Federal Budget 2026-27: Key Tax Changes for Business Owners

The 2026-27 Federal Budget, handed down on 12 May 2026, is one of the more significant in recent years for Australian taxpayers.

Proposed changes to negative gearing, the CGT discount, and the taxation of discretionary trusts have the potential to materially affect property investors, business owners, and families who use trust structures. There are also measures affecting personal income tax, the instant asset write-off, and electric vehicle FBT exemptions.

Before we go further, one important point: these changes are not yet law. Legislation has been introduced to Parliament for some measures, but Bills can change before they pass. We will continue to keep you updated as things progress. In the meantime, here is what we know.

Negative Gearing: What Is Changing and When

The Government is proposing to restrict negative gearing on established residential properties purchased after 7:30pm AEST on 12 May 2026.

• Rental losses from newly acquired established properties can only be offset against rental income or capital gains from other residential properties
• Any leftover losses must be carried forward and applied against future residential rental income or residential property capital gains
• Losses can no longer be offset against salary, wages, or business income for new property purchases

If you already own an established property or exchanged contracts before Budget night, nothing changes. Grandfathering applies. You can continue to deduct losses against other income sources until you sell.

• New builds remain fully eligible for current negative gearing rules, both before and after 1 July 2027, though the definition of "new build" has not yet been finalised
• Commercial property, shares, and other asset classes are not affected by the new restrictions
• If you are considering converting your private home into a rental property, the position is more complex than the legislation currently suggests and we strongly recommend speaking with us before you act

The changes are proposed to take effect from 1 July 2027.

CGT Discount: A Significant Shift

Currently, individuals who hold an asset for more than 12 months are entitled to a 50% discount on any taxable capital gain. From 1 July 2027, the Government is proposing to replace this with:

• Cost base indexation, which adjusts for inflation, and
• A 30% minimum tax on capital gains

This applies across all CGT asset categories including residential and commercial property, shares, business assets, and pre-CGT assets.

What this means in practice:

Gains that accrue up to 1 July 2027 will still receive the existing 50% CGT discount. From that date forward, the new rules apply. To calculate the split correctly, you will need to determine the market value of affected assets at 1 July 2027.

For new residential properties, investors can choose either the existing CGT discount or the new indexation and minimum tax method.

It is worth noting that companies will not have access to indexation. Complying super funds will continue to benefit from the existing one-third CGT discount. And the new rules will not apply to individuals classified as foreign residents or temporary residents during the ownership period.

A practical example:

A property investor who purchased before Budget night and continues to hold the property will see the gain split into two periods. The pre-July 2027 portion receives the 50% discount. The post-July 2027 portion is subject to the new rules. In most scenarios, the overall tax outcome will be higher than under the current system.

Discretionary Trusts: A Fundamental Change on the Horizon

This is the measure that has generated the most concern for family businesses and investment structures.

From 1 July 2028, the Government is proposing to introduce a 30% minimum tax rate on the taxable income of discretionary trusts. The trustee would initially pay the tax, with beneficiaries (other than companies) receiving a non-refundable tax credit for the tax paid at the trust level.

The intent is clear: to reduce the tax advantage gained by splitting income across lower-taxed family members or corporate beneficiaries.

Some exemptions are proposed, including for fixed and widely held trusts, superannuation funds, special disability trusts, deceased estates, charitable trusts, and primary production income.

To assist with transitions, three years of rollover relief is proposed for restructures into companies or fixed trusts.

What this could look like in practice:

Consider a business operating through a discretionary trust with a $300,000 profit. Under current rules, after paying a $100,000 salary and distributing the remaining $200,000 across four family members, the total tax bill might be around $42,000.

Under the proposed 30% minimum tax, that same income could attract around $86,000 in tax. That is a significant increase on the same level of profit.

For some businesses, restructuring into a company to access the 25% tax rate may become a more attractive option. For others, the better answer may be adjusting distribution strategies within the existing trust structure. The right path will depend on your specific circumstances and we strongly recommend modelling different scenarios before making any changes.

Other Budget Measures Worth Noting

Not everything in this Budget is a negative. A few other measures are worth being across:

• $250 Working Australians Tax Offset (from 2027-28) - increases the effective tax-free threshold for wage earners and sole traders
• $1,000 standard deduction for work-related expenses (from 2026-27) - simplifies tax time for many employees and removes the need to substantiate smaller claims
• Permanent $20,000 instant asset write-off - small businesses with aggregated turnover under $10 million can continue to immediately deduct eligible assets costing less than $20,000
• Foreign resident CGT regime - The Government is also tightening the CGT rules for foreign residents. From Budget night, foreign residents will be subject to CGT on a broader range of Australian assets, with changes designed to ensure foreign investors cannot avoid Australian tax on gains from assets with a close connection to Australia. If you have any cross-border investment arrangements or ownership structures involving non-residents, this is worth reviewing with your adviser. 

What to Do Right Now

The most important thing to do at this stage is not to panic, but also not to ignore these changes.

For property investors, the immediate question is whether any planned acquisitions should be brought forward before Budget night grandfathering cuts off. For trust structures, the start date of 1 July 2028 gives some breathing room, but modelling different scenarios now is worthwhile given the complexity involved.

• Review your current investment portfolio and understand which assets would be affected by the proposed CGT changes
• If you operate through a discretionary trust, consider whether the proposed changes would materially affect your tax position and what alternatives might look like
• If you are thinking about purchasing a new property or converting your home to a rental, speak to us before you act
• Make note of the 1 July 2027 date as a reference point for CGT calculations and consider whether asset valuations will be needed

We will continue to update you as the legislation progresses and further detail emerges.

Get in touch with the Trekk Advisory team to review your position, run tailored projections, and make sure your structure is set up to manage these changes with confidence.

Trekk Advisory provides accountant-led tax, bookkeeping, and advisory services for Australian business owners. This article is general in nature and does not constitute personal advice. Please speak with a qualified adviser regarding your specific circumstances.