Federal Budget's First Tranche Passes Parliament: What's Law

Back in May, we shared an initial overview of the proposed Federal Budget changes, followed by a further update earlier this June as more detail emerged. Throughout both updates, we were clear that nothing was confirmed until the legislation passed both houses of Parliament.

That moment has now arrived. On 25 June 2026, the first tranche of these changes passed Parliament and is now law. This is a complex piece of legislation, the capital gains tax provisions alone run to 49 pages, so we have pulled together a clear, plain-English summary of what has actually changed and what it means for you.

A second tranche of legislation is still expected later this year to address some outstanding issues, which we will keep you updated on as it progresses.

CGT Discount Replaced From 1 July 2027

This is the headline change, and it affects a wide range of taxpayers.

The 50% CGT discount for individuals, trusts, and partnerships is being replaced with a combination of cost base indexation and a 30% minimum tax rate on capital gains. This applies to all CGT assets, including pre-1985 assets, provided they have been held for at least 12 months.

Timing matters here. The existing 50% discount still applies to gains accrued up to 1 July 2027. From that date, assets are deemed to be disposed of and re-acquired at market value, with indexation applying from that point forward. Growth up to 1 July 2027 keeps the current rules. Growth after that date falls under the new system.

• New concepts of residential and non-residential capital gains have been introduced, along with specific new rules about how capital losses can be offset
• Under the minimum tax structure, certain items cannot be deducted from capital gains, however eligible charitable donations remain deductible
• Foreign residents are excluded from some of these amendments

If you hold significant capital assets, particularly property or business assets with substantial unrealised growth, this is the change most likely to affect your long-term planning.

Given that asset values will need to be determined as at 1 July 2027, we will be working with many of you over the coming year on valuations as part of this transition.

Small Business CGT Concessions: A Welcome Expansion, With Some Complexity

There is genuinely good news here for small business owners, alongside some detail we want to flag honestly.

The four existing small business CGT concessions under Division 152 remain unchanged and have been preserved in full. Eligible small businesses can still reduce or completely remove tax on gains when they sell.

The active asset 50% reduction threshold has increased from $2 million to $10 million turnover, following a Senate amendment and the Prime Minister's media release on 18 June. This brings more businesses within reach of this concession when they sell.

That said, we want to be upfront with you.

We do not agree with the suggestion that this change applies to 98% of businesses. The increased threshold only applies to one of the four existing small business concessions, not all of them. There are also unresolved questions around the $6 million net asset valuation test, how it applies to companies, and how it interacts with the new 30% minimum capital gains tax.

We are continuing to review this legislation closely and will update you as our understanding develops. We would caution against assuming this concession applies broadly to your business without first checking your specific circumstances with us.

New Builds Get a CGT Choice

If you are investing in a new build, you now have a choice at the time of sale. You can elect to use either the existing 50% CGT discount or the new indexation and minimum tax approach, whichever produces the better outcome for your situation.

Qualifying affordable housing retains its existing CGT discount of up to 60%, fully unchanged by these reforms.

Negative Gearing Restricted for Existing Properties Purchased After Budget Night

From the 2027-28 income year, negative gearing changes apply to residential investment properties purchased after 7:30pm AEST on 12 May 2026.

For these properties, losses can only be offset against rental income or capital gains from other residential properties. They can no longer be offset against your salary, wages, or other non-property income. Any unused losses can be carried forward into future years.

What's protected:

• Properties you already held before 12 May 2026 are grandfathered and completely unaffected
• Non-residential and commercial properties are not impacted at all
• New builds remain fully eligible for negative gearing under the current rules
• Social and affordable housing carries its own specific exemptions

One important point on new builds: the term "new residential dwelling" is not specifically defined in the Act itself. This will instead be determined by the Minister at a later date through a legislative instrument. We will keep you updated once this definition is settled, as it will materially affect which properties qualify for the exemption.

An anomaly affecting co-owners in the event of death or divorce was identified during Senate debate. This is set to be addressed in the second tranche of legislation expected later this year.

Worker Tax Measures Confirmed

Two measures aimed at everyday workers have also passed and will take effect from 1 July 2027.

• A $1,000 standard deduction for work-related expenses, available to Australian tax residents earning assessable labour income, subject to certain conditions
• The Working Australians Tax Offset, a non-refundable offset of up to $250 per year for working Australians earning labour income above the tax-free threshold of $18,200, expected to benefit more than 13 million Australians

These are straightforward, broadly applicable measures that should simplify tax time for a large number of employees.

SMSF Borrowing Restrictions for Residential Property

From 45 days after the Act receives royal assent, SMSFs will no longer be able to use limited recourse borrowing arrangements to acquire residential property.

This change does not affect residential properties your SMSF already owns. It also does not apply to business real property, which retains its specific meaning under the relevant superannuation legislation. If your SMSF strategy has involved gearing into residential property, this is a change worth discussing with us before the restriction takes effect.

What You Should Do Now

• If you hold capital assets with significant unrealised growth, particularly property, talk to us about how the 1 July 2027 transition affects your position and what valuation work might be needed ahead of time
• If you are planning to acquire or sell significant CGT assets, reach out before you act. Timing decisions made now could have a meaningful impact under the new rules
• If your business may benefit from the expanded small business CGT concessions, do not assume eligibility without checking the detail. We are working through these provisions and can help confirm where you stand
• If your SMSF strategy involves residential property borrowing, get in touch before the 45-day window closes following royal assent

Our advice remains consistent: keep your focus on growing a strong, sustainable business, and let us handle staying across the detail of the legislation.

Get in touch with the Trekk Advisory team if any of these changes are relevant to your situation, and we will help you understand exactly what it means for you.

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.