The 2026-27 Federal Budget: The Seismic Tax Reset Explained

CORRECTION NOTICE, updated 24 August 2026 This episode was recorded the morning after the 2026-27 Budget and describes announcements. Three months on, some of them are law, some are still only announcements, and one is wrong on the dates. The audio cannot be changed, so the corrections are marked inline below. Where the recording and this page disagree, this page is right. 1. THE DISCRETIONARY TRUST MEASURE IS NOT LAW, AND THE ADVICE TO "BOOK A RESTRUCTURE MEETING" IS PREMATURE. There is no bill. Treasury released a consultation paper on implementation on 8 July 2026 with submissions closing 31 July, and the ATO's own page still reads "This measure is not yet law." The design can still change. Restructuring a family trust is expensive and hard to undo, so do not do it on the strength of an announcement. Understand your exposure by all means. Do not act on it yet. UPDATE 11 SEPTEMBER 2026: Treasury released exposure draft legislation on 3 September 2026, with consultation open until 18 September. It keeps the 1 July 2028 start and adds an election that lets a trust that exists on 1 July 2028 stay out of the minimum tax without restructuring, by fixing its distributions to pre-nominated beneficiaries. It is still not law. Episode 58 and our post "Minimum Tax on Discretionary Trusts: What the Draft Law Actually Changes" have the current position. 2. THE CGT AND NEGATIVE GEARING CHANGES ARE LAW. Treasury Laws Amendment (Tax Reform No. 1) Act 2026, assent 26 June 2026. So are the $1,000 standard deduction from 2026-27, the Working Australians Tax Offset from 2027-28, and the pre-CGT market value reset the episode describes. 3. THE EPISODE MISSES THE TRANSITIONAL RULE, and it is the most useful thing in the whole CGT package. Assets held on 30 June 2027 are treated as sold that day at market value and reacquired the next. Gains built up to that point keep the 50 per cent discount and are deferred until you actually sell. Only growth after 1 July 2027 loses it. The episode explains this correctly for pre-CGT assets and never mentions that the same idea applies to everything else. 4. THE ELECTRIC VEHICLE SECTION IS WRONG ON THE DATES, in a way that costs money. The episode says the 100 per cent exemption runs until 1 April 2029. It does not. The full discount continues only until the end of March 2027. From 1 April 2027 to 1 April 2029, EVs costing $75,000 or less keep the 100 per cent discount, but EVs costing more than $75,000 and below the luxury car tax threshold drop to a 25 per cent discount. From 1 April 2029 everything below the LCT threshold sits on the 25 per cent discount. Existing leases are not affected. This measure is also not yet law. 5. QUARANTINED LOSSES GO AGAINST RESIDENTIAL CAPITAL GAINS, NOT CAPITAL GAINS GENERALLY. The episode says "rental income or capital gains". The Act confines it to residential rental income and then residential capital gains, applied before any discount. A share gain will not absorb a quarantined rental loss. 6. THE $20,000 INSTANT ASSET WRITE-OFF IS NOW PERMANENT, not merely applying from 1 July 2026. The bill passed both Houses on 19 August 2026. 7. STILL ONLY ANNOUNCEMENTS: dynamic PAYG instalments, the start-up loss cash-out, and the EV change above. The loss carry back the episode mentions did become law, in the same bill as the write-off. Verified against the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, the parliamentary record for the Treasury Laws Amendment (Tax Reform No. 2) Bill 2026, and the ATO's new legislation pages QC107302 and QC107286. ---------- Mia: Welcome to the podcast, our newsletter made easy. Please note, this podcast features AI-generated voices for your hosts, Mia Taylor... Leo: ...and Leo Baker, bringing you expert insights from owner Ben Derosa at Aevum Accounting. Each week we're here to help you confidently navigate the ins and outs of Australian tax, whether it's for your individual finances or the complexities of your business. Mia: We'll cut through the jargon to give you strategies for compliance, smart planning, and that ultimate peace of mind. Leo: So, if you're looking to understand your obligations, maximize your financial position, or simply gain clarity on your money matters, you're in the right place. Let's get started. Now, you might notice we are skipping our usual review of the week today. That's because last night the Treasurer handed down the 2026 to 2027 federal budget. And we need every single second of this episode to break it down. Mia: It has been described as the most significant transformation of Australia's tax system in a quarter of a century. To help us unpack what this means for your property, your business, and your family, we've brought back our resident tax strategist, Harvey Green. Welcome, Harvey. Harvey: Thanks for having me. Seismic is the right word for it. To understand why the government is making these massive tax changes, you have to look at budget paper number one. The Treasurer warned that Australia is facing its fifth major economic shock in less than 20 years, driven by global instability and oil prices peaking. Mia: What does that mean for the everyday Australian? Harvey: Treasury is forecasting that inflation is going to spike back up to around 5% by the middle of the year. To manage a $31.5 billion deficit without pouring petrol on inflation, the government is fundamentally rebalancing the tax system. They are moving away from rewarding wealth accumulation and shifting benefits directly toward wage earners to keep the economy moving. Leo: Let's start with the everyday wage earner. Did we get any cost of living relief before the big structural changes kick in? Harvey: We did. According to the Pitcher Partners analysis, the combination of tax measures means the average taxpayer will be $268 better off in the 2026-27 financial year. The government is rolling out a permanent $250 Working Australians Tax Offset, applying from the 2027 to 28 income year for income derived from actual work like salary or sole trader business income. But the big win for individuals is the new $1,000 standard deduction. Leo: Wait, does that mean I don't need to keep a shoebox full of receipts for pens and laundry anymore? Harvey: Correct. From 1st July 2026, any Australian resident who earns income from work can simply claim a flat $1,000 deduction. No itemizing, no receipts required. Mia: Harvey, looking through the documents, there was also a dedicated women's budget statement released last night. How does this impact our business clients? Harvey: This is a crucial area. The government is investing heavily in childcare subsidies and meeting the Brisbane 2032 Olympic goal to reduce the gender workforce participation gap. As part of this, they are mandating superannuation on paid parental leave. If you employ staff, you need to be talking to Aevum Accounting right now about updating your payroll software and cash flow forecasting. The cost of employment is shifting. Leo: Let's get into the heavy stuff. Capital gains tax. I've always known that if I hold an asset for more than 12 months, I get a 50% discount. Is that gone? Harvey: It is. From 1st July 2027, the 50% CGT discount will be replaced by cost base indexation, paired with a new 30% minimum tax on net capital gains. [CORRECTION: now law, and the episode misses the transitional rule that softens it most. Assets held on 30 June 2027 are treated as sold that day at market value and reacquired the next day, so the gain built up to that point keeps the 50 per cent discount and is deferred until you actually sell. Only growth after 1 July 2027 loses it. It is the same mechanism the episode describes for pre-CGT assets a few lines below, and it applies to ordinary assets too.] Instead of halving your profit, you adjust the purchase price for inflation, but you must pay at least 30% tax on the resulting gain. Mia: And this isn't just for property, right? What about the younger investors listening? Harvey: Exactly, Mia. This applies to all assets for individuals, trusts, and partnerships. If you have been buying ETFs, shares, or building up a cryptocurrency portfolio on the side, those assets are caught in this net. When you sell that Bitcoin or those shares after July 2027, you are paying a minimum of 30% tax on the indexed gain. Leo: What about pre-CGT assets? The family farm or commercial building bought before September 1985 has always been completely tax-free. Harvey: This is the biggest shock of the night. Pre-CGT assets are losing their full exemption. Mia: Harvey, can you give us a real-world example of how that actually works? Harvey: Absolutely. Let's say your family bought a commercial farm out in the WA wheat belt back in 1982 for $200,000. Over the decades, it has grown in value. The government will mandate a market value reset on the 30th of June 2027. Let's say on that exact day the farm is independently valued at $5 million. That $4.8 million in historical growth is locked in as completely tax-free. However, if you sell the farm three years later in 2030 for $6 million, that $1 million of new growth that occurred after the 2027 reset will be subject to capital gains tax. Leo: Wow. So the historical growth is safe, but anything from July 2027 onwards gets taxed. That completely rewrites succession planning. Let's move on to negative gearing. Harvey: From 1st July 2027, losses from established residential properties will only be deductible against rental income or capital gains. You cannot use them to offset your salary anymore. [CORRECTION: right in substance, loose on one word that matters. The Act confines the offset to residential rental income and then residential capital gains, applied before any discount. A gain on shares will not absorb a quarantined rental loss. The loss carries forward indefinitely in the meantime. The start is the 2027-28 income year.] Leo: Let's put some numbers to this one too. Harvey: Okay, let's look at two investors, Sarah and John. Sarah buys a 20-year-old established house as an investment. The rent doesn't cover the mortgage, so the property runs at a $15,000 loss for the year. Under the new rules, Sarah cannot use that $15,000 to reduce the tax she pays on her day job as a nurse. That loss is quarantined until she sells the house. John, however, buys a brand new off-the-plan apartment. Because the government desperately wants to stimulate new construction, new residential builds are exempt. John can use his $15,000 loss to reduce his taxable salary, saving him thousands in tax immediately. Mia: What if I already own an investment property? Harvey: Existing properties are grandfathered. If you acquired the property before 7:30 PM AEST on budget night, 12 May 2026, the old rules apply until you dispose of it. Mia: That is a massive difference. And speaking of massive differences, let's talk about the crackdown on discretionary trusts, commonly known as family trusts. Harvey: From 1st July 2028, the government is introducing a minimum 30% tax on the taxable income of discretionary trusts, paid up front by the trustee. [CORRECTION: this is an announcement, and it still has no bill. Treasury released a consultation paper on how to implement it on 8 July 2026, submissions closed 31 July, and the ATO's page still says "This measure is not yet law." The design can change. One detail the episode does not mention: under the announcement, non-corporate beneficiaries who are presently entitled to trust income will get a non-refundable credit for the tax the trustee has paid. It is corporate beneficiaries that miss out. Update 11 September 2026: exposure draft legislation was released on 3 September 2026 and is still not law. Episode 58 covers what it says.] Leo: Harvey, Ben uses bucket companies for a lot of clients. Does this impact them? Harvey: It completely kills the strategy. Let me give you an example. Imagine a family business operating in a trust makes a $200,000 profit. Normally, the trust might distribute that $200,000 to a bucket company to cap the tax rate at 25% or 30%. The company pays the tax and the cash is reinvested. Under the new rules, the trust pays a 30% tax up front. That is $60,000. But the new law says that corporate beneficiaries, the bucket companies, will not receive a tax credit for the tax the trust already paid. If you distribute to a company, the income is essentially taxed twice. Mia: Ouch. Is every single trust caught in this? What about our farming clients? Harvey: There are critical carve-outs. Primary production income is completely excluded, as are fixed trusts, special disability trusts, and deceased estates. For everyone else, the government is providing a three-year rollover relief window from 1st July 2027, allowing small businesses to restructure out of discretionary trusts into a company or fixed trust without triggering massive CGT. Leo: Let's look at the bright side. What are the cash flow wins for businesses? Harvey: There are quite a few. We have the return of loss carry back from 1st July 2026, which allows companies to offset a current loss against past taxes paid to generate a cash refund, strictly limited to their franking account balance. Startups under $10 million turnover can now cash out their tax losses in their first two years, capped to the value of PAYG withholding tax paid on Australian employee wages. And dynamic PAYG is starting. From 1st July 2027, small businesses can opt to calculate and pay their PAYG instalments monthly directly through software like Xero. Mia: That will be a massive help for real-time cash flow. And we can't forget the $20,000 instant asset write-off, applying from 1st July 2026. [CORRECTION: better than the episode says. It is now permanent rather than a further extension. The bill passed both Houses on 19 August 2026.] Leo: And, we need to talk about this because this is the biggest trap in the budget. Every time this is announced, a tradie hears 20K write-off and immediately goes and buys a $75,000 Ford Ranger, thinking they can write the whole thing off. Harvey: It is the classic mistake. The asset must cost less than $20,000 in total. If it costs even $1 more, you cannot immediately write it off. It goes into a depreciation pool and you claim a percentage over several years. However, if a local business decides to buy a $4,000 coffee machine for the staff room, or say a $3,500 commercial-grade Kamado smoker to host Friday afternoon client BBQs, because those individual assets are under $20,000, they can be written off immediately. Mia: I think I know what the office is getting for Christmas this year. Speaking of big purchases, what is happening with electric vehicles? Harvey: The clock is ticking. From the 1st of April 2029, the full 100% FBT exemption ends and will be replaced by a permanent 25% FBT discount. If you lease an EV valued up to $75,000 before that 2029 deadline, you are grandfathered in. [CORRECTION: the dates are wrong, and the error runs the wrong way for anyone looking at a more expensive car. The full discount continues only until the end of March 2027. From 1 April 2027 to 1 April 2029, an EV costing $75,000 or less keeps the 100 per cent discount, while an EV costing more than $75,000 and below the luxury car tax threshold drops to a 25 per cent discount. From 1 April 2029 everything below the LCT threshold sits on the 25 per cent discount, the cheaper cars included. Existing leases are not affected. This measure is not law either.] Leo: Finally Harvey, we looked at budget paper four regarding agency resourcing. The ATO is getting a massive injection of funds, aren't they? Harvey: They are. The ATO is being handed expanded powers and targeted funding to combat the shadow economy, audit R&D claims, and aggressively pursue debt recovery. They are even expanding garnishee powers to include jointly held assets. If you haven't set up your Vault bank account to quarantine your tax money, do it now. The ATO is fully funded and they are coming for unpaid debts. Mia: The timeline on all these changes is staggered. Some start in 2026, some in 2027, and trusts in 2028, which means the time to plan is right now. Harvey, to wrap this up, what is the morning after action plan? What should our listeners do today? Harvey: Three things. Number one: if you are looking to buy an established investment property, do not sign a contract without speaking to your accountant first to understand the new negative gearing limits. Number two: if your business operates out of a discretionary trust, book a restructure meeting. You have a three-year window to roll over safely. [CORRECTION: too early. The measure is not law, the rollover does not exist yet, and the consultation on how it will work only closed on 31 July 2026. Restructuring a family trust is expensive and difficult to reverse. Have the conversation and understand your exposure, but do not restructure on the strength of an announcement. Update 11 September 2026: the exposure drafts released on 3 September add an election that avoids the tax without any restructure. See Episode 58.] Number three: get your bookkeeping software updated and reconciled so you are ready to take advantage of dynamic PAYG and the new paid parental leave rules. Mia: Brilliant advice. If you are sitting there wondering how this seismic shift impacts your specific wealth, you need to speak to the experts. Visit aevumaccounting.com.au to book a comprehensive budget review with Ben Derosa and the team. Thank you for joining us for episode 41, we hope today's discussion has provided you with valuable insights. Before we go, a quick but important reminder: the information shared today is for general informational purposes only and does not constitute specific tax or financial advice. Leo: Everyone's situation is unique and tax laws are complex. For personalized advice tailored to your situation, we always recommend consulting with a qualified professional. Until next time, stay savvy, stay proactive... Mia: ...and get your structures sorted. Leo: See ya!