Federal Budget 2026–27: Major Tax Reforms for Businesses, Trusts and Investors

Negative gearing changes

From 1 July 2027, the Federal Government proposes to limit negative gearing for residential properties to new builds only, with the stated aim of supporting new housing supply.

The transitional rules are critical. Properties held before 7:30pm AEST on 12 May 2026 will be grandfathered and will be exempt from the negative gearing changes.

For established residential properties acquired after 7:30pm AEST on 12 May 2026, the position changes significantly. These properties can still be negatively geared under the current rules up to 30 June 2027, but from 1 July 2027, losses from these properties will no longer be deductible against other forms of taxable income such as salary and wages. Instead, losses will only be deductible against other income from residential properties (including capital gains) with excess losses able to be carried forward to offset residential property income in future years.

The changes are intended to apply to individuals, partnerships, companies and most trusts. Widely held trusts and superannuation funds, including SMSFs, are excluded.

It is important to note that the announced changes to negative gearing apply to established residential property only, with new residential property, commercial property and other assets remaining under the existing rules.

For investors, this means the distinction between new builds and established residential property will become more important when assessing the after-tax cost of holding an investment property. 

Capital gains tax reform

The Budget also included major changes to capital gains tax. From 1 July 2027, the Government proposes to replace the current 50 per cent CGT discount with cost base indexation and a minimum 30 per cent tax rate on capital gains for individuals, trusts and partnerships. The reforms will only apply to gains arising after 1 July 2027, not retrospectively to earlier gains.

For assets held before 1 July 2027 and later sold, the proposed transitional rules split the gain into two periods. Gains accrued up to 1 July 2027 remain under the current rules, while gains accruing after that date move into the new indexed cost base and minimum tax regime. Importantly, gains on pre-CGT assets that accrue after 1 July 2027 are also expected to be captured under the new rules, while gains accrued before that date remain exempt.

There are also some important carve-outs. The main residence exemption is to remain unchanged, as are the small business CGT concessions. Some recipients of means-tested income support payments (i.e. Age Pension) will also be exempted from the proposed minimum tax rate. In addition, investors who own new residential properties will be able to choose between the existing 50 per cent CGT discount and the new indexed cost base and minimum tax regime when they sell, preserving a more favourable tax outcome for qualifying new residential supply.

This is likely to matter most for clients with appreciating assets such as investment properties, share portfolios and other long-term capital assets. It may create a much greater focus on the timing of future disposals, valuation evidence and record keeping.

New 30% minimum tax on discretionary trusts

For many business and investment groups, the most significant measure is the proposed introduction of a 30 per cent minimum tax on the taxable income of discretionary trusts from 1 July 2028. The proposed minimum tax will be payable by trustees of discretionary trusts with non-corporate beneficiaries receiving a non-refundable credit for the tax paid by trustees. However corporate beneficiaries, also known as warehouse / bucket companies, will not receive non-refundable tax credits for tax paid by trustees.

This proposal is clearly directed at arrangements where discretionary trusts are used to split income between family members on lower marginal tax rates. The Government’s published material states that the measure is intended to better align the tax paid on discretionary trust income with the tax paid by workers earning similar amounts directly.

This proposed measure does not mean discretionary trusts will lose all value from 1 July 2028. Trusts can still be useful for asset protection, succession planning and family control. However, if the measure is legislated as announced, many clients may want to revisit whether a discretionary trust remains the most appropriate vehicle for holding investments or operating a business, or whether some activities are more suited to a company or fixed trust.

The Budget also proposes rollover relief for three years from 1 July 2027 to support eligible taxpayers to restructure from discretionary trusts to other entities without immediate tax consequences. That is a strong sign that the Government expects many families and business groups to review their structures before the proposed minimum tax applies.

Other business tax measures

Although the trust and property changes are likely to attract most of the attention from the Budget, there are also several business measures worth noting.

1. Loss carry back

The Government is reintroducing loss carry back from 2026–27, allowing eligible companies that make a loss in an income year to access a refund of tax paid in the previous two years. This may provide useful cash-flow support for companies that have paid tax in recent years but move into a loss position due to investment, expansion or changing business conditions.

2. Permanent $20,000 instant asset write-off

The $20,000 instant asset write-off is also being made permanent from 1 July 2026 for small businesses with turnover up to $10 million. This change will provide small business owners with more certainty around equipment purchases and year-end tax planning, rather than relying on temporary extensions.

3. R&D Tax Incentive

The Government has also announced changes to better target the Research and Development Tax Incentive from 1 July 2028. The proposed changes include increasing the offset for experimental core R&D by around 25 to 50 per cent, reducing the intensity threshold to 1.5 per cent, increasing the turnover threshold for the higher refundable offset to $50 million, increasing the maximum expenditure cap to $200 million and increasing the minimum expenditure threshold to $50,000.

The detail of these proposed changes will be important, particularly for businesses that currently claim R&D activities which support broader projects rather than forming part of core experimental R&D. Businesses using the R&D Tax Incentive should review their eligibility and documentation once further guidance becomes available.

The government also proposed to limit claims to core R&D activities only, removing the ability for companies to claim the R&D offset in relation to supporting activities. And they are proposing to restrict cash refunds for businesses over 10 years old, allowing these companies to claim a tax offset, but not allowing a refund of excess R&D tax credits.

4. Loss refundability for small start-ups

From 2028–29, the Government proposes to introduce loss refundability for start-up companies with aggregated annual turnover of less than $10 million in their first two years of operation. Under the measure, eligible start-up companies may be eligible to claim a refundable tax offset for tax losses incurred, up to the value of fringe benefits tax and PAYG withholding tax on wages paid in respect of Australian employees in the loss year.

This measure is designed to provide cash-flow support to early-stage businesses that are investing in growth but have not yet reached profitability.

5. Other measures

Other measures announced include expanded venture capital incentives from 1 July 2027, more flexible PAYG instalment options from 1 July 2027, and changes to the FBT treatment of eligible electric vehicles over the coming years.

While these measures may not affect every business, they are worth considering for groups that are raising capital, investing in innovation, managing cash flow or providing vehicles to employees.

Final thoughts

This year’s Federal Budget will no doubt be particularly important for business owners, family groups and private investors given the number of major tax changes announced.

As always, these measures are based on Budget announcements and will still need to be legislated before they become law. The final legislation and ATO guidance will be critical in understanding exactly how the rules will apply in practice.

We understand that many clients will be affected by these announcements and will already be thinking about what to do next. While that is completely understandable, we also want to remind clients to take a breath and avoid being too reactive to the headlines. Most of the major changes do not commence until 1 July 2027 or later, so there is still time to properly review the position and plan carefully.

If you have any questions you would like to run past our team in the meantime, please feel free to contact us. We are happy to assist as always.