The 2026 federal budget breakdown

 

The 2026 Federal Budget breakdown:

What it really means for SMBs

 

With rumours circulating even before it was delivered, last week’s Federal Budget delivered some of the biggest tax changes and measures for more than 25 years.

While Treasurer Jim Chalmers labelled the changes a step towards “building a better tax system for businesses”, it has left many of our SMB and building and construction clients with more questions than answers.

From reforming negative gearing to changes to Trust taxation and instant tax write-off rules, there’s a lot to break down – especially when it comes to what this means for your business.

As a certified accountant and business advisor, here’s the big changes you need to be across, the potential impacts and actions you may need to consider.

 

Capital Gains Tax discount replaced

 

What’s changing at a glance:

• New rule: Discount will be replaced and calculated as a cost base index (calculation yet to be explained by the ATO)
• Minimum of 30% tax rate: Applicable for all capital gains made after 1 July 2027.
• Who it applies to: Individuals, trusts (including testamentary trust yet to be established) and partnerships who have owned an asset for more than 12 months.
• Who is exempt: Superannuation funds (including SMSFs)

Starting from 1 July 2027, these new changes will apply to capital gains realised after the July starting date. While the ATO is yet to share how the new indexation rules will be calculated, it will apply to any asset you buy and sell after 1 July 2027.

What does this mean in reality? To crystallise the 50% discount, any assets you hold on 30 June 2027 should be valued. Any gain accrued after 1 July 2027 will be calculated at the new indexed cost base rate.

 

Capital gains for discretionary trusts could be messy

Where it is a little unclear is how capital gains will be carved out for discretionary trusts considering its current 30% distribution tax rate and franked distributions.

For discretionary trusts with property, a separate minimum tax rate will apply from 1 July 2028. Here, the current 50% capital gains tax will continue for gains accrued before 1 July 2027. After this date, new rules will apply.

This could encourage rent-free or low-rent related-party arrangements for property trusts. Where Trusts own the premises or there is a related trading company loss, it may stop charging rent or reduce it to avoid being exposed to the 30% threshold. However, this does create other issues and create new structuring behaviour surrounding whether:

• Part IVA General Anti-Avoidance
• Property deductions are deductible
• The arrangement is commercial
• GST credits are available
• The company has a proper lease/licence
• Financiers/insurers accept the arrangement

> Read more about the changes to discretionary trusts

 

Negative gearing rules upheaved

 

What’s changing at a glance:

• Significant scheme changes: Negative gearing will no longer apply to existing residential investment properties, with only new builds eligible for the scheme.
• Who it applies to: All residential property investors
• Who is exempt: Investors with established residential investment properties purchased before 12 May 2026.

Allowing net rental losses from residential investment properties to be offset against other forms of income, negative gearing has been a commonly used tax strategy for many Australian investors.

While not fully abolished, negative gearing will now only be available to new builds. However, this is where negative gearing becomes a little complex, as not all new builds are eligible.

New build types	Eligible for negative gearing?
Dwelling constructed on vacant land	Yes
Existing property demolished and replaced with more dwellings	Yes
Knock-down rebuild replacing one house with one house	No
Substantial renovation with no extra dwelling supply	No

 

Big changes for discretionary trusts

What’s changing at a glance:

• New minimum tax: Trustees will pay a minimum tax of 30% on taxable income distributed to beneficiaries.
• Tax credits: Non-corporate beneficiaries will receive a non-refundable credit for tax payable by the trustee.
• Who it applies to: Discretionary trusts and beneficiaries

One of the most discussed outcomes of the budget, the tax changes to discretionary trust are significant and quite complex. So much so, trusts will be hit harder than companies in some cases – stuck with a 30% minimum versus a company’s base rate of 25%.

Operating as a discretionary trust? 

One of the biggest changes in this year’s budget, we’ve created a deep dive into this topic with business advisor John Pititto. In this article, “The new world for discretionary trusts: Budget changes trustees need to know”, he shares what these changes mean and possible tax implications.

> Read it now

Instant asset write-off extended

What’s changing at a glance:

• Extended write-off rules: $20,000 instant asset write-off has been extended into 2026 with talk of it becoming a permanent feature in the next budget.
• Who it applies to: Small businesses who meet eligibility criteria

First introduced in 2023 for small business, instant asset write-off enables businesses to potentially deduct the full cost of assets under $20,000 rather than depreciating them over several years.

While it was set to expire this financial year, instant asset write-offs have been extended in this year’s Budget. The federal treasurer has also confirmed instant write-off benefits could feature in the next federal budget also. The same eligibility rules and exclusions still apply, including assets used for capital works and leased assets.

 

Loss carry back reintroduced for companies

What’s changing at a glance:

• Reintroduction of offset: The offset is set to continue for eligible start-ups
• Who it applies to: Small business start-ups

Applicable for companies with a turnover under $1 billion AUD, the loss carry back offset allowed certain small business start-ups to carry back revenue tax losses and offset them against tax paid for two years earlier.

From 1 July 2028, start-ups with aggregated annual turnover of less than $10 million AUD will be able to leverage this tax offset.

 

Phased changes for Fringe Benefit Tax (FBT) electric car exemptions

What’s changing at a glance:

• Phased approach: A three phase approach will apply from 1 April 2027
• Exemption replacement: Phase three will move to a 25% discount/li>
• Who it applies to: Businesses purchasing EVs/li>

While these exemptions will still exist, the Government has announced three-phased changes from 1 April 2027.

Full FBT exemptions will continue until this date, with it only available to EVs with a value of $75,000 or less until 1 April 2029. From this time, the exemption will be replaced with a 25% discount.

 

Not sure how these budget changes will impact your business?

Book a 1:1 session with our business advisors to understand potential tax implications and ensure you stay ahead of these changes.
> Book an advisory session now