Federal Budget 2026 Summary

The Federal Budget was handed down last night, with a number of proposed changes affecting areas such as capital gains tax (CGT), negative gearing, and the taxation of trusts. As always, the detail will be critical, and we will provide further insights once the legislation is released and fully reviewed.

Below is a summary of the proposed changes.

Capital Gains Tax (CGT) Overhaul – From 1 July 2027

A major reform will replace the current 50% CGT discount for assets held longer than 12 months with a new system based on inflation-adjusted cost base (indexation) and a 30% minimum tax on net capital gains.

Key points:

  • The 50% CGT discount will be removed for gains arising on or after 1 July 2027.
  • Capital gains will instead be adjusted for inflation using CPI indexation.
  • A minimum 30% tax rate will apply to net capital gains after indexation.
  • Applies to individuals, trusts, partnerships, and pre-1985 assets (subject to transitional rules).

Transitional arrangements:

  • Gains accrued before 1 July 2027 will remain eligible for the 50% discount.
  • Assets held across the transition date will be split between pre- and post-change gains.
  • Pre-1985 assets remain exempt for gains accrued prior to the new rules taking effect.

Exceptions:

  • New residential property investors may choose between the existing 50% discount or the new indexation system.
  • Age Pension and income support recipients are exempt from the 30% minimum tax.

Changes to Negative Gearing – From 12 May 2026

Negative gearing will be restricted for established residential property purchased after Budget night.

Key points:

  • Losses on established residential property can only be offset against:
  • Rental income, or
  • Future capital gains from residential property
  • Excess losses can be carried forward.
  • Losses can no longer be offset against other income such as wages.

Exemptions:

  • Existing properties purchased before announcement time are grandfathered until sale.
  • New residential builds are excluded.
  • Commercial property and shares are unaffected.

Discretionary Trust Tax Reform – From 1 July 2028

A 30% minimum tax on discretionary trust income will be introduced.

Key points:

  • Trustees will pay a minimum 30% tax on trust income.
  • Beneficiaries (excluding companies) will receive non-refundable tax credits.
  • Certain trust types remain exempt, including:
  • Fixed and widely held trusts
  • Superannuation funds
  • Charitable trusts
  • Deceased estates

Additional measures:

  • A three-year rollover relief period (from 1 July 2027) will support restructuring options for small businesses.
  • Some income types (e.g. farming income and vulnerable minors) are excluded.

New Tax Offsets and Deductions

Working Australians Tax Offset (from 2027–28)
A permanent $250 annual tax offset will apply to income from employment and sole trader business activity.

Instant $1,000 Tax Deduction (from 2026–27)

  • Eligible taxpayers can claim up to $1,000 in work-related expenses without itemising deductions.
  • Expenses above $1,000 may still be claimed under existing rules.
  • Other deductions (e.g. donations, union fees) remain claimable separately.

Small Business Measures

Instant Asset Write-Off (from 1 July 2026)

  • Permanently extends the $20,000 instant asset write-off.
  • Applies to businesses with turnover up to $10 million.
  • Existing simplified depreciation rules continue to apply.

Electric Vehicle Fringe Benefits Tax (FBT) – From 2027–2029 Transition

Changes will phase in reduced FBT benefits for electric vehicles.

Key points:

  • A new 25% discount (15% statutory rate) will apply from 1 April 2029.
  • Transitional arrangements preserve existing benefits for current eligible vehicles.
  • Higher-value EVs will gradually transition into the new regime.
  • Standard FBT rates continue to apply to non-eligible vehicles.

Summary

These reforms represent a broad shift toward:

  • Reducing tax advantages on capital gains and property structures
  • Introducing minimum tax floors for CGT and trusts
  • Providing modest offsets for working Australians
  • Maintaining incentives for small business investment and EV adoption (in the short term)

For further information on how these proposed changes may impact you, contact the team at Lockwood Partners.