12/05/2026
🇦🇺 FEDERAL BUDGET 2026 — WHAT IT MEANS FOR TAX, TRUSTS & YOUR INVESTMENTS
Treasurer Jim Chalmers has just delivered what he's calling the most ambitious tax reform in 26 years. Here's the no-spin breakdown of the key changes that matter to business owners, investors, and families.
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📌 CAPITAL GAINS TAX (CGT) — FROM 1 JULY 2027
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The 50% CGT discount — which has applied since 1999 — is GONE for assets acquired after Budget night (12 May 2026).
It is replaced by:
✅ CPI cost base indexation (only real gains taxed), PLUS
✅ A 30% minimum tax on net capital gains for assets held ≥ 12 months
Key protections:
• Assets already held before 7:30 PM tonight — grandfathered. Your 50% discount stays.
• Gains arising BEFORE 1 July 2027 — still get the current discount.
• New build investment properties — investors can CHOOSE between the 50% discount OR the new indexation model.
• Main residence, superannuation, and small business CGT concessions — UNTOUCHED.
• SMSFs — EXCLUDED from the changes.
What does indexation actually mean? Instead of halving your gain, you adjust your original cost base upward by CPI for the years you held the asset. You only pay tax on the REAL gain above inflation — but at your full marginal rate (minimum 30%).
The winner? Long-term holders in low-inflation environments. The loser? Anyone selling a high-growth asset in a short-to-medium term frame.
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📌 DISCRETIONARY TRUSTS — FROM 1 JULY 2028
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This is the big one for small business families.
A 30% MINIMUM TAX on discretionary trust income — payable by the trustee — applies from 1 July 2028. Estimated to raise $4.47 billion in 2029-30 alone.
How it works:
• Trustee pays 30% tax on the trust's taxable income as a separate liability
• Beneficiaries still declare distributions in their own returns
• Non-corporate beneficiaries receive NON-REFUNDABLE credits for the tax already paid by the trustee
• Corporate beneficiaries (bucket companies) — NO credits. The anti-avoidance rule kills the bucket company play.
EXCLUDED trusts (not affected):
✅ Fixed trusts
✅ Widely-held trusts (most MITs)
✅ Complying super funds / SMSFs
✅ Special disability trusts
✅ Deceased estates
✅ Charitable trusts
✅ Existing testamentary trusts (in place at Budget night)
Rollover relief is available: 3-year window from 1 July 2027 to 30 June 2030 for restructuring out of discretionary trust structures into companies or fixed trusts — with NO income tax or CGT consequences.
Treasury estimates ~350,000 small businesses currently operate under discretionary trusts. Of those, roughly 40% won't need to pay more tax or restructure.
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📌 NEGATIVE GEARING — FROM 1 JULY 2027
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• Properties held before 7:30 PM tonight — FULLY PROTECTED. No change.
• Properties purchased tonight to 30 June 2027 — transitional. Full negative gearing until 1 July 2027, then losses ring-fenced to residential property income only (carry-forward allowed).
• Established properties bought from 1 July 2027 — losses can only offset other residential property income, NOT wages or other income.
• New builds from 1 July 2027 — FULL negative gearing retained.
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📌 SMALL BUSINESS WINS
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✅ $20,000 instant asset write-off — PERMANENT from 1 July 2026 (under $20k per asset, turnover ≤ $10M)
✅ $1,000 instant work-related expense deduction for individuals — from 2026-27
✅ Loss carry-back — companies up to $1B turnover can carry losses back 2 years for a cash refund
✅ $250 Working Australians Tax Offset for 13 million workers
✅ Income tax rate cut: second marginal rate drops from 16% → 15% from 1 July 2026
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📌 SUPER
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Division 296 (extra 15% tax on super earnings over $3M) — proceeds as legislated from 1 July 2026. Budget 2026 made no changes here.
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💬 MY TAKE — AS A PROFESSIONAL ACCOUNTANT & BUSINESS STRUCTURE ADVISOR WITH OVER 20 YEARS IN THE PROFESSION
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Tonight's budget is the most structurally significant tax event for small business families since the GST in 2000. I say that not to alarm, but because the scale of what's changing demands that you act with clear eyes.
ON CGT:
The move from a flat 50% discount to CPI indexation is actually technically sound policy. The original argument — that you should only pay tax on real gains, not inflation — is the right principle. Paul Keating's 1985 regime had it right. The problem with the Howard-era 50% discount is that it became a blunt wealth transfer mechanism untethered from actual inflation outcomes.
HOWEVER — and this is critical — the 30% minimum tax floor changes the mathematics in ways that will surprise people. If you hold a high-growth asset in a high-inflation environment, indexation could actually be generous. But if your asset has grown well above inflation (which most good investments do), you'll pay more than under the old regime, because you're taxed at your marginal rate on the real gain with a 30% floor.
The grandfathering of existing assets is fair and sensible. No complaints there.
ON TRUSTS:
I've had discretionary family trusts at the core of my clients' structures for years, and I understand exactly why this change stings. But let me be honest: the system was being used in ways that are genuinely difficult to defend.
Consider this: a discretionary trust distributes $45,000 each to two adult children with no other income. At 2025-26 rates, each pays just $4,288 in tax — an effective rate of 9.5%. Combined, the family pays ~$8,576 on $90,000 of trust income. A sole trader earning the same $90,000 pays ~$19,717 — more than double, with zero ability to split income. That gap is what this reform is closing, and it IS a legitimate fairness issue.
What concerns me is the ex*****on:
1. The anti-bucket-company rule (no credits for corporate beneficiaries) is a sledgehammer. It punishes legitimate business structures that were set up for asset protection and succession — not just tax minimisation.
2. The 2-year lead time to 1 July 2028 is genuinely appreciated. But 3 years of rollover relief (to 30 June 2030) is tight for complex structures where businesses may have multiple trusts, layered ownership, and state-based stamp duty implications on any restructure.
3. The exclusion of EXISTING testamentary trusts is fair. But watch the fine print — trusts established for deceased estates after Budget night will be in scope eventually.
My practical advice: Don't panic. But DO start your review now. The rollover window opens 1 July 2027, and you want 12 months to model your options properly before that clock starts ticking.
ON THE PROFESSION:
These changes will create an enormous compliance wave. Accountants and tax agents are going to be under serious pressure over the next two to three years as hundreds of thousands of clients need restructuring advice, new trust deeds, new company constitutions, and ATO-compliant rollover elections.
My honest take? If your accountant is not proactively contacting you in the next 30-60 days about how these changes affect YOUR specific structure, find a new accountant. This is not a "wait and see" moment. The decisions you make between now and 30 June 2027 will define your tax position for the next decade.
The government has handed us the tools — rollover relief, ASBFEO support, ASIC incorporation facilitation. Use them.
I'm available for any questions. Feel free to DM me or visit taxvisors.com.au.
— Sohail Merchant
