2026–27 Federal Budget: What It Means for Business Owners

ASF TAKEAWAYS: The 2026–27 Federal Budget, handed down by Treasurer Jim Chalmers on 12 May 2026, is one of the most consequential budgets for business owners and investors in over a decade. Alongside the now-familiar cost-of-living measures, this Budget delivers sweeping structural reforms to capital gains tax, negative gearing, trust taxation, and superannuation — changes that will reshape the way many of our clients hold assets, structure their affairs, and plan for the future. If you own a business, hold investment property, or distribute income through a trust, this Budget has your name on it.

WHY THIS BUDGET MATTERS MORE THAN MOST

Most budgets come and go. This one is different.

For years, Australians have been investing and making decisions based on the knowledge that the rules around capital gains tax discounts, negative gearing, and trust distributions are settled. This Budget unsettles them — significantly. Some of the changes don't kick in until 2027 or 2028, but the planning window is already open, and in some cases, it's measured in weeks, not years.

There's also meaningful good news for small businesses. The $20,000 instant asset write-off has been made permanent, loss carry-back is back on the table, and a new $1,000 instant deduction for workers simplifies tax time for sole traders and employees alike.

Here's what you need to know, and what you should be doing about it.

CAPITAL GAINS TAX: THE 50% DISCOUNT IS GONE FROM 1 JULY 2027

What's changing: The Government is replacing the 50 per cent CGT discount with an inflation-based discount — meaning investors will only pay tax on their real gain (i.e., after adjusting for inflation), not their nominal gain. A minimum tax rate of 30 per cent will apply to all capital gains from 1 July 2027. The changes only apply to gains arising after that date — existing unrealised gains are not affected.

One important carve-out: investors in new builds will be able to choose between the new indexation method or the existing 50 per cent discount, whichever is more favourable.

The main family home remains fully exempt from CGT. Small business CGT concessions (Division 152) are also retained.

What this means in practice:

Consider a business owner who purchased shares in a listed company for $200,000 in 2018. By mid-2027, those shares are worth $400,000 — a $200,000 nominal gain. Under the old rules, the 50% discount reduces the taxable gain to $100,000. At a 45% marginal rate, the tax bill is $45,000.

Under the new rules, only growth after 1 July 2027 is affected. But for any asset acquired from that date onward — say, a commercial property purchased in late 2027 for $1.5 million that grows to $2 million over five years — the gain is indexed for inflation rather than halved. If cumulative inflation over that period is 15%, the indexed cost base becomes $1,725,000, and the taxable "real" gain is $275,000 (compared to $250,000 under the old 50% discount method).

That gain is then subject to a minimum 30% tax rate — regardless of your marginal rate. So even a taxpayer on a marginal rate below 30% pays at least $82,500 on that gain. For a taxpayer on the top marginal rate (47%), the tax would be $129,250.

The bottom line: two things are working against you simultaneously. In low-inflation, high-growth scenarios, the indexed gain will be larger than the old 50% discount — and the 30% floor means you can't soften the blow through income splitting or low-income years. The only scenario where the new system is clearly more favourable is high inflation with moderate asset growth — and even then, the 30% floor limits the benefit for lower-income taxpayers who previously paid well under 30% on discounted gains.

Key action items:

• Review any assets you're considering selling. Gains realised before 30 June 2027 still attract the 50% discount in full.

• For assets you're planning to acquire, model both the new indexation method and the 50% discount (if buying a new build).

• For business owners using the small business CGT concessions (Div 152), these remain — but the interaction with the new 30% minimum rate needs careful planning and understanding.

• Speak to us before making significant disposal decisions — timing matters enormously, but we will need to wait for the details.

NEGATIVE GEARING: NEW RULES FOR NEW PURCHASES AFTER BUDGET NIGHT

What's changing: From 1 July 2027, negative gearing will be limited to new build properties. If you buy an existing (established) property after Budget night (12 May 2026), you can still deduct rental losses — but only against other residential property income, not against wages or business income. Unused losses can be carried forward to future income years to be used against rental income only or capital gains from divesting this residential property.

Properties already held before Budget night, and new builds purchased at any time, are completely unaffected.

This is effectively a four-bucket system:

What this means in practice:

Sarah is a director at a professional services firm earning $250,000 per year. She's been considering buying an investment property. Under the old rules, if she purchased an established unit with a $15,000 annual rental loss, she could offset that loss against her salary, saving around $6,750 in tax each year (at 45%).

If she buys that same established unit after Budget night — say, in August 2026 — the current rules still apply during the transition period through to 30 June 2027. She gets the full $6,750 tax benefit for the first year.

But from 1 July 2027, those losses can no longer be offset against her salary. They accumulate and can only be applied against future residential property income — rental income or residential property capital gains. It could be years before those losses are usable — and the annual cash flow benefit disappears from year two onwards.

If she buys a new build apartment instead, the rules don't change at all — she can still deduct losses against her salary as before.

Key action items:

• If you're actively looking at investment property, talk to us now about whether an established property still makes sense for your situation.

• New builds retain full negative gearing benefits — this may shift the focus toward off-the-plan or newly completed properties.

• For existing portfolios, nothing changes. Don't be spooked into selling.

• For business owners who use property losses to reduce personal tax, the strategy is no longer viable for new, established property purchases.

DISCRETIONARY TRUSTS: A 30% MINIMUM TAX FROM 1 JULY 2028

What's changing: The Government will introduce a minimum 30 per cent tax rate on discretionary trust income from 1 July 2028. The tax is paid by the trustee. Beneficiaries continue to declare trust income in their returns, but non-corporate beneficiaries will receive non-refundable tax credits for the tax paid by the trustee — ensuring the overall tax on trust income is never less than 30 per cent.

Importantly, corporate beneficiaries do not receive credits — we believe this is a deliberate anti-bucket-company rule to prevent trusts cycling income through 25%-rate companies to avoid the minimum trust tax. The detailed mechanics of how the trustee-level tax interacts with the company's own assessment — including whether franking credits arise or whether adjustments apply — are not yet legislated. We expect the exposure draft to clarify this, and we'll update clients when it's available.

Rollover relief will be available for three years from 1 July 2027 to 30 June 2030 to assist small businesses and others that wish to restructure out of discretionary trusts, with relief from both income tax and CGT consequences.

Who is excluded: The minimum tax does not apply to:

• Fixed trusts (defined entitlements)

• Widely-held trusts (most managed investment trusts)

• Complying superannuation funds (including SMSFs)

• Special disability trusts

• Deceased estates

• Charitable trusts

And within in-scope discretionary trusts, the following types of income are excluded:

• Primary production income (e.g., agriculture)

• Income from testamentary trusts existing at 12 May 2026

• Amounts subject to non-resident withholding tax

• Certain income relating to vulnerable minors

What this means in practice:

Many of our business clients currently distribute trust income to family members — a spouse on a lower income, adult children, or a corporate beneficiary — to reduce the overall family tax burden. Under the new rules, every dollar distributed from a discretionary trust will attract at least 30 cents in tax — regardless of who receives it.

For example, a business that currently distributes $80,000 to a spouse with no other income currently attracts around $14,297 in tax (effective rate of ~18%). From 2028–29, that same distribution would attract a minimum $24,000 in tax — an additional $9,700 per year.

For trusts distributing to beneficiaries on marginal rates below 30%, the impact is immediate and material. For trusts where all beneficiaries are on rates above 30%, the change has no practical effect.

Key action items:

• Don't panic — you have until 1 July 2028 before this applies, and rollover relief means you have time to restructure without a tax hit.

• Now is the time to model whether your current trust structure remains the most effective vehicle for your business income. Consider whether a company structure (25% base rate entity tax rate) now delivers a better after-tax outcome.

• For professional services firms operating through trusts, the combined impact of PCG 2025/5 (PSI) and the 30% minimum trust tax is significant — structure reviews should be prioritised.

• We expect the detailed legislation to clarify edge cases — we'll update clients as it progresses.

SMALL BUSINESS: INSTANT ASSET WRITE-OFF MADE PERMANENT, LOSS CARRY-BACK RETURNS

What's changing — and this is positive news:

The $20,000 instant asset write-off has been made permanent from 1 July 2026 for businesses with turnover up to $10 million. No more annual extensions, no more uncertainty. If you buy an eligible asset costing less than $20,000, you can write it off immediately. The $20,000 threshold is per asset, so multiple purchases can be written off in the same year.

Even better, the Government is reintroducing loss carry-back from 2026–27. If your company makes a loss this year, you can apply that loss against tax paid in the prior two income years and receive a cash refund. This will benefit up to 85,000 companies, mostly small businesses.

From 2028–29, small start-ups in their first two years of operation will also be able to access loss refundability — getting a refund for tax losses up to the value of FBT and PAYG withholding tax paid on employee wages. This will benefit up to 25,000 young companies each year.

What this means in practice:

Take a small consultancy (company) that paid $18,750 in tax on $75,000 of profit in 2025–26. In 2026–27, they invest in new equipment ($60,000 across four items, each under $20,000) and report a $10,000 loss after write-offs. Under loss carry-back, they can apply that $10,000 loss against last year's taxable income and receive a $2,500 refund from the ATO. That's real cash back in the business, and a meaningful improvement on the old rules.

Key action items:

• If you're a company and have been holding off on capital investment, the permanent write-off removes the uncertainty that made planning difficult.

• Review your 2025–26 tax position now — if a 2026–27 loss is likely, the carry-back mechanism could generate a meaningful refund.

• Sole traders and partnerships don't benefit from loss carry-back (it's company-only) — speak to us if you're wondering whether incorporating makes sense.

SUPERANNUATION: HIGHER CAPS, DIVISION 296 NOW LIVE

What's changing from 1 July 2026: 

• Concessional (pre-tax) contribution cap: rises from $30,000 to $32,500

• Non-concessional (after-tax) contribution cap: rises from $120,000 to $130,000

• Bring-forward maximum: increases from $360,000 to $390,000

• Transfer balance cap (the limit on how much can move into tax-free pension phase): increases from $2.0 million to $2.1 million

• Total super balance threshold for NCC eligibility: increases from $2.0 million to $2.1 million 

  
  

Division 296 tax begins. An additional 15% tax applies to superannuation earnings attributable to balances above $3 million. For balances above $10 million, an additional 10% applies (effective rate of 40% on that tier). Both thresholds are CPI-indexed — $3M in $150,000 increments, $10M in $500,000 increments. The tax is assessed to the individual personally, not the fund.

For the first year of operation, your total super balance is assessed at 30 June 2027 only (not at the start of the year). This gives individuals until that date to reduce their balance below $3 million if they do not wish to incur the tax.

Payday Super also commences on 1 July 2026 — employers must now remit super contributions within seven business days of each payday, not quarterly. We've covered this in detail in our earlier post on Payday Super.

What Division 296 means in practice:

If a business owner has a total super balance of $4 million, and the fund earns a notional 8% return in 2026–27 ($320,000), the earnings attributable to the $1 million above the $3 million threshold ($80,000) attract an additional 15% tax — a $12,000 additional super tax bill assessed personally.

Key action items:

• If you were considering maxing out your concessional contributions under the new $32,500 cap — for business owners, this is often the most tax-effective dollar you spend.

• If your balance is approaching $3 million, speak to us urgently about whether restructuring (e.g., moving some assets outside super) makes sense before 30 June 2027.

• SMSF trustees: review your asset allocation and pension drawdown strategy in light of the new tax tiers.

• Employers: your payroll systems need to handle per-pay-cycle super remittance from 1 July — if you haven't confirmed your clearing house arrangement, do it now. The ATO's Small Business Superannuation Clearing House is closing.

OTHER MATTERS WORTH NOTING

$1,000 Instant Tax Deduction for Workers (from 2026–27): Sole traders and employees can now claim a $1,000 deduction on work-related expenses without keeping receipts. 6.2 million workers benefit, with an average tax saving of $205. Taxpayers claiming more than $1,000 can still do so with substantiation.

$250 Working Australians Tax Offset (from 2027–28): A permanent annual offset for over 13 million workers, including 1.5 million sole traders. Combined with the legislated tax rate reductions and the $1,000 deduction, the total benefit for a worker on average earnings could be up to $2,816 per year compared to 2023–24 settings.

R&D Tax Incentive Changes: Enhanced incentives for business R&D, including a higher expenditure cap and increased refundable offset for businesses under the new $50 million turnover threshold. Details in the Budget papers.

FBT — EV Exemption: The fringe benefits tax exemption for electric vehicles will be phased down from 1 March 2027. If you're mid-way through a novated lease arrangement, review the terms.

Fuel Excise Relief: The temporary halving of fuel excise runs until late June 2026. Not structural, but real cash flow relief for transport, logistics, and manufacturing businesses while it lasts.

SUMMARY: KEY CHANGES AT A GLANCE

WHAT SHOULD YOU DO NOW?

The reforms affecting CGT, negative gearing, and trust taxation won't apply for another one to two years — but the planning window is already open. Specifically:

Before 30 June 2026: Review any planned asset disposals to capture the full 50% CGT discount. Consider super contribution strategies under the current caps before they change. SMSF trustees should assess Division 296 exposure — the first-year rule gives you until 30 June 2027 to reduce balances below $3 million if desired.

Between now and 1 July 2027: Model whether your trust structure needs to change before the 30% minimum tax applies in 2028. Consider whether new builds now make more sense than established property for future investment. Use the 3-year rollover relief window if restructuring out of a trust is the right move.

For employers right now: Confirm your payroll system and clearing house can meet the 7-day Payday Super rule from 1 July 2026. Don't wait.

The most important thing — and we say this every budget — is to not make decisions in isolation based on headline announcements. Tax reforms always have nuance, exceptions, and transitional rules that matter enormously to your specific situation.

If you'd like to walk through how any of these changes affect your business structure, investments, or super, get in touch with the ASF team. The planning window is open — but it won't stay that way forever.