Federal Budget 2026: tax changes that are now law
When the Treasurer delivered the 2026-2027 Federal Budget on 12 May 2026, we reiterated that Budget announcements are only proposals until Parliament passes the necessary legislation.
History shows that some Budget measures are amended significantly before becoming law, while others never proceed at all.
Less than three months later, we now have certainty on several major reforms, along with some unexpected changes that weren't announced on Budget night. Here's where things currently stand.
At a glance: Key tax changes and their status
Below we have a quick summary of the tax changes announced as part of or after the 2026 Budget. Further into this article, we address the key changes in more detail.
- Capital Gains Tax (CGT) reform – passed into law on 25 June and effective from 01 July 2027.
- Negative gearing restrictions – also passed into law on 25 June and effective from 01 July 2027.
- SMSF borrowing restrictions for residential property – passed into law and restrictions apply from 10 August 2026.
- Taxation of discretionary trusts – under consultation.
- Small business instant asset write-off – Bill before Parliament to make this a permanent measure.
- Loss carry-back for companies – Bill before Parliament for review.
CGT Reform and Negative Gearing Changes Become Law
Replacement of the 50% CGT Discount
One of the most significant Budget measures has now been legislated.
From 01 July 2027, the current 50% capital gains tax discount for individuals, trusts and partnerships will be replaced with a system of cost base indexation based on movements in the Consumer Price Index (CPI) for assets held longer than 12 months.
The legislation also introduces a minimum 30% tax rate on capital gains and brings pre-CGT assets acquired before 20 September 1985 into the CGT regime from that date.
Transitional Rules for Existing Assets
To facilitate the change, every CGT asset held on 30 June 2027 will effectively be treated as though it was disposed of and immediately reacquired just before 01 July 2027.
Importantly, no tax will be payable at that time.
Instead, gains accrued up to 01 July 2027 will continue to be calculated under the current rules, preserving access to the 50% CGT discount on that portion of the gain. Growth occurring after 01 July 2027 will be subject to the new indexation and minimum tax rules.
In most cases, the split between the old and new treatment will be based on the market value of the asset at 01 July 2027, although an alternative apportionment methodology may be elected.
For investors, this means obtaining reliable evidence of market values at 01 July 2027 will become increasingly important. In the lead up to this date, we will be working with clients to determine the most appropriate valuation approach based on the specific assets they hold.
Negative Gearing Restrictions
Negative gearing on established residential property will be restricted from 01 July 2027.
Rental losses arising from established residential properties acquired after 7:30pm (AEST) on 12 May 2026 will be quarantined. These losses will only be available against residential property income or capital gains, with excess losses carried forward.
The final legislation preserves grandfathering arrangements. This means properties held at Budget night, including those already under contract but not yet settled, remain unaffected and can continue to be negatively geared under existing rules.
At the time of writing, the Government also announced further proposed changes (yet to be finalised) to ensure people who receive an investment property from a spouse due to death, divorce or forced separation do not lose existing access to negative gearing.
Investors in eligible new-build properties will also be able to choose between the traditional 50% CGT discount and the new indexation regime when those properties are eventually sold.
Small Business CGT Concessions
The Government has retained all four existing small business CGT concessions.
Following amendments in the Senate, the turnover threshold for the 50% Active Asset Reduction will increase from $2 million to $10 million from 01 July 2027.
While this may sound like a substantial expansion, the practical benefits are more limited than many headlines suggest.
The concessions that can eliminate or significantly defer CGT, namely the 15-Year Exemption, Retirement Exemption and Small Business Rollover, will continue to use the existing eligibility tests of either:
- $2 million aggregated turnover, or
- $6 million net assets.
Business owners should also be aware that the interaction between the small business concessions, the new CGT rules and the transitional provisions is highly complex, with further legislative amendments still expected.
Unexpected Change: SMSF Borrowing Restrictions
Perhaps the biggest surprise was a measure that did not appear anywhere in the Budget papers.
As part of negotiations to secure Senate support for the broader tax package, the Government accepted amendments that restrict the use of Limited Recourse Borrowing Arrangements (LRBAs) by Self-Managed Superannuation Funds (SMSFs).
From 10 August 2026, SMSFs will only be permitted to use new LRBAs to acquire business real property. Residential property, whether new or existing, will no longer qualify.
Existing borrowing arrangements and the refinancing of those arrangements remain grandfathered.
Measures Still Awaiting Legislation
Minimum Tax on discretionary Trust Distributions
The proposed 30% minimum tax on discretionary trust income from 01 July 2028 has not yet been introduced into Parliament.
However, Treasury released a consultation paper on 08 July 2026 outlining possible implementation approaches and seeking stakeholder feedback.
One significant concern raised in the consultation paper is that distributions to corporate beneficiaries could effectively be taxed twice, once within the trust and again within the company. If legislated in its current form, this could substantially reduce the effectiveness of traditional bucket company strategies.
On a more positive note, the proposed trust restructuring rollover relief appears broader than initially anticipated. It may allow trusts of any size to restructure without triggering CGT for a three-year period from 01 July 2027.
However, transfer duty remains a state-based issue, meaning a CGT-free restructure could still generate significant stamp duty costs.
At this stage, these measures remain proposals only. We continue to recommend caution before making structural changes until the legislation is finalised.
Instant Asset Write-Off
The proposed permanent $20,000 instant asset write-off for small businesses is also still awaiting Parliamentary approval.
While the $20,000 threshold for the year ended 30 June 2026 has already been enacted, the legislated threshold from 01 July 2026 currently reverts to $1,000 until new legislation is passed.
Although it is expected the permanent measure will ultimately proceed, businesses considering significant asset purchases should remain aware of the current uncertainty.
Other Outstanding Measures
Several additional Budget announcements remain at various stages of development, including:
- Fringe Benefits Tax changes for electric vehicles.
- Company loss carry-back measures.
- Research and Development Tax Incentive reforms.
- PAYG instalment changes.
These measures should still be regarded as proposals until legislation is enacted.
Your next steps
For most taxpayers, the key changes are either still some time away or have already taken effect from Budget night.
The focus now is on reviewing existing strategies and understanding how the new rules may affect future decisions.
The greatest uncertainty remains the proposed trust taxation reforms. Until the Government provides greater clarity, structuring new business investments and asset acquisitions continues to be particularly challenging.
As always, any decision should be considered in the context of your personal circumstances. The interaction between the new rules, transitional arrangements and existing structures can be complex, making personalised advice essential.
If you would like to discuss how these changes may affect you, please contact our team here. We'll help you navigate the changes with confidence and clarity.