It’s been a while since we’ve had an eventful Budget night, but the 2026/27 Federal Budget handed down by Treasurer Jim Chalmers handed out some of the most significant tax changes in recent history.  And whilst it can’t be termed “reform”, it can be referred as a major shift in the tax rules concerning those in the small-to-medium enterprise market.

The writer will leave the opinion on the Budget’s proposed effectiveness on inter-generational wealth, housing affordability, fuel prices, inflation or interest to our dear readers.  However our short-form overview of the changes announced from a tax perspective are:

The Good

• Tax offset of $250 from the 2027-28 year.
• $1,000 instant deduction from workers from the 2026-27 year. Fear not – if you can claim more, then the same old rules apply so this won’t affect you.
• Income tax cuts from 1^st July 2026 with a drop of the 16% rate on income between $18,201 and $45,000 to 15% in the first year, and to 14% the second.
• Increased medicare levy thresholds for low-income earners.
• Negative gearing still exists in respect of investments in “new property” as well as most other investments – shares, commercial property, etc.
• Existing negatively geared properties, as of the 12^th May 2026, can continue.
• They are finally setting in stone the instant asset write off to be $20,000 per annum from the 1^st July 2026, so we don’t have to wait each year to find out if or how much.
• Loss carry-backs are back, for companies who make a loss but have prior year tax-payable positions and enough credits to get refunds, from 1^st July 2026.
• Small start-up companies with losses might be able to claim in their first two years a tax offset on the amount of the FBT and PAYG Withholding it pays from the 1^st July 2028.
• Changes to CGT won’t affect SMSFs.

The Bad

• Negative gearing does not apply for “established” property for any properties purchased as of the 12^th May 2026. There is some transitional relief up until the 30^th June 2027, but nothing after that.
• The Capital Gains Tax 50% discount ends on the 30^th June 2027. Any gains after that can be reduced under indexing (the old, old rules) so valuations of any CGT-bearing assets as of the 30^th June 2027 will be crucial
• Minimum tax on trust distributions of 30%, meaning that trusts will be liable for tax on their distributions, of which that tax credit is available but not refundable to beneficiaries – therefore if the beneficiary’s marginal individual rate is less than 30% then you won’t be refunded, such is with franking credits. This doesn’t apply to primary production income or income relating to venerable minors and some other forms of income.
• The FBT exemption on electric vehicles is being wound back as of the 1^st April 2027 to only end up receiving a 25% ‘FBT discount’ from the 1^st April 2029.

The Ugly

• Pre-CGT assets can now be subject to capital gains tax – who’d have though it? Any gain on the asset after the 30^th June 2027 (again, the valuation at this point will be crucial) will be subject to capital gains.
• Discretionary trusts will not be able to distribute to ‘bucket’ companies for the most part any more, as the companies will pay their company tax on the distribution but not claim back any of the 30% minimum tax already paid at the trust level.

Be mindful of the start dates of some of these items and, especially in the case of the tax on trust distributions, there’s still a lot of clarification to come particularly around the ability to possibly re-structure.

And, as always, if you aren’t sure what this means or how it might affect you, contact our office anytime.

Contributed by David Gow