Federal Budget 2026–27: Big Changes, No Panic Required

The Federal Budget has been handed down, and for once this is not just the usual Budget night theatre of large numbers, heroic assumptions and a Treasurer pretending that a modest tax offset is going to change the course of human history.

There are some genuinely significant proposed tax changes in this Budget.

The biggest announcements relate to capital gains tax, negative gearing and discretionary trusts. There are also some smaller personal tax changes, business measures and changes to electric vehicle FBT concessions.

Some of these changes may affect individuals. Some may affect investors. Some may affect business owners. Some may affect family trusts and even estate planning arrangements involving testamentary trusts.

So yes, there is a bit going on.

But before anyone starts ringing the office asking whether their family trust needs to be taken out the back and humanely put down, it is worth taking a breath.

The personal tax changes

For individual clients, the headline personal tax changes include:

• the proposed $1,000 standard deduction for work-related expenses;
• a $250 Working Australians Tax Offset from the 2027–28 year; and
• the already legislated reduction in the lowest marginal tax rate from 16% to 15% from 1 July 2026, and then to 14% from 1 July 2027.

These changes are not nothing. Any reduction in tax is better than an increase in tax, in the same way that finding twenty dollars in an old pair of jeans is better than finding a parking fine.

But despite the messaging coming out of Canberra, these changes are not exactly a revolution in household finances.

For many people, the benefit will be modest. And when measured against the cost-of-living pressure most households have dealt with over the last few years, it is difficult to get too excited. It is less “historic tax relief” and more “we found some loose change in the couch and would like a press conference.”

The personal tax changes matter, but they are not the main story of this Budget.

The main story is capital, property and trusts.

Capital gains tax is changing

The Government is pressing ahead with major changes to capital gains tax.

Broadly, the proposal is to replace the current 50% CGT discount with cost base indexation from 1 July 2027.

Under the current system, individuals and trusts can generally reduce eligible capital gains by 50% where the asset has been held for more than 12 months. Under the proposed system, the cost base of the asset would instead be indexed for inflation.

That sounds technical, because it is. But the broad idea is that instead of simply halving the capital gain, the tax system would try to remove the inflationary component of the gain and tax the remaining real gain.

There is also a proposed 30% minimum tax rate on capital gains.

This could be particularly relevant for people who were planning to realise capital gains in a low-income year, such as retirement, a career break, or a year where taxable income was otherwise low.

It may also be relevant for people with significant unrealised gains in shares, property or other investment assets.

The Government is also proposing to bring pre-CGT assets into the CGT system, but only for gains accruing from 1 July 2027. That does not mean the historical gain before that date suddenly becomes taxable. It does mean future gains may be caught, which makes valuations and record keeping much more important.

If you have held an asset for a very long time, particularly something acquired before 20 September 1985, this is one to watch carefully.

Negative gearing is also changing

The Government is also pressing ahead with changes to negative gearing.

Broadly, from 1 July 2027, negative gearing for residential property is proposed to be limited to new builds.

Existing residential investment properties held before Budget night are expected to be grandfathered for negative gearing purposes until they are sold. That means if you already owned the property before the announcement, you should generally be able to continue negatively gearing that property.

However, for established residential properties purchased after the relevant announcement time, losses may be quarantined. Instead of being offset against salary, wages or other income, those losses may only be deductible against residential property income or capital gains. Excess losses would be carried forward.

In plain English, the after-tax cash flow of future property investments may look different.

This does not mean property investment is dead. It does mean property investment spreadsheets may need to become slightly less optimistic, which will be a devastating development for anyone who enjoys assuming capital growth solves everything.

The family trust issue

For many of our clients, the biggest issue to watch will be the proposed 30% minimum tax on discretionary trust income from 1 July 2028.

This is the one that could affect family trusts, business structures, investment structures, bucket company arrangements and the way income is distributed between family members and related entities.

At this stage, the Government has announced the policy, but the detail still appears to be very much in discussion. That distinction matters, because with trusts, the detail is not just a footnote. The detail is the whole game.

The broad idea is that the trustee would pay a minimum tax of 30% on discretionary trust income. Beneficiaries would still include their trust income in their own tax returns, but the credit for tax paid by the trustee is proposed to be non-refundable for most beneficiaries.

The policy aim is fairly clear. The Government is targeting situations where trust income is distributed in a way that results in less than 30% tax being paid overall.

But family trusts are not just tax toys sitting on a shelf waiting to annoy Treasury.

They are used for asset protection, business succession, investment structures, family wealth management and estate planning. They are also commonly used by small businesses that have operated through the same structure for years, often for perfectly legitimate commercial reasons.

So while there is a reasonable chance that some structures may need to be reviewed, and in some cases eventually restructured, we are not at the point where anyone should be making major structural decisions based on Budget headlines.

We need to see how the legislation is drafted. We need to see how the proposed credits will work. We need to see how corporate beneficiaries will be treated. We need to see what the exclusions actually cover. We need to see what rollover relief will look like. We also need to understand whether there are any state duty issues or other unintended consequences hiding in the bushes with a shovel.

This is also potentially relevant for clients who have testamentary trust arrangements written into their Wills.

That does not mean everyone needs to immediately rewrite their estate planning documents because of a Budget announcement. It does mean that, depending on how the final rules are drafted, testamentary trust arrangements may become part of the review process.

Again, the sensible approach is to let the dust settle before anyone starts swinging a hammer at structures that may still be perfectly appropriate.

Small business measures

There are also some useful business measures in the Budget.

The $20,000 instant asset write-off for small businesses is proposed to be made permanent. This is a welcome change.

For years, the threshold has been changed, extended, reduced, resurrected, extended again, nearly killed off, and then dragged back into the Budget papers like a soap opera character who was never really dead.

A permanent threshold provides more certainty for small business owners planning asset purchases. Of course, the usual warning still applies: buying something to save tax only makes sense if you actually needed the thing in the first place.

Spending a dollar to save less than a dollar is not tax planning. It is just shopping with better stationery.

The Government is also proposing to reintroduce company loss carry-back rules. Broadly, this may help eligible companies that have paid tax in previous years and later incur losses, subject to conditions such as franking account balances.

This could be useful for businesses with uneven profits, growth phases, temporary setbacks or industry-specific cycles.

Electric vehicle FBT concessions

The Budget also includes proposed changes to electric vehicle FBT concessions.

The full FBT exemption for electric vehicles is expected to be phased out over time. Existing arrangements may be protected in some cases, and concessional treatment may continue in a reduced form, but the current full exemption is not expected to remain indefinitely.

Anyone considering an electric vehicle through a business or salary packaging arrangement should seek advice before assuming the current concessions will still be available in the same form.

Tax concessions, like printer ink and political promises, have a habit of running out at inconvenient times.

So what should you do now?

For most clients, the answer is: be informed, but do not panic.

Some of these measures are already moving through the Parliamentary process. Others, particularly the proposed trust changes, still need much more detail before any sensible advice can be given.

Hodkinson Accounting is reviewing the Budget announcements and monitoring the technical detail as it develops.

Where clients are likely to be affected, particularly those with family trusts, investment properties, significant capital gains, company structures, bucket companies or relevant estate planning arrangements, we will work through the implications as the rules become clearer.

At this stage, our advice is not to restructure anything, sell anything, buy anything or rewrite anything based on a headline.

Tax law is annoying enough when it is actually law. There is no need to lose sleep over the draft version before the Government has finished sharpening the pencil.

We will keep clients updated as more detail becomes available.