and can be applied to future rental income, including capital gains.
Changes to negative gearing will only apply to residential property. Commercial property and other asset classes, such as shares, will remain subject to existing arrangements.
Capital Gains
The 50 per cent discount will end from 1 July 2027 for investments and will be replaced with cost base indexation – based on the Consumer Price Index (CPI).
These changes will apply to all CGT assets (including property and shares) held by individuals, partnerships and trusts for at least 12 months.
Gains on pre-1985 assets accrued before 1 July 2027 will continue to be fully exempt – the indexation treatment applies only to gains accruing after 1 July 2027
In addition to the discount changes, a minimum 30 per cent tax on capital gains will be introduced from 1 July 2027.
Note: details around the CPI rates and calculations methods have not been finalised. This is a massive change to the investing space and the true impact will need to be checked once the legislation has been released.
Investments sold prior to 1 July 2027 will still be able to access the 50 per cent discount.
Assets owned prior to 1 July 2027 and sold after 1 July 2027 will be treated under current arrangements (50 per cent discount) 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). Taxpayers can either obtain a valuation of the investment at 1 July 2027, or apportion over the ownership period – with a specified apportionment formula will be provided by the ATO.
New build exemption
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. These investors will also continue to have access to negative gearing. This means if they make a rental loss on a new build, they can still use that loss to reduce their taxable income (including salary and wages).
New builds are residential properties which genuinely add to supply (see Table 2). This will include:
- dwellings constructed on vacant land, or
- where existing properties are demolished and replaced with a greater number of dwellings.
Knock-down rebuilds or substantial renovations that do not increase supply will not be eligible.
Other exemptions
The main residence will continue to be exempt for CGT purposes.
The four small business CGT concessions will also be unchanged.
Given the unique characteristics of the 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 (ESIC) and start-up businesses.
Additional Resources
The information provided is current at the time of posting and is subject to change. Professional advice is recommended to explore the personal or business impact.
