2026–27 Federal Budget Analysis - Implications & Structural Ideas

The awaiting Federal Budget has been unveiled last night and there are significant tax reforms.

My first advice to you is “Don’t Panic!”. Whilst the changes will have major implications for property investors, SMEs and family businesses, there is time to response to those changes. Also at this stage, these changes are proposed and subject to the passage of legislation.

Below is a summary of the key changes and implications to you (particularly, property issues, SMSF, Businesses & Start-ups).

Overall

• Property Investors & Trusts: Significant limitations are introduced (CGT, negative-gearing and 30% new trust tax).

• SMSF: Importance of utilising SMSF and your super will increase substantially.

• Company Structure as an investment vehicle will be re-assessed and could play an important role.

• SME & Start-ups Support: Good wins for small to medium sized businesses.

• Your business structure from the beginning is even more important and please obtain right advices when you start and expand your businesses.

Investors: 3 Major Pillars of Reform

1. Reforming Capital Gains

   1. The current 50% CGT discount is replaced with an inflation-linked indexation mechanism from 1 July 2027. However, capital gains accrued up to 30 June 2027 will retain the 50% CGT discount.

   2. A minimum 30% tax on net capital gains is introduced.

   3. The effective tax rate might be lower than the current system for lower growth assets but higher for rapid-price-appreciation assets (i.e. higher capital growth properties).

   4. Superfund and SMSF (and widely held trust) are not impacted by this.

2. Reforming Negative Gearing to Support New Housing Supply

   1. From 1 July 2027, the losses from a negatively geared residential property are limited for tax deductibility and cannot be offset against wages and other income.

   2. Budget Night Cut-Off (7:30PM AEST on 12 May 2026)

      1. Exiting investment (i.e. contracted prior to the Budget Night Cut-Off): fully protected.

      2. Established residential properties: New rules will apply from 1 July 2027 and tax deduction from negative-gearing is limited.

      3. New residential properties: Exempt regardless of purchase date.

      4. Commercial properties, shares and other non-residential assets: Also exempt.

3. Introducing a minimum tax (30%) on discretionary trusts

   1. From 1 July 2028, trustees of discretionary trusts will be required to pay a 30% minimum tax on the taxable income of the trust.

   2. The 30% minimum tax is assessed and collected at the trustee level.

   3. Beneficiaries who are not corporate taxpayers will receive non-refundable tax credits for the minimum tax paid by the trustee

   4. For beneficiaries with marginal rates below 30% (e.g. a spouse with income under $45,000), the excess credit is non-refundable = this is a significant loss of tax benefit.

   5. More importantly, corporate beneficiaries (i.e. bucket companies) will not receive the non-refundable tax credits. This results in potential double tax on the trust distributions received by bucket companies.

   6. For mitigating the significant implication of this, the Government will provide expanded rollover relief for 3 years from 1 July 2027 to assist small businesses and others that wish to restructure out of a discretionary trust into another entity.

Wins for Small to Medium Sized Businesses

1. $20,000 Instant Asset Write-Off is made Permanent.

2. Loss Carry-Back is permanently reintroduced. From 1 July 2026, companies with turnover under $1B will permanently be able to carry back losses to claim a refund of tax paid in the prior two income years. The refund is capped by the company's franking account balance.

3. Start-up Loss Refundability is introduced. From 2028–29, start-ups in their first two years of operation with turnover under $10 million will be eligible for a refundable tax offset equal to the value of FBT and PAYG withholding paid on employee wages. This provides working capital for early-stage businesses to fund growth.

Structuring Ideas

• Rise of SMSFs: The budget reforms carved out SMSFs from the new CGT and negative-gearing restrictions. Coupled with limited loan borrowing capacity at individual levels (after 1 x main residence), SMSFs will become an even more powerful vehicle for property and long-term investment.

• Investment & Business Structure: For many high-income investors and business owners, the "Trust to Bucket Company" strategy is under threat. Moving toward a pure Company Structure or mixing Company & Trust Structure for new investments or business operations could be a more tax-efficient path.

• Review Existing Trusts: With the 2027 rollover relief on the horizon, now is the time to assess whether your discretionary trust still serves your family's long-term wealth goals.

Disclaimer

This content is intended as a general guide for GOOD PEOPLE ACCOUNTING SERVICES clients. The information is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice. Although every effort has been made to verify the accuracy of the information contained above, GOOD PEOPLE ACCOUNTING SERVICES disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained on this website or any loss or damage suffered by any person directly or indirectly through relying on this information.