The 2026-27 Federal Budget Australia: The Seismic Tax Reset Explained
- Ben De Rosa
- May 12
- 7 min read
Navigating the most significant compliance shake-up in 25 years: a practical action plan for the staggered tax timelines heading your way
Handed down on 12 May 2026, Treasurer Jim Chalmers' Budget has been called the most significant transformation of Australia's tax system in a quarter of a century. The 2026-27 Federal Budget Australia rewrites the rules for capital gains, negative gearing, family trusts, and everyday deductions, with staggered start dates running from July 2026 through to 2029.
At Aevum Accounting, we're walking clients through the implications right now, because the planning window for some of these changes is short. Today, we're breaking down what the Budget actually said, where the genuine wins sit, and where the traps will catch business owners and investors who don't restructure in time. Note that several of these measures still need to pass Parliament, so the final detail may shift through consultation.
Cost of Living Relief and the $1,000 Instant Tax Deduction
The headline wins for individuals:
From 1 July 2026, any Australian resident earning labour income can claim a flat $1,000 instant tax deduction without itemising or keeping receipts. The draft legislation has been released and is working its way through Parliament.
A new permanent $250 Working Australians Tax Offset applies from the 2027-28 income year for income derived from actual work, such as salary or sole trader business income.
Separately, the legislated marginal tax rate cut means the 16 percent rate on income between $18,201 and $45,000 drops to 15 percent from 1 July 2026, saving every taxpayer earning above $45,000 up to $268 a year. From 1 July 2027, the rate falls again to 14 percent, lifting the total saving to $536 per year.
A note on the $1,000 deduction: it isn't a free top-up on existing claims. If you currently claim more than $1,000 in genuine work-related expenses, you'll still need to substantiate the full amount, and some existing concessions (like the laundry claim up to $150) are being repealed alongside the new deduction. For most people, the change simplifies tax time. For those with larger legitimate claims, it pays to keep your records the same as before.
CGT Discount Replaced: Indexation and the 30% Minimum Tax
This is the biggest structural change in the Budget, and it lands on every Australian who owns a non-exempt capital asset.
From 1 July 2027:
The 50 percent CGT discount for assets held more than 12 months is being abolished for individuals, trusts, and partnerships
It's replaced by CPI-based cost base indexation, where the purchase price is adjusted for inflation, and a 30 percent minimum tax applies to the resulting real gain
This applies to all CGT assets held by individuals, trusts, and partnerships, including investment properties, shares and ETFs, cryptocurrency holdings, and other capital assets.
Transitional rules for existing assets: Gains that accrued before 1 July 2027 will continue to receive the existing 50 percent CGT discount. Gains accruing from 1 July 2027 onwards are taxed under the new indexation and minimum tax framework. The split is determined either by a formal valuation on 1 July 2027 or by an ATO-approved formula. For long-held assets, the majority of the embedded gain is generally protected under the old rules.
Companies are not affected. The CGT discount has never applied to companies. Superannuation funds, including SMSFs, are expected to retain their existing one-third CGT discount.
Pre-CGT assets (acquired before 20 September 1985): These also fall under the new regime from 1 July 2027. Pre-1 July 2027 capital growth remains protected (eligible for the 50 percent discount where applicable), but growth from 1 July 2027 onwards is subject to the new indexation and 30 percent minimum tax. Independent valuations on 1 July 2027 will become important for pre-CGT assets to establish the transition point cleanly.
Crucially: The Small Business CGT Concessions (15-year exemption, 50 percent active asset reduction, retirement exemption, rollover) are preserved in full. Small business owners selling active assets are not affected by the indexation reform.
Negative Gearing: Established Properties vs New Builds
The Budget targets negative gearing on the established property market while preserving incentives for new construction.
From 1 July 2027:
Losses from established residential properties acquired after the announcement can only be deducted against rental income or capital gains from residential properties
Excess losses are quarantined and carried forward for use against future residential property income
The grandfathering structure works in three layers:
Properties held (or under contract) at 7:30 PM AEST on 12 May 2026: Existing negative gearing rules continue indefinitely, until the property is sold.
Established properties acquired between 12 May 2026 and 30 June 2027: Negative gearing applies under existing rules until 30 June 2027, then the new restrictions kick in from 1 July 2027.
Established properties acquired from 1 July 2027 onwards: The new rules apply from acquisition.
The new build exemption: Investors purchasing eligible new builds retain access to negative gearing against all income, and can also choose between the existing 50 percent CGT discount or the new indexation regime when they sell. Specific carve-outs apply to certain build-to-rent developments and government housing program participants.
A worked example using two investors. Sarah buys a 20-year-old established house in 2028. Rent doesn't cover the mortgage, and she runs a $15,000 loss for the year. Under the new rules, she cannot use that loss to reduce the tax on her nursing salary. The loss is quarantined until she has residential rental income or capital gains to offset it against. John buys a new build apartment. He runs the same $15,000 loss and can use it to reduce his taxable salary in the year it's incurred.
The Discretionary Trust Crackdown and the Bucket Company Problem
The treatment of discretionary trusts is the change that hits Australian small business hardest.
From 1 July 2028:
A 30 percent minimum tax applies at the trustee level to the taxable income of discretionary trusts
Non-corporate beneficiaries receive a non-refundable income tax credit for the tax already paid by the trustee
Corporate beneficiaries (bucket companies) do not receive this credit, which is the specific design choice that closes the income-splitting strategy
Why this matters for family businesses using bucket companies: Under the current strategy, a trust distributes income to a private company capped at 25 or 30 percent. Under the new rules, the trust pays 30 percent at the trustee level first, and the corporate beneficiary cannot claim a credit for that tax. Some early industry analysis suggests effective tax rates on income that ultimately flows through to lower-income individuals via bucket structures could land between 51 and 60 percent. The detailed design is still being consulted on.
Carve-outs: The minimum tax does not apply to:
Fixed trusts and widely held trusts
Complying superannuation funds
Charitable trusts, special disability trusts, and deceased estates
Testamentary trusts in existence on 12 May 2026
Excluded income (not subject to the minimum tax even within an affected trust):
Primary production income
Income subject to non-resident withholding tax
Certain income relating to vulnerable minors
Restructure rollover relief: A three-year window from 1 July 2027 allows small businesses to restructure out of discretionary trusts into a company or fixed trust without triggering CGT. Detailed design is still being finalised.
If your business operates from a discretionary trust with a bucket company strategy, this is the planning conversation that cannot wait.
Business Wins: Loss Carry-Back, Instant Asset Write-Off, and EV FBT
It's not all pain. The Budget includes meaningful cash flow wins for business.
Loss carry-back returns from 1 July 2026 on a permanent basis, allowing companies with aggregated annual global turnover under $1 billion to carry back tax losses against tax paid in the prior two income years. Capped by the franking account balance.
Start-up loss refundability from 2028-29: Companies under $10 million aggregated turnover in their first two years of operation can generate a refundable tax offset from losses, capped at FBT and PAYG withholding paid on Australian employee wages.
Dynamic monthly PAYG instalments from 1 July 2027: Small and medium businesses can opt in to monthly PAYG calculated via ATO-approved software, with penalty protection for unintentional variances.
$20,000 instant asset write-off becomes permanent from 1 July 2026 for businesses with aggregated turnover under $10 million. The trap: the asset must cost less than $20,000 in total. A $4,000 coffee machine qualifies. A $75,000 ute does not. Assets above the threshold go into the small business depreciation pool.
Electric vehicle FBT reform: The 100 percent FBT exemption for EVs priced at or below the fuel-efficient luxury car tax threshold (currently $91,387, indexed) continues until 1 April 2029. A new 25 percent FBT discount applies from 1 April 2027 for EVs priced above $75,000 but at or below the fuel-efficient LCT threshold. From 1 April 2029, the 100 percent exemption is replaced by a permanent 25 percent FBT discount for all EVs at or below the fuel-efficient LCT threshold. Above that threshold, no discount applies. Existing leases entered into before 1 April 2029 are largely grandfathered.
Paid parental leave superannuation: Government-funded PPL has been earning super contributions for babies born or adopted from 1 July 2025. From 1 July 2026, those super payments are made directly to individuals' super funds annually. If you employ staff, payroll setup needs to be updated.
A Note on ATO Funding
The Budget provides additional funding to the ATO to combat the shadow economy, audit R&D claims, and pursue debt recovery, with garnishee powers being expanded. The tax office is fully resourced and is coming for unpaid debts. The Vault System we covered in our last episode is no longer optional.
Your Morning-After Action Plan
The timeline on these changes is staggered, which makes the next 12 months the planning window. Three things to do this month:
If you're considering an established investment property purchase, understand exactly how the new negative gearing rules apply and how the 7:30 PM 12 May 2026 grandfathering cutoff affects the contract
If your business operates from a discretionary trust, book a restructure meeting now. The three-year rollover window from 1 July 2027 gives time, but the trustees who plan early will have the cleanest transition
Update your bookkeeping software so you're ready for dynamic PAYG, the new paid parental leave super obligation, and the cash flow shifts coming from July 2026
Why You Need an Expert in Your Corner
This is the most consequential tax Budget in 25 years, and the staggered start dates mean every business owner, property investor, and trust beneficiary has different planning priorities. The wrong move in the next 12 months could lock in tax outcomes that take a decade to unwind.
At Aevum Accounting, Ben De Rosa and the team are working with clients across Australia to model the Budget changes against their actual financial position, restructure where it makes sense, and prepare for the cash flow shifts coming from July 2026.
Disclaimer: The information and strategies shared in this article are for general informational purposes only and do not constitute specific tax or financial advice. Everyone's situation is unique, and tax laws are complex and constantly evolving. For personalised advice tailored to your specific individual or business needs, we always recommend consulting with a qualified professional at Aevum Accounting.
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