Key Tax Changes from the Federal Budget 2026

As you will probably have seen and heard at every possible juncture this week … The Federal Budget on the 12 May 2026 contained some of the most significant tax changes in decades.

While many measures are proposed and not yet passed into legislation, the direction of reform is clear and will have important implications for individuals, property investors, business owners and family groups.

Below is an overview of the key tax changes. Holmans have focused on 3 of the largest changes, which have had our phones and emails here running hot:

• Negative Gearing
• Capital Gains Tax – Removal of the 50% Discount
• Minimum 30% Trust Tax

Importantly, these 3 large changes are due to apply at dates in the future. So there is lots of time for water to flow under this bridge ….. and there is still plenty of time for the Government to make changes (Div 296 & Taxation of Unrealised Gains in Super anyone?). Importantly, there is nothing you need to do urgently before 30 June 2026 in relation to those announcements.

As always, the devil is in the detail, and that detail is yet to be released. So the below is our best interpretation of the proposed changes.

1. Negative Gearing Changes (applies from 1 July 2027)

Grandfathered rules and exemptions:

• Existing properties will retain the current treatment. So no change for existing properties, even post 1 July 2027.
• Superannuation Funds are not covered by these new rules.
• Applies to residential properties only, so commercial properties and share investments are exempt.

New Residential Properties/Rules:

• Negative gearing will be limited to newly constructed residential properties post budget night.
• For established residential properties, a better way to look at the changes is to think “quarantine”, rather than the gearing has being abolished:
  • Losses can no longer offset salary or other income
  • Instead, the losses are quarantined and carried forward
  • Losses can only be applied against future property income (including other rental properties) and future capital gains on property.

What happens between Budget Night and 1 July 2027:

• Normal rules until 1 July 2027.
• To avoid disappointment or regret, we strongly recommend you consult with your accountant prior to any new property purchase to confirm how it may be treated.

Implications:

• In future, more cashflow may be required to hold older residential properties because of the lost tax break along the way.
• Clients looking for negative gearing opportunities will likely focus their attention on New Developments, so increased competition for new stock is expected.
• Alternate structures and options are available, and they might be worth discussing with your Accountant.

2. Capital Gains Tax (CGT) Reform

This change has been “bundled” with the negative gearing changes above, but it actually applies to all asset types, not just property.

Replacement of the 50% CGT Discount (Applies from 1 July 2027)

• The current 50% CGT discount the capital gain amount (where you owned the asset for greater than 12mths) will be removed from 1 July 2027.
• Instead, it will be replaced with:
  • Indexation of the cost base for inflation, and
  • A minimum 30% tax on the “real” capital gain
• Applies broadly to individuals, trusts and partnerships. Does NOT apply to Superannuation Funds.
• Applies to all asset types, including businesses, property, shares, crypto and so-on.
• Transitional rules will preserve gains accrued before 1 July 2027. Valuations and ATO approved methods of calculation/apportionment, will apply to any gains that accrued pre (50% Discount method) and post 1 July 2027 (Indexation method).
• Importantly, Pre-CGT Assets will be caught in this tax change and the gain post 1 July 2027 will now be taxable.
• There is a limited exemption from the minimum 30% tax where you are on Government Benefits.

Implications:

• It is expected to increase the tax collected on investment disposals when compared to the 50% General Discount method.
• It may no longer be as important to defer CGT events to low-income periods. However, it is best to consult with your accountant first.

3. Discretionary Trust Reform – Minimum 30% Tax

This is a fundamental change in the tax and ordinary concepts associated with Family (discretionary) Trusts.

30% Minimum Tax (from 1 July 2028)

• Introduction of a 30% minimum tax on discretionary trust income
• Does not apply to Fixed Trusts, Superannuation Funds and some Special Trusts (Deceased Estate and Special Disability Trusts). Note, there is a fear it will apply to Testamentary Trusts.
• The 30% tax will be paid at the trustee (Trust) level and creates a non-refundable tax credit
• Beneficiaries are still then taxed on their gross distribution from the Trust and can apply the tax credit against any tax payable in their hands. Importantly though, it is a non-refundable offset, ensuring that a minimum of 30% tax is paid on all Trust income.
• Beneficiary companies (often referred to as Bucket Companies) are in an even worse position, and at this stage, are not entitled to a credit at all. It appears double taxation of the income will likely apply (tax of up to 51%).
• The Government will announce an expanded rollover relief from 1 July 2027 to allow Trusts to restructure (without Capital Gains tax implication) in preparation for the new rules. Whether Transfer (Stamp) Duty will apply to the restructure is still a matter for the States.

Key consequences/implications:

• Reduces effectiveness of income splitting
• Bucket Companies arrangements appear to be dead.
• If you operate your business out of a Trust, you will need to review your structure prior to 1 July 2028.
• If your family Trust owns shares in a trading company, you may still need to review your structure to prevent lost franking credits (Franking Credits now appear to convert to a non-refundable offset instead, not necessarily flow through).
• Where families have an average tax rate lower than 30% in a normal year, they may now be disadvantaged under this new Minimum Trust Tax. Wages or restructuring will be required to ensure excess tax is not paid.
• In short, if you have a trust in your Family Group, your structure needs to be reviewed prior to 1 July 2028.

There are too many possible implications to detail here. The devil will most certainly be in the detail. Holmans expect the Government will receive a lot of industry feedback prior to implementation and accordingly, there may be changes, exemptions or even extensions to this law. Regardless, it will be important to plan prior to 1 July 2028.

4. Personal Income Tax Relief

Income Tax Cuts (from 1 July 2026)

• The marginal tax rate for income between $18,201 and $45,000 reduces from 16% to 15%, and is legislated to reduce further to 14% from 1 July 2027
• Provides modest but broad-based relief across all taxpayers

$250 Working Australians Tax Offset (from 2027–28)

• A new annual tax offset of up to $250 for workers
• Applies to salary and wage earners (and includes sole traders)
• Designed to increase the effective tax-free threshold

$1,000 Instant Work-Related Deduction (from 2026–27)

• Taxpayers can claim up to $1,000 without substantiation
• Larger deductions can still be claimed under normal rules

Practical takeaway:

These measures provide modest relief and simplification, but are largely outweighed (for many clients) by changes on the investment side.

5. Business and Small Business Measures

Permanent Instant Asset Write-Off

• $20,000 write-off was made permanent, provides certainty for capital investment planning

Loss Carry-Back (Reintroduced and now permanent)

• Companies can offset current losses against prior profits

Start-Up Support

• Introduction of loss refundability for early-stage businesses

What This All Means for you

While the reforms are significant, several key points should guide you:

1. Timing Matters

• Most major changes commence from 1 July 2027 or later
• Provides a planning window of 1–3 years

2. No Immediate Action Required

• For the 2026 tax year it is business as usual, there are minimal direct impacts from the budget prior to 30 June. Of course, Holmans recommend Tax Planning every year, but there is no additional urgency because of the Budget Announcements.

3. Strategic Review Required In Future

Clients should consider reviewing their group structures and investment strategies, including but not limited to:

• Trust vs company structures
• Timing of asset disposals
• Investment strategy (property vs alternatives)
• Use of superannuation and other suitable structures as a tax shelter

4. Avoid Reactive Decisions

• Many of the announced measures lack final detail, and changes do often occur prior to becoming legislation.

See your accountant and early. Leave sufficient time for planning and any implementation. For now, watch this space.

Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.

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Phone: (07) 5430 7666 or email accom@holmans.com.au