Treasurer Jim Chalmers has delivered the most significant structural tax reform package since the introduction of the GST.
Budget 2026 is not a tinkering Budget. The 2026–27 Federal Budget rewrites three of the longest-standing pillars of Australia’s tax system in a single night. Discretionary trusts, the CGT discount, and negative gearing are all changing, while the political edges have been softened with broad-based personal tax relief and a permanent instant asset write-off for small business.
For most clients, the headline question is the same: what changes for me, and when? The short answer is that the structural reforms commence on 1 July 2027 and 1 July 2028, giving a meaningful planning window between now and then. Existing property investors are largely grandfathered. Accrued capital gains are protected. The small business CGT concessions remain untouched. But the direction of travel is unmistakable. The Government has set its sights on a broader base, fewer concessions, and a tax system that places more weight on income from work than on income from accumulated capital.
Below is a summary of the three structural measures, followed by the supporting personal, business and innovation measures announced tonight. A more detailed Andersen Budget Report will follow later this week.
A 30% Minimum Tax on Discretionary Trusts, Effective 1 July 2028
| Who does this apply to? | Discretionary trusts. Excludes fixed trusts, widely held trusts, complying superannuation funds, and certain other trusts including deceased estates, disability trusts and charitable trusts. |
| What is the change? | A 30% minimum tax on discretionary trust income, payable by the trustee each year. Beneficiaries receive non-refundable credits for trustee-paid tax, with distributions to be disclosed in beneficiaries’ annual tax returns as currently. Corporate beneficiaries will not receive credits, limiting the use of “bucket company” arrangements. |
| What does this mean? | This is the most material change to discretionary trust taxation in a generation. It significantly reduces the ability to stream income to lower-tax beneficiaries, will materially affect family groups, professional firms and investment structures, and is likely to drive entity restructuring decisions over the next two and a half years. A three-year rollover relief for restructuring into companies or fixed trusts will be available from 1 July 2027, providing a narrow but important planning window. |
Replacement of the 50% CGT Discount with Indexation and a 30% Minimum Tax, Effective 1 July 2027
| Who does this apply to? | Broadly to individuals, trusts and partnerships on gains accruing after commencement. The main residence exemption is unaffected. Existing accrued gains are grandfathered. Superannuation arrangements are excluded. |
| What is the change? | The 50% CGT discount is replaced with cost base indexation (CPI-linked) and a 30% minimum tax rate on real capital gains. Transitional rules preserve existing treatment for gains accrued prior to 1 July 2027, and new housing investors may elect transitional treatment. |
| What does this mean? | A higher effective tax rate on capital gains for many taxpayers, particularly those with appreciating assets in lower-yield, longer-hold strategies. Reduced flexibility in deferring gains into lower marginal tax rate years. Increased valuation and compliance complexity, including the practical question of determining value at 1 July 2027. Expect a repricing of investment returns and portfolio strategies over the next 14 months as the market digests the change. |
Negative Gearing Restricted to New Builds, Effective 1 July 2027
| Who does this apply to? | Residential property owners, including companies and trusts holding residential property. Properties held before 7:30pm AEST on 12 May 2026 are fully grandfathered. |
| What is the change? | Negative gearing on residential property is restricted to new builds only. For other residential property, losses can only offset income from other residential property; excess losses are carried forward and cannot be offset against salary or business income. Transitional arrangements fully grandfather existing properties held pre-Budget, with properties acquired between Budget night and July 2027 having temporary access to negative gearing until July 2027. |
| What does this mean? | A material reduction in the attractiveness of leveraged investment in established residential property. Likely reallocation of investment toward new builds, commercial property and other asset classes, noting the CGT discount changes above will weigh on those decisions too. For clients departing or returning to Australia in the next 12 months, the timing of residential property decisions has just become considerably more consequential. |
Softening the Edges: Personal and Business Measures
Alongside the structural reforms, the Government has announced a suite of measures clearly designed to broaden the political base of the package:
- Personal income tax relief. The 16% marginal rate falls to 15% from 1 July 2026 and to 14% from 1 July 2027. Medicare levy low-income thresholds increase from 1 July 2025.
- Working Australians Tax Offset (WATO). A permanent $250 annual tax offset from the 2027–28 income year, available against income derived from work, including wages, salaries and sole trader business income.
- $1,000 Instant Tax Deduction. From the 2026–27 income year, taxpayers earning work income can claim a standard deduction of up to $1,000 without substantiation for eligible work expenses.
- Permanent $20,000 instant asset write-off. The annual extension becomes a permanent feature of the tax system for small businesses with turnover under $10 million.
- Pillar Two side-by-side package. Australia’s global and domestic minimum tax rules will be amended to align with the OECD/G20 framework agreed in January 2026.
EV FBT transition. Concessions transition from full exemption to a permanent 25% discount regime, in two stages from 1 April 2027 and 1 April 2029.
Targeted Innovation Incentives
A clear theme of the Budget is rebalancing toward productive investment. The Government has announced:
- A redesign of the R&D Tax Incentive, with the refundable turnover threshold lifting from $20 million to $50 million and core offset rates rising by 4.5 percentage points.
- New loss carry-back rules allowing companies under $1 billion turnover to offset current-year revenue losses against tax paid in up to two prior years.
- Start-up loss refundability, allowing eligible early-stage companies to convert early-year tax losses into refundable offsets.
An expansion of venture capital incentive eligibility and exemption caps.
What this Means for You
The 2026–27 Budget signals a shift toward broadening the tax base and reviewing long-standing concessions, with the aim of improving the sustainability and balance of the revenue system. It places greater emphasis on wages, new housing supply, innovation, and productive investment, and less emphasis on the long-running concessions that have shaped investment behaviour for decades.
For most clients, the next 14 months will be a planning window. The details of transitional rules, ongoing exemptions, grandfathering and restructuring relief will be critically important, and in many cases, the right action will be to wait for the legislation before making structural decisions.
Our team will release a more detailed Andersen Budget Report later this week, covering each measure in depth alongside practical implications for individuals, family groups, employers and corporate clients.
Andersen Comment:
This is a Budget that should be read as a package, not as a series of individual measures. The personal tax cuts and the permanent instant asset write-off are clearly designed to soften the political reception of three substantial structural reforms – and the structural reforms are what will shape investment decisions for many over the next decade.
For most clients, the most material question is not the introduction of a new 30% Trust distribution of CGT rate or the changes to the CGT and negative gearing concessions, but how the trust credits mechanic, CGT cost base indexation and negative gearing transitional rules will actually operate. The 14-month planning window is real, but it is narrower than it looks.
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