Federal Budget 2026 – Reshaping Investment and Business Taxation

Treasurer Jim Chalmers handed down the 2026/2027 Federal Budget on 12 May 2026 against a backdrop of continued cost of living pressures, housing affordability concerns and inflation management challenges.

The Budget contains significant taxation and structural reform measures affecting individuals, investors, businesses and trusts. A key theme underpinning a number of the announced measures is the Government’s apparent intention to more closely align the taxation outcomes of business owners and investment groups with those of salary and wage earners.

While many of the measures are aimed at improving perceived equity within the tax system, the proposed changes are expected to result in significant transitional and ongoing compliance impacts for businesses, investors and their advisers, particularly in relation to restructuring considerations, capital gains tax calculations, trust taxation and record keeping obligations.

Please see below a summary of the main taxation reforms, noting that these are only announcements and are subject to passage through Parliament in the usual manner:

1. Negative Gearing Changes

‍Negative gearing on established residential properties acquired from Budget night onwards will be limited from 1 July 2027, with losses quarantined and carried forward to offset against future rental income or capital gains arising from the property.

Negative gearing broadly refers to the ability for rental property losses to be offset against a taxpayer’s other income, such as salary and wages or business income.

Existing negatively geared properties acquired prior to 7:30pm on 12 May 2026 will be grandfathered until sold, with no limit imposed on the number of existing negatively geared properties held by one taxpayer. Newly constructed residential properties will remain eligible for negative gearing concessions.

2. Capital Gains Tax – Removal of 50% CGT Discount

‍The Government has announced significant reforms to the capital gains tax regime, with the existing 50% CGT discount for individuals and trusts to be replaced with an indexation-based model, together with the introduction of a minimum tax of 30% on net capital gains from 1 July 2027.

Transitional rules are proposed whereby accrued gains up to the commencement date will continue under the current rules, with future gains calculated under the new indexed regime.  This could create a significant potential for conflict between taxpayers and the ATO in respect of the valuation of assets on 1 July 2027 and we will need to await draft legislation before providing further guidance on these matters.

The changes apply broadly to CGT assets and are not limited to property. Importantly, superannuation funds will retain access to the existing one-third CGT discount, and it will remain an option for investors acquiring new residential homes after 1 July 2027.

3. Capital Gains Tax – Pre CGT Assets

‍The Budget also proposes that pre-CGT assets (being assets acquired prior to 20 September 1985) will cease to be fully exempt from capital gains tax, with future gains becoming subject to tax under the new indexed regime from 1 July 2027.

This measure appeared to be somewhat of a “sleeper” announcement within the Budget, having not been widely speculated or leaked prior to Budget night, and will likely come as a surprise to many long-term asset holders and advisers.

4. Trust Taxation Reform

‍From 1 July 2028, discretionary trusts will broadly become subject to a 30% tax rate at the trust level.  Tax paid at the trust level is expected to flow through to beneficiaries other than corporate beneficiaries as a non-refundable tax offset.

Some concessions are proposed for primary production trusts, disability trusts and deceased estates.

For many advisers, including our firm, and a significant number of our clients, this is likely the most significant announcement contained within the Budget. The changes have the potential to materially impact business and investment groups currently operating through discretionary trust structures.

At best, the measures may result in additional tax costs and reduced flexibility, and at worst may require substantial review and potential restructuring of existing group and investment arrangements.

In recognition of this, the Government has announced that expanded rollover relief will be available for a three-year period from 1 July 2027 to assist small businesses and other taxpayers wishing to restructure from discretionary trust arrangements into alternative entity structures.

We expect this proposed measure to generate significant debate and push back from business and professional associations.

5. FBT Exemption for Electric Vehicles

‍The Budget also announced changes to the Fringe Benefits Tax (FBT) treatment of electric vehicles.

The existing FBT exemption for eligible electric vehicles will be replaced with a permanent 25% FBT concession from 1 April 2029 on electric vehicles up to the fuel-efficient luxury car tax threshold, thereby reducing rather than eliminating the taxable value of qualifying electric vehicle benefits provided to employees.

From 1 April 2027 to 1 April 2029 the full FBT exemption remains in place for electric vehicles costing $75,000 or less.  Electric cars costing more than $75,000 but below the Luxury Car Tax Threshold ($91,387 for 2026FY) will receive a 25% discount on their payable FBT.

6. Business Measures

‍The Budget includes several business-focused measures, including:

a) the re-introduction and expansion of loss carry back rules to businesses with turnover of up to $1 billion for income years commencing on or after 1 July 2026, subject to limitations linked to the company’s franking account balance.

b) the permanent extension of the $20,000 instant asset write-off rule for small businesses with turnover up to $10 million which had previously been extended on a year-to-year basis.

7. Monthly PAYG Instalments – Opt in for SMBs

‍From 1 July 2027, small and medium businesses will be able to opt in to reporting and paying PAYG instalments on a monthly basis rather than quarterly. The measure is intended to provide greater flexibility in managing cash flow and tax payment obligations throughout the year.

8. Tax Relief to Individuals

‍The Government announced a range of measures aimed at providing relief to households and individual taxpayers, including:

a) two rounds of personal income tax cuts commencing from 1 July 2026 and 1 July 2027 (previoulsy announced)

b) a proposed $250 Working Australian Tax Offset (WATO) for eligible individual taxpayers from 1 July 2027, and

c) a new $1,000 standard tax deduction intended to simplify tax return preparation for employees and individuals with relatively simple affairs, commencing for the 2026/27 financial year.

9. Superannuation

‍We note that no significant additional superannuation measures were announced as part of this year’s Federal Budget, with the superannuation system largely left unchanged for now.

However, advisers and taxpayers should remain mindful of the previously announced Division 296 reforms, which commence from 1 July 2026 and will impose additional tax on earnings attributable to superannuation balances above $3 million, with a higher rate above $10 million.

10.  Research and Development Tax Incentive

‍Extensive changes are proposed to the R&D Tax Incentive from 1 July 2028, both favourable and unfavourable, to better target these concessions.

These changes include increasing the offset for core R&D expenditure by around 25% and changing various thresholds including the threshold for a refundable tax offset, which will increase from $20 million to $50 million turnover.

Importantly the R&D tax offset will no longer be available for supporting R&D expenditure, and will be limited to core R&D expenditure only.

Conclusion

Many of the announced measures will require detailed transitional rules and are expected to result in significant structural and compliance considerations for taxpayers, particularly in relation to existing investment structures, trust arrangements, capital gains tax calculations and record keeping requirements.

If all measures are introduced as announced, we expect many of our clients will seek to restructure their operating and asset owning entities prior to commencement of the new rules.

Further detail and clarity is expected following the release of draft legislation and explanatory materials, as well as through further analysis and interpretation of the detailed Budget papers over coming weeks. We will continue to review the announcements and keep you informed of significant developments and practical implications as further information becomes available.

Please contact your Baumgartners adviser if you would like to discuss how the proposed changes may impact your circumstances or group structure.