Federal Budget 2026: What businesses, investors and advisers need to know

Tonight’s budget was hotly anticipated, with many rumours swirling in the media over the past few weeks of potential changes to the CGT discount, negative gearing and the taxation of trusts. For those looking for changes, Treasurer Chalmers did not disappoint and even managed to sneak in a few unexpected surprises. 

Video insights

Ben Elbaum breaks down the key announcements from the Federal Budget and discusses what the proposed tax reforms may mean for investors, businesses and advisers. Read below for a detailed analysis.

Newly announced measures

The following measures were announced for the first time in the Treasurer’s speech or included in the Budget papers for the first time:

CGT discount changes

The 50% CGT discount, which currently applies to all investments owned for at least 12 months, is to effectively be restricted only to investors in newly constructed residential property. With limited exceptions, the discount is to be removed and replaced with inflation-based indexation. Investors purchasing newly constructed residential property will be able to choose to apply the 50% CGT discount, or alternatively to use indexation and the minimum capital gains tax (discussed below). Such investors will also be unaffected by the changes to negative gearing (also discussed below).

The discount will continue to apply to gains accrued on other assets prior to 1 July 2027. Taxpayers will have the choice of valuing the property as at that date or using a specified apportionment formula. While that formula has not yet been set out, it would presumably mirror the existing formula for certain foreign residents, whereby the taxpayer can apportion a percentage of the discount to the gain based on their length of ownership prior to the test date.

End of permanent pre-CGT treatment

Together with the removal of the discount, gains on pre-CGT assets will also start to be taxed. As with the discount, gains accrued prior to 1 July 2027 will remain subject to existing rules (i.e. tax free, in the case of pre-CGT assets), but any gains accrued after that date will be taxed under the new arrangements (i.e. with indexation and the minimum tax rate).

Minimum tax rate on capital gains

There is to be a new minimum 30% tax rate on capital gains. We are told that the rationale is to “reduce incentives to defer the sale of assets to periods when other income and marginal tax rates are low”. Reading between the lines, it seems the government believes taxpayers may be waiting until retirement to dispose of capital assets and wish to incentivise earlier sales.

At this stage, there are few details on how this minimum tax will be implemented.

Negative gearing changes

Negative gearing on established residential housing is also subject to change. As a general principle, a taxpayer is entitled to deduct any losses they incur in gaining their assessable income, including (for example) interest paid to purchase a property which is held for rental income. Those expenses can generally be deducted from the taxpayer’s income from any sources, such as their business or employment income. However, following this announcement, rental losses from established residential housing acquired after 7:30 pm on 12 May 2026 will only be available to offset against other rental income from residential properties or gains made on the sales of such properties.

These new rules will be grandfathered, so that properties purchased before 12 May 2026 7:30pm (AEST) will be exempt from these changes until they are disposed of. This includes properties where a contract was entered into prior to the announcement but had not yet settled.

Taxation of discretionary trust distributions

Distributions made from discretionary trusts taking place from 1 July 2028 will be subject to a minimum 30% tax, regardless of the beneficiary’s marginal tax rate. The tax will be payable by the trustee (presumably by way of withholding the tax from the distribution), and the beneficiary (other than corporate beneficiaries) will be required to declare the income in their tax return and will receive non-refundable tax credits for the tax payable by the trustee.

We are told that corporate beneficiaries will not be eligible to receive the non-refundable credits for the tax payable by the trustee. It is unclear what the impact of this would be, and whether it would be paired with some sort of measure to offset the extra tax cost to corporate beneficiaries.

It is unclear what exactly is meant by “discretionary trust” in this context and it remains to be seen whether unit trusts with discretionary elements (commonly referred to as hybrid trusts) will be caught by this the legislative definition. However, it is noted that the following types of trusts will be excluded from the minimum tax:

• widely held and fixed trusts;
• complying superannuation funds;
• special disability trusts;
• deceased estates; and
• charitable trusts.

The minimum trust distribution tax will not apply to discretionary trusts involving the primary production income of farms, certain income relating to vulnerable minors, amounts to which non-resident withholding tax applies and income from assets of testamentary trusts existing at announcement.

Expanded roll-over relief has also been proposed to apply for 3 years from 1 July 2027 to assist small businesses and other taxpayers to restructure out of discretionary trusts into companies or fixed trusts.

Loss carry back

The loss carry-back provisions, previously seen in 2012-13 and as temporary measures during the COVID-19 pandemic, will be reintroduced and made permanent. From 1 July 2026 a two-year loss carry-back will be available for all companies with up to $1 billion in turnover. Under these measures, a loss would generate a refund of tax paid in earlier years.

Instant asset write off

From 1 July 2026, the Government will permanently extend the $20,000 IAWO for businesses with a turnover of up to $10 million.

Working Australians Tax Offset

From 1 July 2027, the Government will also introduce a permanent $250 Working Australians Tax Offset (WATO), which increases the effective tax-free threshold to $19,985 for workers from 1 July 2027 for income derived through work.

Previously announced measures

The following previously announced (but not yet enacted) measures are also worth noting:

Broader definition of Taxable Australian Real Property

Originally announced in the 2024-25 Budget, these measures were stated to be intended to “ensure foreign residents pay their fair share of tax in Australia”. The Exposure Draft of the proposed Bill was released on 10 April 2026 (consultation closed on 24 April 2026). The proposed changes would broaden the definition of “Taxable Australian Real Property” (TARP) to include, among other things: water entitlements, options to acquire TARP, and interests in rights over land.

There would also be a specific inclusion of things that are installed on the land, even if they are not “fixtures” at law and even if a State or Territory law deems them to not be “real property”. This particular measure appears to be a reaction to the recent decision in YTL Power Investments Ltd v Commissioner of Taxation [2025] FCA 1317, which held that such items are not TARP.

The measures would also change the existing point-in-time test to a test that needs to be passed for the whole 365-day period prior to the disposal and a notification requirement for certain disposals exceeding $50 million.

Temporary CGT discount on renewable energy assets sold by non-residents

Foreign residents are generally not entitled to the CGT discount at all. However, at the same time as the above proposed legislation, another Exposure Draft was circulated that would provide a 50% CGT discount to certain foreign investors in relation to disposals of “renewable energy assets”. These are, broadly, assets that have the primary purpose of generating electricity using a renewable energy source.

The draft Explanatory Memorandum states that this is intended to “support investment into the Australian renewables sector”. However, the discount would only be available in relation to disposals occurring until 30 June 2030 and it is unclear how a measure that encourages short term disposal of assets would encourage long term investment.

Changes to the FBT concession for electric cars

The Electric Car Discount (ECD) is an exemption from FBT for EVs below Luxury Car Tax (LCT) threshold (currently $91,387 for EVs), which makes salary packaging such cars very attractive. However, this tax break has arguably been a victim of its own success, and projected costs have risen from $2 billion over the first three years to $2.8 billion per annum by 2028–29. In response, the government is looking to wind back this measure.

The current 100% exemption will continue to apply until 31 March 2027. Between 1 April 2027 and 31 March 2029, the full discount will continue to apply only for EVs costing up to $75,000, but EVs costing between $75,000 and the LCT threshold will only be eligible for a 25% discount on FBT. From 1 April 2029, only the 25% discount will apply (for EVs below that LCT threshold).

This measure was first announced to the media on 4 May 2026. No draft legislation has yet been circulated as of the time of writing.

Instant tax deduction

This measure would introduce a standard deduction of up to $1,000 per annum for work-related expenses for individuals, without requiring substantiation. Taxpayers with more than $1,000 in work-related expenses would continue to be able to itemise and substantiate their claims in line with existing rules (but they could not also use the standard deduction). This measure is currently in Exposure Draft form.

Enhancing TPB sanctions framework

These measures, which are stated to be “part of the Government’s response to the PwC matter”, were foreshadowed in 2023 and announced in the 2025-26 Budget, with the current Exposure Draft Bill released on 10 April 2026. The proposed changes include the introduction of criminal offences for unregistered preparers providing or advertising tax or BAS agent services. The maximum penalty per offence would be 40 months imprisonment, or 200 penalty units, or both.

There would also be a significant increase in the maximum civil penalties under the Tax Agent Services Act 2009 (Cth), from the existing 250 penalty units (currently $82,500) for individuals and 1,250 penalty units (currently $412,500) for bodies corporate to 2,500 penalty units (currently $825,000) for individuals, and 50,000 penalty units (currently $16.5 million) for bodies corporate. The draft legislation also includes significantly expanded powers for the TPB, including powers to issue infringement notices for breaches of certain civil penalty provisions, accept enforceable undertakings and to suspend registration subject to conditions.

The TPB would also receive the power to suspend registration of a practitioner if it believes, on reasonable grounds, that the practitioner has committed an offence against a tax law or contravened a civil penalty provision and client it likely to suffer loss, or there is some public interest in the suspension. It is of note (and perhaps some concern) that the requirements to afford natural justice are explicitly excluded in relation to this form of suspension.

News bargaining incentive

This measure would introduce an incentive for social media and search companies to bargain with Australian media, in the form of a news media bargaining incentive charge (NMI). The NMI would be payable by entities that provide a significant social media or search service and meet the revenue threshold ($250 million per annum) and would comprise 2.25% of their consolidated revenue attributable to Australia. The NMI would be offset partially or wholly if the entity pays Australian news media businesses for the use or production of news content. This measure is currently in Exposure Draft form.

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