The Federal Budget handed down on 12 May 2026 proposes some of the most significant tax reforms in recent decades. There is a clear focus on cost of living relief, alongside structural changes to the taxation of investment income, property, and business structures.

This article outlines the key proposed tax measures and what they may mean in practical terms.

Note: Most measures are proposals only and will require legislation to pass Parliament before becoming law.

1. Changes to capital gains tax (CGT)

  • The 50% CGT discount is proposed to be replaced with cost base indexation and a minimum effective tax rate of 30% on capital gains from 1 July 2027. The changes are expected to apply prospectively to gains accruing after that date. While the new framework has been announced, detailed design elements – including transitional valuation methods and the precise treatment of different taxpayer groups – have not yet been confirmed.
  • Indexation of the cost base will be based on CPI for assets held for at least 12 months (from 1 July 2027, proposed)
  • Applies to individuals, trusts and partnerships
  • Companies will not be eligible for indexation
  • The existing 1/3 discount for complying superannuation funds will remain
  • The exemption for pre-20 September 1985 assets will change to tax post 30 June 2027 growth in value.

What this means in practice:

  • Blended CGT calculations may apply for assets held at 1 July 2027
  • Valuations as at 30 June 2027 are likely to be important
  • Expected choice between valuation and formula-based apportionment methods
  • Increased record-keeping requirements
  • Reduced benefit of long-term asset holding
  • Potential for higher CGT outcomes for investors

 

2. Changes to negative gearing 

  • Negative gearing for residential property generally limited to new builds from 1 July 2027 (proposed)
  • Properties acquired (or contracted) before 12 May 2026 expected to be grandfathered
  • Net losses will need to be carried forward for deduction against future rental income (including other residential properties held) or residential property capital gains

What this means in practice:

  • “New build” expected to focus on genuine new housing supply
  • Likely exclusion of knock-down and rebuild projects (unless resulting in additional number of dwellings)
  • Managed investment trusts and superannuation funds not expected to be affected
  • Other asset classes such as commercial property and shares not impacted
  • Investors may need to reassess property strategies
  • Bank finance on residential property acquisitions may be more difficult to obtain as loan servicing calculations will cease to recognise the taxation benefit of negative gearing

 

3. Proposed 30% minimum tax on discretionary trusts 

  • Trustees will pay a minimum 30% tax on trust income from 1 July 2028 (proposed)
  • Individual beneficiaries receive a non-refundable 30% tax credit
  • Corporate beneficiaries will not receive a credit
  • Exclusions are proposed for:
    • Fixed and widely held trusts
    • Superannuation funds
    • Charitable trusts
    • Deceased estates
    • Certain primary production income
    • Existing testamentary trust arrangements (at 12 May 2026)

What this means in practice:

  • Reduced effectiveness of distributions to lower-income beneficiaries
  • Use of corporate beneficiaries likely curtailed
  • Review of family group structures may be required
  • Limited rollover relief expected for restructuring from 1 July 2027
  • Ownership of businesses by trusts (or partnership of trusts) may need to be reconsidered

 

4. Tax relief for individuals 

  • A $1,000 standard deduction for work-related expenses without substantiation.  Donations, Union Fees and Professional association memberships can be claimed in addition.
  • A $250 annual tax offset from 2027–28
  • Reduced tax rates for income between $18,201 and $45,000 (15% then 14%)
  • Increase in Medicare levy low-income thresholds

What this means in practice:

  • Simplified deduction claims for many taxpayers
  • Option to claim higher actual expenses remains
  • Modest tax relief for lower and middle-income earners

 

5. Business and investment measures 

  • Permanent $20,000 instant asset write-off from 1 July 2026
  • Reintroduction of loss carry-back rules for eligible companies
  • Gradual reduction of FBT concessions for electric vehicles
  • Changes to the R&D tax incentive

What this means in practice:

  • Continued access to accelerated deductions for small business
  • Improved cash flow support via loss carry-back
  • Review required for electric vehicle arrangements as FBT will need to be considered in salary packaging arrangements.

 

What should you consider now? 

  • Property investment strategies
  • Capital gains exposure
  • Trust and ownership structures
  • Business structure and asset ownership
  • Salary Packaging arrangements involving electric vehicles

 

Final comments 

  • Many measures commence from 1 July 2027 or later, allowing time for planning
  • All measures remain subject to legislation and may change
  • Further updates will be provided as details are confirmed

Please contact your Holman Hodge adviser for further information.