Federal Budget 2026: Structural Reform or Short-Term Politics?

The 2026-27 Federal Budget represents one of the most significant restructurings of Australia’s tax system in decades. Framed around intergenerational fairness and housing affordability, the Government has targeted long-standing concessions, particularly those impacting property investors, trusts and accumulated capital.

While the policy objectives are clear, the economic outcomes are far less certain. The interaction between these measures, persistent inflation, and a structurally weak productivity environment raises material questions for investors, business owners and high-income individuals.

The measures outlined below are based on announcements made in the 2026–27 Federal Budget and associated media releases. Many measures remain subject to consultation, draft legislation and parliamentary approval.

Capital Gains Tax

From 1 July 2027, the Government will:

• Replace the 50% CGT discount;
• Move to inflation-based indexation; and
• Introduce a minimum 30% tax rate on gains.

The reform applies only to gains arising after this date, creating transitional complexity where assets straddle both regimes.

Importantly, this change also removes the long-standing exemption for pre-Capital Gains Tax (pre-1985) assets. From 1 July 2027:

• Previously exempt assets will now fall within the CGT regime;
• Gains will be subject to indexation only, rather than full exemption.

This is a fundamental structural shift, effectively bringing all assets into the tax net for the first time.

In practice, the combined impact is significant:

• The loss of the 50% discount materially reduces after-tax returns on investment assets;
• Indexation is unlikely to compensate unless inflation is persistently high;
• The inclusion of pre-CGT assets expands the tax base in a meaningful way.

Overall, this represents a clear move away from incentivising long-term capital investment.

Negative Gearing

From 1 July 2027, negative gearing will be:

• Restricted to new residential properties only;
• Disallowed for established properties acquired after 12 May 2026 (Budget night);
• Existing properties are fully grandfathered.

For affected investors:

• Losses from established properties will no longer offset salary or business income;
• Instead, they will be quarantined and carried forward.

This materially alters the economics of property investment. Combined with CGT reform, the traditional model is effectively dismantled for future acquisitions.

While the policy aims to support new housing supply, there is a real risk that:

• Investment appetite is reduced overall, rather than redirected;
• Supply impacts are weaker than expected;
• A two-tier market emerges (grandfathered vs non-grandfathered assets).

Taxation of Trusts

From 1 July 2028, discretionary trusts will be subject to:

• A minimum 30% tax on taxable income will be levied to trustees, with non-corporate beneficiaries to receive a non-refundable credit for the tax paid by the trustee.

A 3-year rollover period (from 1 July 2027) will apply to facilitate restructuring out of discretionary trust should a taxpayer deem a trust structure no longer an appropriate vehicle for their affairs.

This represents a significant shift away from:

• income streaming;
• intergenerational planning flexibility.

Importantly to note, this change is likely to reposition company structures as comparatively more attractive:

• Companies offer a flat 25% or 30% tax rate (depending on eligibility);
• Retention of profits within a company may provide greater certainty than trust distributions;
• The alignment of trust taxation toward corporate rates reduces the relative advantage of discretionary structures.

As a result, many investors and business groups will need to reconsider:

• whether trust structures remain appropriate;
• or whether a transition toward corporate or hybrid structures is warranted.

Business Taxes 

Loss Carry-Back

From 1 July 2026, the Budget:

• Reintroduces loss carry-back permanently;
• Allows companies to offset losses against profits from the previous two years;
• Provides a cash refund of tax previously paid.

Eligibility:

• Companies with turnover up to $1 billion.

This is a positive measure:

• Particularly for cyclical businesses;
• Provides immediate liquidity;
• Encourages continued investment in downturns.

However, the scale remains modest relative to broader tax tightening elsewhere.

Instant Asset Write-Off

From 1 July 2026, the Budget confirms:

• The $20,000 instant asset write-off becomes permanent.

Key parameters:

• Applies to businesses with turnover less than $10 million;
• Threshold is per asset;
• Available for both new and second-hand items.

While this provides welcome certainty:

• It is relatively small in quantum;
• It primarily affects timing of deductions, not overall tax outcomes.

Start-up Loss Refundability

In addition to loss carry-back, the Budget introduces a new form of loss refundability for early-stage companies, although its practical impact is relatively limited. From 1 July 2028, start-ups with turnover below $10 million will be able to generate a refundable tax offset from losses incurred in their first two years of operation. 

However, the refund is capped at the level of PAYG withholding tax and FBT paid on employee wages, meaning the benefit is effectively tied to payroll rather than the size of the loss itself. 

While this provides some early-stage cash flow support, particularly for businesses hiring staff, it falls short of a full monetisation of losses and is unlikely to materially alter funding dynamics for many start-ups.

Fringe Benefits Tax (FBT) – Electric Vehicles

The EV FBT regime is being progressively wound back:

Phase 1 – Until 31 March 2027:

• Full exemption remains

Phase 2 – 1 April 2027 to 31 March 2029:

• EVs under $75,000 receive a full exemption
• EVs above $75,000 move to a 25% FBT discount

Phase 3 – From 1 April 2029:

• All EVs move to a 25% FBT discount only

Additionally:

• Plug-in hybrids lost eligibility from 1 April 2025

This significantly reduces the effectiveness of EV salary packaging strategies, particularly for:

• higher-income individuals;
• professional service clients.

Personal Tax Changes

The Budget includes additions to the previously legislated Stage 3 tax cuts:

Rate reductions:

• From 1 July 2026: 16% to 15%
• From 1 July 2027: 15% to 14%

Offset:

• $250 annual Working Australians Tax Offset (from 2027–28)

While politically appealing in the short-term, these changes are modest in value and heavily delayed.

In practical terms, ongoing bracket creep remains a major revenue driver.

Superannuation – Division 296

Whilst not a budget measure, it is important to remember that from 1 July 2026, additional tax applies to large super balances:

• $3m – $10m:
  • Additional 15% tax on earnings
  • Effective rate: 30%
• Above $10m:
  • Additional 25% tax on earnings
  • Effective rate: 40%

Key features:

• Applies across total super balance;
• Indexed thresholds;
• Tax assessed on member balances, not at fund level.

This is a significant shift:

• Reducing concessional treatment for higher balances;
• Increasing the need for long-term super strategy planning.

The Government has indicated support for higher effective tax rates on very large super balances, although the final legislation and threshold design remain subject to parliamentary process.

Productivity

The Budget references; deregulation, faster approvals, reduction in compliance burden. However, there is limited detail on delivery. Given Australia’s weak productivity growth and rising cost base, this remains a critical uncertainty. Without productivity improvement, inflation persists, investment slows and fiscal pressure increases.

Fiscal Position and Economic Outlook

Despite extensive reform:

• The Budget remains in persistent deficit;
• Return to surplus not expected until the mid-2030s.

Key budget assumptions:

• Inflation peaks around 5%;
• Returns to target of 2.5% over several years;
• Growth slows to 1.75%.

The result is that interest rates are likely to remain higher for longer.

Other Key Measures

The Budget also includes:

• Cost of living measures (incl. tax offset);
• Housing supply initiatives (incl. infrastructure support for 65,000 homes);
• NDIS reform (key long-term fiscal lever);
• Defence spending increases;
• $8.6bn infrastructure investment;
• $25bn healthcare funding.

Collectively, these reinforce ongoing expenditure pressures and structural deficit challenges.

Final Observations

The 2026 Budget clearly represents a shift in tax policy direction.

Key themes include:

• Reduced incentives for capital investment;
• Increased complexity in structuring;
• Expansion of the tax base (including pre-CGT assets);
• Greater alignment of passive structures (trusts) with corporate taxation.

While some business support measures are welcome, they are outweighed by broader structural tightening.

The overall environment is becoming less favourable for capital, more complex to navigate and increasingly dependent on macroeconomic assumptions outside Government control.

At Jaquillard Minns we are already proactively reviewing your individual circumstances and the implications of these changes.

We are available to assist with:

• reviewing ownership structures;
• assessing CGT and investment impacts;
• modelling superannuation outcomes; and
• developing forward-looking tax strategies.

If you would like to discuss how these reforms affect you, please contact our team.