GOING, GOING…GONE! BOLD TAX MEASURES OF THE 2026 FEDERAL BUDGET

Wish the budget was in summary form? Well, here it is:

50% CGT DISCOUNT

• Under the current tax system, individuals and trusts can reduce their capital gains by 50% for CGT assets held for 12 months or more. The same concept applies for superannuation funds, but the discount is at 33% instead.
• From 1 July 2027, the 50% CGT discount will be replaced by cost base indexation for assets held for more than 12 months, with a 30% minimum tax on net capital gains.
• Importantly, these changes will apply to all CGT assets, including pre-1985 CGT assets, held by individuals, trusts and partnerships. It will also apply to all CGT assets including shares, and not just property.
• Companies are not currently eligible to use the CGT discount and accordingly no changes are proposed for companies.
• The 50% CGT discount will continue to apply to gains arising before 1 July 2027.
• Capital gains on pre-1985 assets arising before 1 July 2027 will remain exempt from CGT.
• Investors in new residential properties will be able to choose either the 50% CGT discount, or cost base indexation and the minimum tax (30%).
• We haven’t seen an indexation model since 1999 so we look forward to seeing the legislation to understand exactly how this initiative is going to work.

NEGATIVE GEARING REFORM

• From 1 July 2027, losses from established residential properties will only be deductible against rental income or the capital gains from residential properties. Excess losses will be carried forward and able to be offset against residential property income in future years.
• These changes will apply to established residential properties acquired from 7:30PM (AEST) on 12 May 2026. Properties acquired prior to this time (including contracts entered into but not yet settled) will be exempt from the changes until disposed of.
• Eligible new builds will be exempt from the changes.
• Properties in widely held trusts and superannuation funds will be excluded, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs.
• The devil will be in the detail on this one, so draft legislation will need to be reviewed carefully.

ELECTRIC VEHICLE FBT

If you’ve had an eye on electric vehicle, all you have to do is wait until 1 April 2029!

• From 1 April 2029, a permanent 25% discount on fringe benefits tax (FBT) will be available for all electric cars valued up to and including the fuel‑efficient luxury car tax threshold, implemented through a 15% rate in the FBT statutory formula.
• All eligible electric cars will retain the FBT discount rate that was in place when the arrangement commenced.
• All electric cars valued up to and including $75,000 that are provided before 1 April 2029 will continue to be eligible for a 100% discount on FBT, implemented through a 0% rate in the FBT statutory formula.
• Electric cars valued above $75,000 and up to and including the fuel‑efficient luxury car tax threshold that are provided between 1 April 2027 and 1 April 2029 will be eligible for a 25% on FBT, implemented through a 15% rate in the FBT statutory formula.
• The existing 20% statutory rate will continue to apply for all other cars, including electric cars costing more than the fuel‑efficient luxury car tax threshold.

MEDICARE LEVY THRESHOLD

Adjustments are being made to the Medicare Levy threshold to ensure that low-income earners continue to be exempt from the Medicare Levy:

FOREIGN OWNERSHIP OF PROPERTY

The Government will extend the ban foreign persons (including temporary residents and foreign‑owned companies) from purchasing established dwellings for two years and three months until 30 June 2029, unless an exception applies.

Exceptions to the ban will include:

• investments that significantly increase housing supply or support the availability of housing on a commercial scale; and
• purchases by foreign‑owned companies to provide housing for workers in certain circumstances.

The ban is intended to ensure that “Australians will be able to buy homes that would have otherwise been bought by foreign persons, while encouraging foreign persons to boost Australia’s housing supply”.

WORKING AUSTRALIANS TAX OFFSET

Each working Australian will receive a $250 Working Australians Tax Offset for their income derived from work, such as wages and salaries and the business income of sole traders. It is not currently means-tested. Don’t get too excited, this will not apply until 1 July 2027 meaning that we will not see this relief until the conclusion of another two income years.

INSTANT TAX DEDUCTION

• An instant tax deduction of up to $1,000 will be introduced from the 2026–27 income tax year for Australian tax residents who earn income from work.
• You will not need to itemise and claim work‑related expenses if claiming less than $1,000.
• Individuals who incur work‑related expenses greater than the instant tax deduction can continue to claim their deductions in the usual way.
• Charitable donations, union and professional association membership fees and other non‑work‑related deductions can still be itemised separately and claimed on top of the instant tax deduction.
• But be careful – This is not an excuse to disregard all record-keeping. That shoebox of receipts that your accountant hates will become useful if you are ever subject to an audit.

CARRY-BACK TAX LOSSES

• We already have carry-forward rules, but the government is intending to introduce carry-back
• For tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid up to two years earlier.
• Loss carry back will apply to revenue losses only and will be limited by a company’s franking account balance.

LOSS REFUNDABILITY FOR SMALL START-UPS

• Start‑up companies with an aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to utilise the loss to generate a refundable tax offset.
• The offset will be limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year.
• Again, don’t get too excited, this measure only applies to tax years commencing on or after 1 July 2028.
• Another initiative that needs further investigation when we get the legislation.

INSTANT ASSET WRITE-OFF

It’s back!

If passed, the instant asset write-off of $20,000 will be extended ‘permanently’ for small businesses (with an aggregated turnover of less than $10 million), allowing them to immediately deduct the full cost of eligible assets costing less than $20,000.

MINIMUM TAX ON DISCRETIONARY TRUSTS

Like a red rag to a bull, we have yet another measure taking aim at discretionary trusts. Discretionary trusts are becoming an increasing target for tax reform. This measure goes against the long-established practice of taxing trust distributions in the hands of the beneficiaries, not the trustee.

From 1 July 2028, trustees will pay a minimum tax of 30% on the taxable income of discretionary trusts. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee.

The common strategy of funnelling money through trusts and distributing it out to low-income earners may no longer be a viable solution.

The minimum tax will not apply to other types of trusts such as fixed and widely held trusts (including fixed testamentary trusts), complying superannuation funds, special disability trusts, deceased estates and charitable trusts.

Some types of income such as primary production income, certain income relating to vulnerable minors, amounts to which non-resident withholding tax applies, and income from assets of discretionary testamentary trusts existing at announcement will also be excluded.

You’re not stuck yet though; the Government is promising expanded rollover relief for three years from 1 July 2027 to support small businesses and others that wish to restructure out of discretionary trusts into another entity type, such as a company or a fixed trust.

SUMMARY

There are certainly some bold measures but whether they will bring about the outcomes promised is yet to be seen. We will meticulously work through the legislation (so you don’t have to) and see where they land after the expected opposition!