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

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. 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. 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. 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. 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. 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. 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!