Treasurer Jim Chalmers handed down the Federal Budget on 12 May 2026, and the consensus among tax and legal professionals is clear: this is the most significant structural reform to Australia’s tax system in more than 25 years. For business owners, investors, and family groups with assets held in trusts, the changes are not future concerns — several took effect the moment the Treasurer sat down on Budget night.

This article covers the key changes and what they mean in practice. A second article specifically addresses the implications for business valuations and why obtaining an independent specialist valuation before 1 July 2027 may be one of the most financially consequential decisions a business owner makes this decade.

1. Capital Gains Tax — The 50% Discount Is Gone

This is the centrepiece of the Budget’s tax reform agenda.

From 1 July 2027, the longstanding 50% capital gains tax discount will be replaced for individuals, trusts, and partnerships with two mechanisms operating together:

Cost base indexation — for assets held more than 12 months, the cost base will be indexed to the consumer price index, reducing the nominal gain subject to tax by accounting for inflation. This is a return to the system that operated between 1985 and 1999.

A 30% minimum tax on net capital gains — regardless of the taxpayer’s marginal tax rate, a minimum of 30 cents in the dollar will apply to real capital gains arising from 1 July 2027. This means that strategies which previously involved streaming gains to lower-income beneficiaries — or deferring a sale to a lower-income year — will no longer achieve their intended result.

Who is affected?

The changes apply to individuals, trusts, and partnerships across all CGT asset classes — not just property. Business interests, shares, commercial assets, and investment portfolios are all in scope.

Who is not affected?

Companies have never been entitled to the 50% CGT discount and remain unaffected. Complying superannuation funds, including SMSFs, are also excluded and continue under their existing CGT regime.

Transitional arrangements

Gains that accrued before 1 July 2027 remain eligible for the legacy 50% discount treatment. The new rules apply only to gains arising from 1 July 2027 onwards. This creates a critically important dividing line at 30 June 2027 — a point that directly determines how much tax is ultimately payable when an asset is eventually sold.

For new residential property, investors retain the right to choose between the existing 50% discount or the new indexation and minimum tax regime on disposal.

2. Pre-CGT Assets — Decades of Exemption Are Ending

This is perhaps the least discussed, but most consequential, change for long-term business owners.

Assets acquired before 20 September 1985 — known as pre-CGT assets — have historically been completely exempt from capital gains tax. That exemption is now being wound back for individuals, trusts, and partnerships.

From 1 July 2027, gains accruing on pre-CGT assets from that date forward will be subject to the new CGT regime — cost base indexation and the 30% minimum tax. Gains accrued before 1 July 2027 remain exempt.

The practical effect is that a 1 July 2027 market value is required to establish the deemed cost base for these assets. Everything above that value at the time of eventual sale becomes a taxable gain under the new rules.

Pre-CGT assets held in companies are unaffected.

3. Negative Gearing — Restricted to New Builds

From 1 July 2027, negative gearing on established residential investment properties will be quarantined. Losses from established properties will no longer be deductible against salary, business income, or other sources of income. Instead, those losses can only be applied against:

• Rental income from residential property, or
• Capital gains from residential property.

Excess losses must be carried forward and used against future residential property income. They are not lost — but their tax benefit is deferred, and in many cases significantly reduced.

Grandfathering

Properties held at 7:30pm AEST on 12 May 2026 are grandfathered under the existing rules until they are sold. If you owned the property at that moment, your current negative gearing treatment continues.

Properties purchased between 12 May 2026 and 30 June 2027 can be negatively geared until 30 June 2027, but not beyond that date unless they qualify as new builds.

New residential properties remain fully eligible for negative gearing regardless of when they are purchased.

Non-residential assets — shares, commercial property, and other investment assets — are not affected by this change. Negative gearing on these assets remains available.

4. Discretionary Trust Distributions — A 30% Minimum Tax

From 1 July 2028, a 30% minimum tax rate will apply to the taxable income of discretionary trusts. Beneficiaries who receive distributions will receive non-refundable credits for the tax paid by the trustee.

Australia has over 900,000 discretionary family trusts. Many of them have historically been used to distribute income to lower-income beneficiaries — children, spouses, family members on lower marginal rates — as a legitimate and widely-used tax planning strategy. That flexibility is being substantially curtailed.

The minimum rate means that distributing to a beneficiary on a 19% marginal rate, for example, will no longer reduce the effective tax on that distribution below 30%.

Who is exempt from the trust minimum tax?

The following are carved out:

• Fixed and widely-held trusts
• Charitable trusts
• Special disability trusts
• Complying superannuation funds
• Deceased estates
• Testamentary trusts that were in existence at the time of the Budget announcement (12 May 2026)
• Primary production income (in certain circumstances)

CGT rollover relief for restructuring

Recognising that many business operators will want to restructure out of discretionary trust arrangements, the Government has announced a three-year CGT rollover window. From 1 July 2027 to 30 June 2030, assets can be transferred out of a discretionary trust and into a company or other entity structure without triggering CGT. This window is finite and will not be extended.

Business owners considering restructuring their operating entities should not wait. The interaction between the rollover window, stamp duty obligations, and the trust minimum tax start date requires careful planning to achieve the best outcome.

5. Small Business CGT Concessions — Unchanged

In a significant piece of good news for SME operators, the existing Division 152 small business CGT concessions have been preserved in their current form. This includes:

• The 15-year exemption
• The retirement exemption
• The active asset reduction
• The rollover concession

Given the substantial increase in CGT exposure under the new regime for those who do not qualify for Division 152, the value and importance of these concessions has increased materially. Ensuring that a business sale structure is designed to maximise access to these concessions — and that a valuation supports that eligibility — has become more important than ever.

6. Superannuation — Division 296 and Contribution Changes

Division 296 — the additional 15% tax on superannuation earnings attributable to balances above $3 million — has already been legislated and received Royal Assent in March 2026. The first assessments will be issued after 30 June 2027.

The Budget confirmed that SMSFs are fully excluded from both the CGT discount changes and the negative gearing changes. The existing 1/3 SMSF CGT discount continues unchanged.

Contribution caps are increasing from 1 July 2026, and the Pay Day Super requirement — compulsory super paid on each payday rather than quarterly — is now in the implementation pipeline.

7. Instant Asset Write-Off — Made Permanent

A welcome and practical measure: the $20,000 instant asset write-off has been made permanent from 1 July 2026 for businesses with aggregated turnover under $10 million. This removes the annual uncertainty that has surrounded this concession for the past several years and allows eligible businesses to plan their capital expenditure with confidence.

Key Dates at a Glance

This article is intended as general information only and does not constitute tax advice. Navneet Jyoti is a Registered Tax Agent and CA Business Valuation Specialist. Contact 19 Steps Business Advisory to discuss your specific circumstances.