2026 Federal Budget Summary

The Treasurer, Jim Chalmers, handed down the 2026-27 Federal Budget on the evening of 12 May 2026. It contains some of the most significant tax changes in two decades - particularly for investors, family groups using trusts, and small business owners.

We have summarised the key measures below, followed by our view of the Budget and some alternative measures that, in our opinion, would have been more constructive.

Please note these are only proposals and the Budget announcements still need to be passed by both the House of Representatives and the Senate before they become law.

The key Federal Budget proposals include:

Capital Gains Tax (CGT) 

• From 1 July 2027, the 50% CGT discount is abolished for individuals, trusts and partnerships
• Replaced by cost base indexation (CPI) plus a 30% minimum tax rate on capital gains.
• The changes will apply to all CGT assets, including pre-1985 CGT assets, held by individuals, trusts and partnerships.
• Transitional arrangements will apply, allowing the 50 per cent CGT discount to continue to apply to gains arising before 1 July 2027. Likewise, capital gains on pre-1985 assets arising before 1 July 2027 will remain exempt from CGT.
• Superannuation funds (including SMSFs) are unaffected - the 1/3 discount continues.
• Main residence and small business CGT concessions remain.
• Age pensioners and other income support recipients are exempt from the minimum tax.
• Investors in new builds may choose either the 50% discount or indexation.

Negative gearing on residential property

• From 1 July 2027, negative gearing is limited to new builds.
• Superannuation funds (including SMSFs) and widely held trusts are excluded from the change. Properties already held (or under contract) at announcement are grandfathered until sold. Established properties bought after 7:30pm on 12 May 2026 - losses only deductible against other property income or capital gains.

Minimum tax on discretionary (family) trusts

• From 1 July 2028 trustees will pay a minimum 30% tax on the taxable income of discretionary trusts.

• Beneficiaries receive non-refundable credits for tax paid by the trustee.

• Excluded: fixed and widely held trusts, testamentary trusts, complying super funds, special disability trusts, deceased estates and charitable trusts.

• Three-year rollover relief from 1 July 2027 to restructure out of a discretionary trust.

Personal income tax relief

• $18,201-$45,000 tax bracket reduces to 15% from 1 July 2026 and 14% from 1 July 2027.

• New Working Australians Tax Offset (WATO) of $250 p.a. from 1 July 2027.

• New $1,000 instant work-related deduction (no receipts required) from 1 July 2026.

Superannuation

• Division 296: extra 15% tax on earnings on balances over $3 million (and a further 10% over $10 million) from 1 July 2026.

• Payday Super begins 1 July 2026 - SG must be paid within seven business days of payday.

• Indexation of caps: CC cap $32,500; NCC cap $130,000; general Transfer Balance Cap $2.1 million from 1 July 2026.

Aged care, health and small business

• $1.4 billion for Support at Home, including fully funded personal care; $606 million for residential aged care (5,000 extra beds).

• Age-based Private Health Insurance (PHI) Rebate uplift removed from 1 April 2027 - higher out-of-pocket cost for seniors.

• $20,000 instant asset write-off made permanent. Two-year loss carry-back. Loss refundability for start-ups from 1 July 2028.

OUR COMMENTARY

In our view, the Budget is dressed up as housing and fairness reform but, in substance, is broad-based revenue‑raising. The Government has chosen to tax capital, family structures and seniors rather than tackle the harder structural levers.

The 30% minimum tax on discretionary trusts is, in our opinion, the most concerning measure. Family trusts are widely and legitimately used by small businesses, farmers, professionals and family groups for succession, asset protection and cashflow purposes. Distributing income to a spouse on parental leave, a tertiary-student child or a retired parent will be impacted. This is not integrity reform - it is double taxation on family enterprise.

Likewise, scrapping the 50% CGT discount and overlaying a 30% minimum tax penalises long-term, productive investment. Restricting negative gearing on established property will discourage investment without materially adding to supply. Quietly removing the PHI Rebate uplift for over-65s is a real cost to seniors on fixed incomes.

We have summarised below some of the alternative measures that should have been considered instead:

• First home buyer interest deduction - allow first home buyers to deduct (capped, time-limited for example up to 5 years) mortgage interest on their principal place of residence.

• Income splitting for families - permit a working spouse to split income with a non-working or low-income spouse (as in the US, Canada and Germany).

• Indexation of tax thresholds - stop bracket creep at its source rather than handing back a fraction through a $250 offset.

• Targeted housing supply incentives - accelerated depreciation, stamp duty rebates or GST relief on genuine new builds.

• Trust integrity, not trust penalty - targeted anti-avoidance rather than a blanket 30% trustee tax that punishes legitimate users.

• Small business company tax cut – to drive investment, employment and wage growth.

Superannuation - the structure that comes out ahead

One of the clearest takeaways from this Budget is that superannuation, and SMSFs in particular, may now be even more tax-effective compared to holding wealth in a trust, a company or in personal names.

No changes have been flagged for the taxation of CGT assets held by superannuation funds, including SMSFs. This means the 1/3 discount will continue to apply to superannuation entities including SMSFs.

Super funds (including SMSFs) are also excluded from the negative gearing changes and from the new discretionary trust tax. As industry commentators have observed, despite the Division 296 changes, Super may now look as a more attractive long term investment structure moving forward.

We have been assessing the potential impact of the Division 296 changes for relevant SMSF clients over the past 12 months.  In many high‑balance SMSF scenarios and subject to the proportion of the SMSF assets in pension phase, our modelling often indicates the overall tax position (including the additional Division 296 tax) to be between 5% and 15%. The tax position is therefore significantly lower than holding the same assets externally to the superannuation environment and within other entities ie trust, company or personally.

The new Budget measures may further widen that gap in the tax position further. Even after the additional 15% Division 296 tax on earnings above $3 million per individual (and a further 10% above $10m), Super will become the most tax-effective long-term wealth structure for most clients. Pulling money out of super in reaction to Division 296 - and exposing it to the new CGT, negative gearing and trust regimes outside super - may, in many cases, result in a less favourable overall tax outcome.

Please find attached the Federal Budget Wrap 2026 from the Financial Advice Association Australia (FAAA) for your reference. As outlined earlier, please note these measures are only proposals and are not yet legislated.

2026 Federal Budget Summary

We will keep you updated as the Budget legislations are introduced. Should you wish to discuss the announcements and the possible implications in relation to your financial planning strategy, please free to contact our office on 03 9695 5600 or please email finplanning@required.com.au.