Federal Budget 2026: Tax Changes for Negative Gearing, Trusts, Bucket Companies & Capital Gains Reform

Treasurer Jim Chalmers handed down the 2026-27 Federal Budget on Tuesday 12 May 2026, delivering the most significant tax reform package in over a decade. The Budget forecasts an underlying cash deficit of $31.5 billion for 2026-27, with economic growth expected to slow to 1.75% and inflation temporarily rising to around 5%, driven by global fuel and transport cost pressures.

The reforms fundamentally reshape how Australians structure property investments, manage family trust distributions, and calculate capital gains tax. With staggered commencement dates across 1 July 2026, 1 July 2027, and 1 July 2028, taxpayers have windows to prepare — but only if they act before each deadline.

At Elite Accounting Solutions, we have cross-referenced the official Budget papers, the National Tax & Accountants' Association technical summary, and leading advisory firm analyses to bring you this definitive guide. Below is exactly what changed, when it starts, and what you should do about it.

1. Negative Gearing Reform: Established Properties Only

From 1 July 2027, negative gearing on established residential properties will be restricted. Losses from established residential rental properties will only be deductible against:

• Rental income from residential properties
• Capital gains realised on the sale of residential properties

Any excess losses must be carried forward and offset against future residential property income. They can no longer be used to reduce salary, wages, or other non-property income in the current year.

Acquisition cutoff: The changes apply to established residential properties acquired from 7:30pm AEST on 12 May 2026 (Budget night). Properties acquired before this time — including contracts entered into but not yet settled — are grandfathered and exempt from the changes until they are sold.

Important exemptions: The restriction does not apply to:

• New builds — eligible new residential properties remain fully negatively geared against all income
• Properties held in superannuation funds and widely held trusts
• Build-to-rent developments
• Private investors supporting government housing supply

What this means: If you are considering buying an established investment property, purchasing before the cutoff secures grandfathered status. New builds remain attractive from a tax perspective. Existing portfolios are protected until sale. Speak with us about timing your next acquisition.

2. Capital Gains Tax Reform: Indexation Replaces the 50% Discount

From 1 July 2027, the long-standing 50% CGT discount for individuals and trusts holding assets longer than 12 months is replaced by cost-base indexation, coupled with a minimum 30% tax rate on net capital gains.

Transitional protection: The changes are prospective. They apply only to gains accruing on or after 1 July 2027. Capital gains that accrued before 1 July 2027 continue to receive the existing 50% discount, even if the asset is sold after that date. This means existing investments are partially protected based on when the gain was built up.

Pre-CGT assets: Capital gains on pre-CGT assets that accrued before 1 July 2027 remain fully exempt from CGT.

New residential property choice: Investors in new residential properties will be able to choose either:

• The existing 50% CGT discount; or
• Cost-base indexation plus the 30% minimum tax

Income support exemption: Income support payment recipients, including Age Pension recipients, are exempt from the minimum 30% tax on capital gains.

Impact on short-term investors: The shift from a flat discount to indexation changes the mathematics for properties held 1-5 years. Indexation only adjusts the cost base for inflation, which may be less generous than a 50% discount in high-growth markets. However, the true impact depends on the inflation environment and your marginal tax rate.

SMSF investors: The CGT changes are not expected to apply to superannuation funds. The existing one-third CGT discount for SMSFs and complying super funds holding assets longer than 12 months remains unchanged, making super an even more compelling long-term investment structure.

3. Discretionary Trust Tax: 30% Minimum Rate from 1 July 2028

The Budget introduces a minimum 30% tax on the taxable income of discretionary trusts, commencing from 1 July 2028 (the 2029 income year). This is one of the most significant changes to trust taxation in decades.

How it works:

• The trustee pays a minimum tax of 30% on the trust's taxable income
• Individual beneficiaries (other than corporate beneficiaries) receive non-refundable tax credits for the tax paid by the trustee
• Beneficiaries on tax rates above 30% pay additional tax on top
• Beneficiaries on tax rates below 30% cannot claim a refund of excess credits

Corporate beneficiaries (bucket companies): Under the minimum tax, corporate beneficiaries are assessed based on the trust income to which they are entitled, without being able to claim credits for tax paid by the trustee. This removes the traditional tax-deferral advantage of distributing to a bucket company at the corporate rate and later streaming franked dividends.

No grandfathering: Unlike the negative gearing changes, there is no grandfathering for existing discretionary trusts. All discretionary trusts are captured from 1 July 2028.

Excluded trusts and income: The minimum tax does not apply to:

• Fixed trusts and fixed testamentary trusts
• Complying superannuation funds
• Special disability trusts
• Deceased estates
• Primary production income
• Income relating to vulnerable minors
• Amounts subject to non-resident withholding tax
• Income from assets of discretionary testamentary trusts existing at the time of the Budget announcement

Rollover relief: The Government will provide expanded rollover relief for three years from 1 July 2027 for small businesses and others wishing to restructure out of discretionary trusts into another entity type, such as a company or fixed trust. This is a critical window for trust users to review their structures.

Read our complete guide to trust distributions and tax →

4. Individual Tax Measures

4.1 Further Tax Rate Cuts

The Budget modifies the previously legislated Stage 3 tax cuts with additional reductions to the lowest marginal rate:

• From 1 July 2026: the 16% rate applying to income between $18,201 and $45,000 is reduced to 15%
• From 1 July 2027: it is reduced further to 14%

The full personal income tax rate schedule is as follows:

Note that the 37% bracket for $135,001-$190,000 is retained. Previous speculation that it would be eliminated did not eventuate. The tax savings from the lower bracket are estimated at up to $268 from 1 July 2026 and up to $536 from 1 July 2027 for eligible taxpayers.

4.2 Working Australians Tax Offset

From the 2028 income year, the Government will introduce a permanent $250 Working Australians Tax Offset for individuals earning income from work, including salary, wages, and sole trader business income. Around 13 million workers are expected to benefit.

The offset effectively increases the tax-free threshold for work-related income by nearly $1,800 to $19,985, or up to $24,985 where the Low-Income Tax Offset (LITO) also applies.

4.3 $1,000 Standard Deduction for Work-Related Expenses

From the 2027 income year (1 July 2026), eligible Australian tax residents who earn income from work can claim a standard deduction of up to $1,000 for work-related expenses without needing to itemise or produce receipts.

Individuals with work-related expenses exceeding $1,000 can continue to claim their actual deductions under the ordinary rules. Non-work-related deductions — such as charitable donations, union fees, and professional association memberships — remain separately claimable on top of the standard deduction.

4.4 Medicare Levy Low-Income Thresholds

The Medicare levy low-income thresholds for singles, families, seniors and pensioners will increase by 2.9% from the 2025-26 income year:

• Singles: increased from $27,222 to $28,011
• Families: increased from $45,907 to $47,238
• Single seniors and pensioners: increased from $43,020 to $44,268
• Family threshold for seniors and pensioners: increased to $61,623

For each dependent child or student, the family income thresholds increase by a further $4,338 (up from $4,216).

4.5 Private Health Insurance Rebate

From 1 April 2027, the Government will remove the age-based uplift of the Private Health Insurance Rebate. Currently, individuals aged 65 and above receive a higher rebate percentage. From April 2027, all ages within the same income tier will receive the same rebate rate.

5. Business Tax Measures

5.1 Permanent $20,000 Instant Asset Write-Off

From 1 July 2026, the $20,000 instant asset write-off will become permanent for small businesses with aggregated annual turnover of less than $10 million. Assets valued at $20,000 or more can continue to be placed into the small business simplified depreciation pool.

The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years after opting out will continue to be suspended until 30 June 2028.

5.2 Loss Carry-Back for Companies

From tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid up to two years earlier.

Loss carry-back is limited to revenue losses only and is capped at the company's franking account balance at the end of the year in which the offset is claimed.

5.3 Loss Refundability for Small Start-Up Companies

From tax years commencing on or after 1 July 2028, start-up companies with aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation can utilise the loss to generate a refundable tax offset.

The offset is limited to the value of fringe benefits tax (FBT) and withholding tax on wages paid in respect of Australian employees in the loss year.

5.4 Dynamic PAYG Instalments

From 1 July 2027, small and medium businesses will be able to opt in to monthly PAYG instalments and use an ATO-approved calculation embedded in accounting software to calculate and vary their instalments. This allows tax payments to better reflect real-time business activity. Taxpayers with a demonstrated history of non-compliance will be required to report and pay quarterly.

5.5 R&D Tax Incentive Reform

From 1 July 2028, the R&D tax incentive is reformed to simplify and better target government support for business innovation:

• The offset for core R&D expenditure increases by around 25% to 50% (through a 4.5 percentage point increase in core offset rates)
• The intensity threshold is reduced from 2% to 1.5%
• Supporting R&D expenditure is removed from eligibility
• The turnover threshold for the highest refundable offset increases from $20 million to $50 million
• For firms below the $50 million threshold, older firms retain eligibility for the higher offset rate, but refundability is limited to firms under 10 years of age
• The maximum expenditure cap increases from $150 million to $200 million
• The minimum expenditure threshold increases from $20,000 to $50,000. Research activities below $50,000 must be undertaken with a registered Research Service Provider or Cooperative Research Centre

6. Fringe Benefits and Motor Vehicles

6.1 Electric Vehicle FBT Concession Phase-Back

From 1 April 2029, a permanent 25% discount on FBT will apply for all electric cars valued up to and including the fuel-efficient luxury car tax threshold, implemented through a 15% statutory formula rate.

Transitional arrangements:

• All eligible electric cars will retain the FBT discount rate that was in place when the arrangement commenced
• Electric cars valued up to $75,000 provided before 1 April 2029 continue to be eligible for a 100% FBT discount (0% statutory rate)
• Electric cars valued above $75,000 up to the fuel-efficient LCT threshold, provided between 1 April 2027 and 1 April 2029, are eligible for a 25% discount (15% statutory rate)
• The existing 20% statutory rate continues for all other cars, including electric cars costing more than the fuel-efficient LCT threshold

Existing novated leases already in place will not be impacted by the changes.

6.2 Temporary Fuel Excise Reduction

For three months from 1 April 2026, the excise and excise-equivalent customs duty rates on most fuel products have been temporarily reduced by a total of 60.9%, equating to a 32 cent per litre reduction for petrol and diesel. The heavy vehicle road user charge has also been reduced from 32.4 cents per litre to zero during this period.

7. Other Key Budget Measures

7.1 Foreign Resident CGT — Renewable Energy Concession

The Government will provide a time-limited, targeted concession in the foreign resident CGT regime for investment in the renewables sector. The transitional arrangement applies to foreign investors disposing of certain renewable energy infrastructure assets from commencement (the first day of the next quarter after Royal Assent) until 30 June 2028.

7.2 Ban on Foreign Purchases of Established Dwellings

The temporary ban on foreign purchases of established residential dwellings is extended by two years and three months until 30 June 2029. The ban was originally implemented for two years from 1 April 2025.

7.3 Tax System Fraud Protection

The Government will provide $86.3 million over four years from 1 July 2026 (plus $9.7 million per year ongoing from 2030-31) for Phase 2 of the Counter Fraud Strategy. This enhances the ATO's ability to detect and prevent fraud in real time, expands live monitoring of fraudulent account access for tax agents and high-risk superannuation, and gives the ATO powers to pause and waive tax debts for victims of fraud by tax intermediaries.

7.4 Global Anti-Base Erosion (BEPS/GloBE) Rules

Australia will amend its global and domestic minimum tax legislation (introduced in 2024) to implement the side-by-side package agreed by the OECD/G20 Inclusion Framework on 5 January 2026. This affects Australian subsidiaries of large foreign groups and Australian multinationals with annual global revenue exceeding EUR 750 million.

7.5 National Fuel Security & Resilience Package

The Budget allocates over $10 billion to improve Australia's fuel security, including:

• $3.7 billion to establish a government-owned fuel security reserve holding 1 billion litres of emergency diesel and aviation fuel
• $7.5 billion in financial support for fuel companies to access loans, insurance, and equity to purchase and store more fuel stock
• Increasing Australia's mandatory petrol stockpiles to about 37 days and diesel/jet fuel to about 50 days

7.6 Housing Supply Investment

A $2 billion investment in critical infrastructure (sewerage, water, and power) aims to support the construction of 65,000 additional homes, with a quarter reserved for regional Australia. A further $500 million is allocated to streamline environmental approvals for new builds.

7.7 Aged Care and Healthcare

From 1 January 2027, incentives will support the construction of an additional 5,000 residential aged care beds each year. From 1 October 2026, personal care services under the Support at Home program (showering, dressing, non-clinical continence management) will be partially funded for eligible participants.

On healthcare, the maximum general PBS co-payment is reduced to $25, and the concessional co-payment is frozen at $7.70 until 2030. Additional hospital funding and continued support for Medicare Urgent Care Clinics are also included.

7.8 Social Security

From 20 September 2026, the full rate of Pension Supplement for temporary overseas departures is extended from six weeks to 12 weeks before ceasing. For permanent departures, the supplement ceases immediately. The Budget also includes further reforms to the NDIS aimed at improving sustainability and redirecting support to participants with the highest needs.

8. What These Changes Mean for Different Taxpayers

Property Investors

If you own or plan to buy established residential properties, the negative gearing restriction from 1 July 2027 and the CGT indexation model materially change the after-tax economics. Key considerations:

• Pre-Budget properties are grandfathered until sold — there is no rush to sell for CGT reasons because pre-July-2027 gains keep the 50% discount
• New builds retain full negative gearing and offer a choice of CGT methods
• Investors in super funds are unaffected by the CGT and negative gearing changes
• Consider whether holding properties long-term in super becomes more attractive

Family Trust Users

The 30% trust tax from 1 July 2028 with no grandfathering is a structural shift. Families should:

• Review whether a discretionary trust remains optimal for new investments
• Model the impact on existing bucket company strategies — corporate beneficiaries lose credit for trustee tax
• Consider restructuring into fixed trusts, unit trusts, or direct corporate ownership during the three-year rollover relief window from 1 July 2027
• Note that primary production income and certain testamentary trust income are excluded

Small Business Owners

The permanent $20,000 instant asset write-off, loss carry-back for companies, and dynamic PAYG instalments all provide meaningful cash-flow and planning tools. Start-ups in their first two years may benefit from the new loss refundability from 2028-29.

Individual Taxpayers

The further cuts to the 16% bracket (down to 15%, then 14%) and the $250 Working Australians Tax Offset deliver modest but welcome relief. The $1,000 standard deduction simplifies tax time for millions of Australians who do not claim large work-related expenses.

9. Action Checklist Before Key Dates

1. Before 30 June 2026: Small businesses should bring forward eligible asset purchases to access the $20,000 instant asset write-off. Maximise current negative gearing deductions on established properties while the rules remain unchanged.
2. Before 1 July 2027: Review property ownership structures. If considering established property acquisitions, understand that losses will be quarantined to rental and residential CGT from 1 July 2027. New builds remain fully deductible.
3. Before 1 July 2027: Investors considering selling pre-CGT or long-held assets should understand that gains accrued before 1 July 2027 retain the 50% discount. No need to rush sales solely for CGT reasons.
4. Before 1 July 2027: Trust users should begin modelling the 30% minimum tax impact and explore restructuring options. Expanded rollover relief is available for three years from this date.
5. From 1 July 2026: Individuals can begin claiming the $1,000 standard work-related deduction without receipts if their expenses are at or below that threshold.
6. From 1 July 2027: Companies with revenue losses can begin carrying them back up to two years for a refund, subject to franking account limits.
7. Before 1 April 2029: Employers providing electric vehicles under novated leases should review the FBT transition. Existing leases are protected, but new arrangements will face phased-in FBT rates.

10. Long-Term Structural Implications

The 2026-27 Budget signals a clear philosophical shift: passive investment income through established property and discretionary trusts is taxed more heavily, while work income, new housing supply, and long-term business investment are supported.

The staggered commencement dates — 1 July 2026 for individual tax cuts and standard deductions, 1 July 2027 for property and CGT reforms, and 1 July 2028 for trust taxation — give taxpayers time to adapt. However, the complexity of transitional rules means professional advice is essential to avoid costly missteps.

At Elite Accounting Solutions, we are already working with clients to model scenarios, review trust deeds, and identify restructuring opportunities before each deadline. The three-year rollover relief window for trusts and the pre-July-2027 grandfathering on CGT gains provide clear planning horizons.