The Budget was delivered on 12 May 2026. What was announced is significant — not in the usual “a few rates have moved” sense, but in the sense that multiple foundational rules of the Australian tax system changed in a single evening.
The 50% capital gains tax discount is going. Negative gearing on established investment properties is being quarantined. A minimum 30% tax is being imposed on discretionary trust income. These three changes alone would each individually be considered landmark reform. They were announced together, and they interact.
This article sets out what changed, what it means in practice, and what questions are worth asking now. We’ve written it to be genuinely useful rather than comprehensive for its own sake — which means we’ve focused on the measures that will affect the majority of our clients rather than cataloguing everything in the Budget papers.
Several of these measures are still subject to draft legislation. Details will evolve. But the direction is clear, and early clarity creates more options than waiting.
IN THIS ARTICLE
- Why this budget is different
- Discretionary trusts — 30% minimum tax from 2028
- Capital gains tax — the 50% discount is going
- Negative gearing — what changed last night
- Small business — the measures worth knowing
- Tax cuts for workers and sole traders
- Superannuation — three things that need attention
- Electric vehicles — FBT changes incoming
- What to do now — by situation
Important: This article is general information only and is based on Budget announcements made on 12 May 2026. Several measures discussed are subject to draft legislation not yet released. No planning decisions should be made on the basis of this article alone. Speak with us before acting on anything raised here.
Why this budget is different
Most federal budgets are incremental. Threshold adjustments, rate tweaks, a few new concessions and a few things quietly removed. This one is not that.
The 2026-27 Federal Budget — delivered by Treasurer Jim Chalmers on the evening of 12 May 2026 — is being described as the most significant overhaul of the Australian tax system in nearly 30 years. In a single announcement, the Government has changed the rules on capital gains tax, negative gearing, trust distributions, superannuation, and a range of business and worker measures that will affect almost every client we work with in some way.
What makes it genuinely complex is that these changes are not independent. The impact on someone with a family trust holding investment property is not just the trust change, or just the CGT change, or just the negative gearing change — it’s the interaction of all three. For some clients, the combined effect is substantially larger than any single measure considered on its own.
The other thing worth noting: the timelines are spread across multiple financial years. Some changes take effect on 1 July 2026 — weeks away. Others from 1 July 2027. Others from 1 July 2028. This spread creates a false sense of distance. The preparation window for the 2028 measures is not long when you factor in the time required to properly analyse, model, and act.
Discretionary trusts — 30% minimum tax from 1 July 2028
This is the most structurally significant change in the budget for a large portion of our client base.
What has been announced
From 1 July 2028, the trustee of a discretionary trust will be required to pay a minimum 30% tax on the taxable income of the trust — regardless of how that income is distributed to beneficiaries.
Beneficiaries who are individuals will receive non-refundable credits for the minimum tax paid by the trustee. These credits reduce the beneficiary’s personal tax liability. If the credit exceeds what the beneficiary would have paid anyway, the excess is permanently lost — it cannot be refunded. There is no carry-forward.
This means that if a trust distributes $30,000 to a family member who earns nothing else, the trust pays $9,000 in minimum tax. The beneficiary receives a $9,000 credit against their personal tax of a few hundred dollars. The remaining credit — roughly $8,700 — simply disappears. Under current rules, that same distribution would have attracted only a few hundred dollars in tax total.
Who this affects
Not everyone with a discretionary trust will pay more tax. If your trust already distributes exclusively to beneficiaries whose marginal tax rate is 30% or above, the minimum tax creates no additional cost — the credits offset the same tax that would have been paid anyway. The change has no net effect on those clients.
The measure is designed to close the strategy of distributing income to multiple low-rate beneficiaries — a spouse with no other income, adult children studying, retired parents — to reduce the overall family tax bill. That strategy, in its standard form, stops working from 1 July 2028.
What about bucket companies?
The Budget specifically targets the use of corporate beneficiaries to defer or reduce tax. The final treatment of corporate beneficiaries under the minimum tax is subject to legislation not yet released — but the direction is clear. The ability to distribute to a “bucket company” and access corporate tax rates as a shelter is being curtailed. Any structure that relies on this mechanism needs to be reviewed.
What is excluded
The minimum tax will not apply to fixed trusts, SMSFs, special disability trusts, charitable trusts, or deceased estates. Primary production income will be excluded. Income from testamentary trusts in existence at the time of announcement will also be excluded.
The restructure window
The Government has confirmed expanded rollover relief, available for three years from 1 July 2027, allowing businesses and individuals to restructure out of discretionary trusts into companies or fixed trusts without triggering a capital gains tax liability at the point of transfer.
This is a genuine opportunity. It is also time-limited in a way that is easy to underestimate. Three years sounds like a lot. It isn’t, for these reasons:
- Draft legislation is expected in the second half of 2026. The final rules will not be known for months.
- Proper restructure analysis — modelling outcomes under different structures, accounting for goodwill, understanding stamp duty implications, reviewing beneficiary positions — takes time to do properly.
- Every accounting firm with trust clients will be working through the same window at the same time. Those who start early will have more options, more time, and more considered outcomes than those who start late.
KEY DATES — TRUSTS
Second half 2026 — draft legislation expected
1 July 2027 — rollover relief window opens
1 July 2028 — 30% minimum tax takes effect
30 June 2030 — rollover relief window closes
The right response will be different for every trust. For some, a change to distribution strategy will be sufficient. For others, restructuring into a company makes sense — particularly once you consider that a small business company now pays 25% tax, which is lower than the new 30% minimum on trust income, while also providing cleaner retained earnings, easier access to debt, and a more straightforward ownership structure.
For others, the trust may still be the right structure — but only after the analysis has been done. That analysis needs to start before the legislation lands, not after.
Capital gains tax — the 50% discount is going
From 1 July 2027, the 50% CGT discount — which has been part of the Australian tax system since 1999 — will be replaced for individuals, trusts, and partnerships with two things:
- Cost base indexation — adjusting the original purchase price for inflation (CPI) to determine the real gain, and
- A 30% minimum tax on net capital gains
In practice, this returns CGT in Australia to the approach that applied between 1985 and 1999.
The transitional rules are well-designed
For assets already held, gains accrued up to 1 July 2027 still attract the 50% discount. The new rules only apply to gains arising from that date onwards. For an asset sold after 1 July 2027, the CGT calculation splits the gain into two parts — pre-2027 (old rules) and post-2027 (new rules).
There is deliberately no incentive to rush a sale before 1 July 2027. The transitional structure removes that pressure. But it does mean that every year you hold an asset from 2027 onwards, more of the gain is subject to the new, generally less favourable treatment.
When the new rules produce more tax vs less
The outcome depends entirely on the real rate of return on the asset and your marginal tax rate.
For assets with strong real growth — well above inflation — indexation provides a smaller discount than the 50% flat reduction did, and the 30% minimum tax bites harder. High-performing assets carry a higher tax bill under the new rules.
For assets with modest real growth — returns closer to inflation — indexation reduces the taxable gain more than the 50% discount would have. Lower-performing assets may actually see a better outcome under the new rules.
Age Pension and JobSeeker recipients in the year they realise a capital gain are exempt from the 30% minimum tax.
New residential properties — a deliberate carve-out
Investors who purchase newly constructed residential properties — those that genuinely add to housing supply — can choose between the 50% CGT discount and the new indexation approach when they sell. Whichever produces the better outcome for the investor is available. This carve-out applies only to new builds, not established properties.
What this means for business owners — the goodwill problem
This is the less-discussed but highly significant implication of the CGT changes for business clients.
When a business is built from scratch, the goodwill it accumulates over time has a cost base of zero. Under the current rules, 50% of any goodwill gain was exempt from tax. Under the new rules, there is nothing to index on a zero cost base. Every dollar of goodwill growth from 1 July 2027 is fully taxable at marginal rates — up to 47% combined — with only the 30% minimum tax floor providing a ceiling for low-income years.
The small business CGT concessions remain available and unchanged. The 50% active asset reduction, the $500,000 lifetime retirement exemption, and the 15-year exemption still apply. But where indexation provides no discount on a zero cost base, the starting taxable gain is larger, and those concessions are applied to a higher number. The effective value of each concession is diluted.
For business owners operating through discretionary trusts, this compounds the trust minimum tax conversation. The two measures together create a compelling case for reviewing both structure and timing simultaneously.
KEY DATES — CGT
Assets purchased and sold before 1 July 2027 — no change
Assets held before 1 July 2027 and sold after — split treatment (50% discount pre-2027, indexation post-2027)
Assets purchased after 1 July 2027 — new rules apply in full
New residential builds — investor can choose 50% discount or indexation at time of sale
Negative gearing — what changed last night
The cutoff date for the negative gearing changes is 7:30pm AEST on 12 May 2026. That was last night. This is not a future decision — it is already in effect.
What is protected
Every investment property held at the time of announcement — including properties under contract but not yet settled — is fully grandfathered. You can continue deducting rental losses against your salary, wages, and other income for as long as you hold those properties. Nothing changes for your existing portfolio, regardless of what happens after 1 July 2027.
What changes for new purchases
For established residential properties purchased after 7:30pm last night, rental losses will only be deductible against residential property income — including capital gains from those properties. They cannot be used to offset salary, wages, or other income.
Losses that cannot be absorbed in a given year are carried forward to future years, where they can be applied against future residential property income. The deduction is deferred and quarantined, not permanently lost — but the immediate tax benefit of offsetting losses against a salary is gone for these properties.
New builds remain fully negative gearable
Newly constructed properties that genuinely add to housing supply — new builds on vacant land, or developments replacing existing properties with a greater number of dwellings — remain fully subject to negative gearing against all income. The full income tax deduction is preserved for new builds purchased at any point.
This means that from last night, the financial comparison between buying an established investment property and buying a new build has shifted materially in favour of new builds. That shift is permanent.
The combined effect with CGT
The negative gearing change and the CGT change are designed to work together, and they do. For a high-income investor considering an established property acquisition today:
- The annual tax benefit of offsetting rental losses against salary income is gone from 1 July 2027
- The CGT treatment on exit will be less favourable than under previous rules
- Both of these simultaneously reduce the after-tax return on established property investment
If you are currently modelling a property acquisition, the numbers from last week are no longer the right numbers. The decision needs to be re-run under the new rules.
KEY DATES — NEGATIVE GEARING
Properties held at 7:30pm 12 May 2026 — fully grandfathered, no change
Established properties purchased after 7:30pm 12 May 2026 — losses quarantined from 1 July 2027
New builds purchased at any point — existing negative gearing rules apply in full
Small business — the measures worth knowing
Not everything in this budget is a constraint. There are three genuinely useful measures for small business clients, two of which take effect on 1 July 2026.
$20,000 instant asset write-off — now permanent
The $20,000 instant asset write-off has been confirmed as a permanent feature of the tax system from 1 July 2026. Small businesses with annual turnover under $10 million can immediately deduct the full cost of eligible assets under $20,000 in the year they are first used or installed, rather than depreciating them over time.
The significance here is permanence, not the dollar amount. This concession has been extended on a year-by-year basis for the better part of a decade. That uncertainty is over. You can now plan capital investment decisions around a stable rule rather than a temporary measure that might or might not be extended.
The $20,000 threshold applies per asset. Multiple assets in the same year can all be immediately deducted, provided each individual asset is under the threshold.
Loss carry back — permanent from 2026-27
Companies with aggregated annual turnover up to $1 billion can carry a current year tax loss back against tax paid in either of the two prior financial years, generating a cash refund. This measure, which previously lapsed, is being reintroduced permanently from 1 July 2026.
The interaction with the instant asset write-off creates a practical planning opportunity. A company that makes significant asset investments this financial year, creates a loss through the immediate deduction, and paid tax in 2024-25 or 2025-26, may be able to carry that loss back and receive a cash refund from the ATO. This is not a future arrangement — it applies now, for the year we are currently in.
The carry back is limited to revenue losses (not capital losses) and is capped by the company’s franking account balance.
Start-up loss refundability — from 2028-29
From 1 July 2028, small start-up companies in their first two years of operation will be able to convert tax losses into a refundable cash offset — even where no prior tax has been paid. The refund is capped at the value of FBT and PAYG withholding on wages paid to Australian employees in the loss year.
This is a meaningful measure for early-stage businesses investing heavily in payroll before revenue is established.
KEY DATES — SMALL BUSINESS
1 July 2026 — $20,000 instant asset write-off permanent, loss carry back reintroduced
1 July 2028 — start-up loss refundability available
Tax cuts for workers and sole traders
$1,000 instant tax deduction — from 1 July 2026
From the coming financial year (2026-27), eligible workers can claim a flat $1,000 deduction for work-related expenses without keeping receipts or itemising costs. This applies to employees and sole traders earning income from work.
It is a choice, not an automatic entitlement. If your actual documented work-related expenses exceed $1,000, claiming them remains the better approach. If your expenses are typically under $1,000, the flat deduction gives you a clean and simple alternative with no record-keeping requirement.
Charitable donations, union fees, and professional membership fees can be claimed on top of the $1,000 deduction — they are not included in the $1,000 limit.
The actual tax saving depends on your marginal rate. At 32% combined (30% plus 2% Medicare Levy), the saving is $320. At 47% combined, it is $470.
Working Australians Tax Offset — from 1 July 2027
From the 2027-28 income year, a permanent $250 Working Australians Tax Offset applies to all Australians who earn income from work, including sole traders. This is on top of three rounds of tax cuts already legislated.
For a worker on average earnings ($81,245), the combined benefit of all five rounds of tax cuts by 2027-28 is up to $2,816 per year compared to 2023-24 tax settings. The offset reduces income tax only — it does not reduce the Medicare Levy.
KEY DATES — WORKERS
1 July 2026 — $1,000 instant tax deduction available (no receipts needed under $1,000)
1 July 2027 — tax rate on income $18,201–$45,000 drops from 16% to 14% (second legislated cut)
1 July 2027 — $250 Working Australians Tax Offset applies
Superannuation — three things that need attention
The $3 million balance threshold — this is law, not proposal
This one predates the Budget but is urgent enough to include. From 1 July 2026 — weeks away — superannuation fund earnings attributable to balances above $3 million will be taxed at 30% rather than 15%. This legislation received Royal Assent in March 2026. It is law.
The tax applies to taxable income attributable to the portion of your balance above $3 million — not to unrealised gains. An earlier version of the proposal included unrealised gains, but that did not make it into the final legislation. The ATO will calculate your fund’s attributable earnings above the threshold based on taxable income and issue an assessment accordingly.
If your superannuation balance is approaching $3 million, or if you have a spouse whose combined balance creates total household exposure near this threshold, this is worth reviewing before 1 July 2026.
Transfer balance cap increase — 1 July 2026
The transfer balance cap — the maximum amount you can hold in a tax-free retirement phase pension account — increases from $2.0 million to $2.1 million on 1 July 2026. If you were previously limited by the cap and unable to move your full intended balance into retirement phase, this increase may create a modest additional opportunity.
Payday super — from 1 July 2026
From 1 July 2026, employers are required to pay superannuation contributions at the same time as wages — not quarterly as has been the historical norm. Contributions must reach the employee’s superannuation fund within seven business days of each pay date.
This is a compliance obligation, not optional. Payroll systems need to be updated before 1 July. If you are an employer and this has not been addressed, it is a priority for the next four weeks.
KEY DATES — SUPERANNUATION
1 July 2026 — $3 million balance threshold takes effect (this is law)
1 July 2026 — transfer balance cap increases to $2.1 million
1 July 2026 — payday super mandatory for all employers
Electric vehicles — FBT changes from April 2027
The full FBT exemption for electric vehicles provided through employer arrangements — novated leases, salary packaging — has applied since 2022 and has made EVs significantly more cost-effective than equivalent petrol vehicles. That exemption is being wound back in two stages.
From 1 April 2027 — the full FBT exemption applies only to EVs priced at $75,000 or below. EVs above that threshold attract a reduced 25% FBT discount only.
From 1 April 2029 — the 25% FBT discount applies to all eligible EVs regardless of price. The full exemption ends entirely for new arrangements.
The grandfathering position for existing arrangements above $75,000 is subject to final legislation not yet released. If you currently have an EV valued over $75,000 under a novated lease or salary packaging arrangement, it is worth reviewing that arrangement before 1 April 2027 rather than assuming existing terms are protected.
EVs priced under $75,000 with arrangements commencing before 1 April 2029 retain the full exemption for the life of that arrangement.
KEY DATES — ELECTRIC VEHICLES (FBT)
1 April 2027 — full FBT exemption limited to EVs ≤ $75,000; over $75,000 gets 25% discount only
1 April 2029 — 25% discount applies to all eligible EVs; full exemption ends for new arrangements
What to do now — by situation
These measures have different timelines and different urgency levels. The right response depends entirely on your specific circumstances. Below is a practical breakdown by situation — click to expand the one that applies to you.
We are already working through the implications of these measures across our client base and will be reaching out to those we believe are most directly affected over the coming weeks.
If something in this article is relevant to your situation and you would prefer not to wait, book a session directly using the link below. The earlier we can map out the impact specific to you, the more options we will have to work with.
Ready to talk through what this means for you?
Book a tax planning session with the HY Accounting team.
This article is general information only and is prepared on the basis of Federal Budget announcements made on 12 May 2026. Several measures discussed here are subject to draft legislation not yet released, and details may change when legislation is introduced. This article does not constitute tax advice and should not be relied upon as such. Individual circumstances vary. Please contact HY Accounting to discuss your specific situation before making any decisions based on the information above. H Youssef Accounting & Taxation Services Pty Ltd. Liability limited by a scheme approved under Professional Standards Legislation.