Budget Statements – But not yet Law
The Australian Government’s Budget announcement on 12 May 2026 introduced a significant change particularly in respect of taxation. It is always important to remember that at this point, most Budget night announcements are only statements of intended change and are not yet law.
Discretionary Trust Tax Rate Changes
Key change
From 1 July 2028, the minimum tax rate applied to certain income distributed through discretionary trusts will increase to 30%. This change is designed to reduce tax advantages associated with income distribution strategies using trusts.
What this means for you
If you operate or are a beneficiary of a discretionary trust, you should be aware of the following:
- Income retained or distributed through the trust may be taxed at a higher minimum rate from 1 July 2028
- Existing trust arrangements may need to be reviewed
- Tax planning strategies may need adjustment before the new rules commence
There will be some exclusions from the new taxation arrangements, including fixed trusts, superannuation funds, special disability trusts, and deceased estates. Some types of income such as primary production income and income from assets of testamentary trusts existing on Budget night will also be excluded.
There will also be rollover relief available from 1 July 2027 for a period of three years for affected discretionary trusts that want to restructure to different arrangements, such as a corporate structure.
Capital Gains Tax (CGT)
The Government has announced significant proposed changes to the Capital Gains Tax (CGT) rules, with the new measures expected to apply from 1 July 2027 for assets purchased from Budget night onward.
Key proposed changes
Under the current rules, individuals generally receive a 50% CGT discount on assets held for more than 12 months. The Government proposes replacing this system with an indexed cost base method for most assets.
Instead of applying a flat 50% discount, the purchase cost of an asset will be indexed over time to reflect inflation. Capital gains tax will then apply to the difference between the sale price and the indexed purchase price.
Minimum effective tax rate of 30%
The proposed changes also introduce a minimum effective tax rate of 30% on capital gains. This means that if a taxpayer’s marginal tax rate results in less than 30% tax being payable on the capital gain, a minimum 30% rate will still apply. The measure is intended to prevent taxpayers from delaying the realisation of capital gains until retirement or periods of lower taxable income.
New builds concession
Investors purchasing new residential builds will have the option of using either:
- the existing 50% CGT discount method, or
- the new indexation method.
Existing asset owners
Owners of existing assets will be able to obtain a market valuation as at 1 July 2027. This will allow capital growth accrued up to that date to remain under the current 50% discount rules, with future growth assessed under the new indexed method.
Small business concessions unchanged
Importantly, the Government has confirmed that there will be no changes to the existing small business CGT concessions available on the sale of active business assets.
Negative Gearing
From 1 July 2027, negative gearing losses (where the level of deductible expenses exceeds the assessable rental income) from residential investment properties will no longer be able to be used to offset assessable income from other sources (such as wages). Instead, any loss will be quarantined and carried forward to future income years and offset against any net positive tax position on those investment returns in future years. In this way the negative gearing loss is not lost, but the timing of its utilisation deferred to future income years.
Importantly, this change applies only to residential investment properties acquired from 7:30pm on 12 May 2026 (Budget night) by individuals, trusts, companies and partnerships. Negative gearing deductions will still be able to offset other income for residential investment properties acquired before that time, and for those properties purchased from Budget night until 30 June 2027, with quarantining only commencing from 1 July 2027.
The changes do not apply to commercial property investments and other asset classes, such as shares. They will also not apply where the residential property is regarded as a new build.
Small business $20,000 instant asset write-off
The Government has announced that the $20,000 instant asset write-off available for eligible small businesses will now become a permanent measure from 1 July 2026. To be eligible, a small business must have aggregate turnover up to $10 million. This measure has been implemented on an annual basis in each of the last three Budgets.
Eligible small businesses will be able to immediately deduct the full cost of eligible assets costing less than $20,000 in the income year the asset is first used or installed ready for use. The threshold applies on a per asset basis, meaning a small business can instantly write off multiple assets.
Assets valued over the threshold can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.