The Great Australian Tax Reset
On 12 May 2026, the Australian Federal Treasurer announced the 2026-2027 Budget. As had been speculated, a large number of radical measures were introduced. After two decades of limited tax reforms targeted mainly at foreigners and superannuation, measures were proposed to address long-known areas of weakness of the Australian taxation system.
Real Property Investments
The measures are expected to substantially impact the demand for existing properties, by discouraging debt-leveraged property investments and maintaining the foreign investment ban.
Negative gearing From 1 July 2027, rental losses on established residential properties bought after 12 May 2026 will be segregated as real property losses, and only deductible against rental gains or real property capital gains. Excess real property losses can be carried to future years. New constructions and properties held in widely-held trusts or superannuation funds will remain treated as general deductions.
Extension of the Foreign Purchase Ban Until 30 June 2029, foreign investors will continue to be banned from purchasing established residential properties. The ban was previously set to end by 31 March 2027.
Capital Gains Tax (CGT)
No impact on historical gains, but a substantial change in taxation for gains derived going forward.
CGT Discount From 1 July 2027, the 50% CGT discount will disappear, with a return to the pre-1999 indexation model for gains attributable after that date. New residential builds can still choose to apply the 50% discount. A choice will be given to separate the gain calculations based on the market value at 30 June 2027, or to apply a time apportionment.
Pre-CGT Assets From 1 July 2027, pre-CGT assets (acquired prior to 20 September 1985) will be given a cost base equal to their market value at 30 June 2027, and brought into the CGT regime.
CGT Minimum Rate From 1 July 2027, post-indexation gain realised by individuals, trusts and partnerships will be subject to a minimum 30% rate.
Rollover Relief From 1 July 2027, limited CGT relief will be introduced to allow transfer of assets to companies or fixed trusts. However, these are hinted to be mainly accessible by small businesses.
Discretionary Trusts
The measure aims to remove the traditional use of discretionary trusts to distribute to beneficiaries at lower tax thresholds. The current proposal would result in distributions to companies being double-taxed.
Trustee Tax From 1 July 2028, a new 30% Trustee Tax will be payable by the Trustee on all distributions not already subject to Trustee taxation.
Limited credits for Trustee Tax The new Trustee Tax would give rise to non-refundable tax offsets, claimable by non-corporate beneficiaries only.
Small Businesses
Some welcome relief for small businesses, introducing more clarity and flexibility.
A Permanent Instant Asset Write Off From 1 July 2026, the rules would now be fixed at a permanent $10m aggregated turnover and $20k asset value threshold. This would permanently replace the current legislated thresholds of $10 million aggregated turnover and a $1,000 asset threshold. The measure would also end over a decade of temporary extensions, changing thresholds and retrospective amendments.
Voluntary monthly PAYG Instalments A new option to align tax instalments more closely to business performance.
Startup Refundable Loss From 1 July 2028, startups with less than $10m of aggregated turnover will be able to claim a refundable tax offset for losses incurred in their first 2 years of operation. The offset will be capped by the total amount of PAYG withholding on wages, and fringe benefits tax paid during the year.
Companies
The return of the company losses will provide more flexibility for businesses.
Loss Carry-Back From 1 July 2026, a two-year loss-carry back ability for companies with aggregated turnover below $1b. The carry-back amount will be capped by the availability of franking credits.
Research & Development Incentive From 1 July 2028, an increase of the offset for core R&D expenditure to 50%, a reduction of the intensity threshold to 1.5%, an increase of the expenditure cap to $200m and of the minimum expenditure threshold to $50k, and the removal of supporting R&D expenditure claims. Access to the higher offset rate would expand from companies below $20m aggregated turnover to $50m, but refundability would be restricted to companies incorporated within the previous 10 years.
Commitment to Link Director IDs to the ASIC Register Four and a half years after the introduction of Director Identification Numbers, a planned use for them by 2029.
Large Multinational Entities
Side-by-Side Package From 1 January 2026, implementation of the OECD rules discussed in our earlier article.
Employers
Fringe Benefits Tax (FBT) on Electric Cars Up to March 2027: new electric cars fully exempt from FBT (subject to restrictions). From 1 April 2027, new electric cars with value below $75k exempt from FBT, electric cars above $75k subject to a 25% FBT discount. From 1 April 2029, new electric cars with value below $75k subject to a 25% FBT discount.
Venture Capital Limited Partnerships
Increase in Thresholds for Venture Capital Limited Partnerships From 1 July 2027, an increase of initial investment caps from $250m to $480m
Increase in Thresholds for Early-Stage Venture Capital Limited Partnerships From 1 July 2027, an increase of initial investment caps from $250m to $480m, of the tax incentive asset cap from $250m to $420m, and of the maximum fund size from $200m to $270m
Individuals
Working Australians Tax Offset From 1 July 2027, an indexed non-refundable tax offset of up to $250, effectively increasing the tax-free threshold for those deriving employment income.
Simplified Work-Related Deduction From 1 July 2026, a new option to elect for a $1,000 tax deduction for work-related expenses, instead of actual costs.
While these measures remain proposals only, they represent a potentially significant shift in the Australian tax landscape. Investors, business owners and trustees should carefully review existing structures and proposed transactions in light of the announced reforms. Professional advice should be sought before taking action.
