Tuesdays Federal Budget, delivered by Jim Chalmers, included some of the most significant proposed tax changes seen in Australia in decades. The major focus areas were capital gains tax, family trusts and investment taxation.
While many of the finer details are still to be released, these proposals could have significant long-term implications for investors, business owners and family groups.
Importantly, most measures do not commence immediately, and there is currently limited information on their technical application, meaning there is currently time for taxpayers to properly assess their position before making major decisions.
Key Announcements
1. Capital Gains Tax Discount Abolished
Effective Date: 1 July 2027
The Government announced plans to abolish the 50% CGT discount from 1 July 2027.
Current indications are that gains accrued up to 1 July 2027 will be grandfathered. This means taxpayers may need market valuations completed at that date.
In summary:
- Growth up to 1 July 2027 may still receive the 50% CGT discount
- Future growth after that date would be fully taxable
Importantly:
- Newly constructed residential properties are expected to retain access to the CGT discount
- Early commentary suggests the Government may seek to bring future post 1 July 2027 growth on pre-CGT assets into the CGT regime, however no detailed legislation has yet been released.
These changes could significantly impact long-term investment and succession planning strategies.
2. Negative Gearing Changes
Effective Date: Budget Night (new purchases only)
Negative gearing for residential investment properties will be limited for properties acquired after Budget night.
Existing investment properties are expected to be grandfathered.
Importantly, newly constructed residential properties are expected to remain eligible for both:
- Negative gearing
- The CGT discount
This is intended to encourage new housing construction.
3. Major Changes to Family Trust Taxation
Effective Date: 1 July 2028
The Budget proposes a new 30% non-refundable tax on trust distributions to individual beneficiaries.
At this stage, details remain limited. However, early indications suggest:
- Individuals may receive a non-refundable tax credit
- Corporate beneficiaries may not receive equivalent credit treatment (this could create situations where distributed income is effectively taxed twice)
- Treatment of distributions from one family trust to another is uncertain
The proposed rules are expected to materially reduce the tax effectiveness of discretionary trust distributions for many middle-income taxpayers and may leave taxpayers with incomes under the top marginal tax rate worse off.
Given the widespread use of discretionary trusts, these proposals could have very significant implications for many family and business structures.
Other Key Changes Include
- Expanded Loss Carry-Back for Small Companies
Effective Date: 1 July 2026
Companies with turnover under $1 billion will be able to carry back tax losses for up to two prior income years (offsetting tax paid) potentially generating cash tax refunds. - Refundable Startup Losses
Effective Date: 1 July 2026
Startup businesses will be able to access refundable tax treatment for losses incurred during their first two years of operation. - New $1,000 Standard Deduction
Effective Date: 1 July 2026 (claim in 2027 tax return)
Individual taxpayers will be able to claim a standard deduction of $1,000 without detailed substantiation requirements. - Working Australians Tax Offset
Effective Date: 1 July 2027 (claim in 2028 tax return)
An additional $250 tax offset will be available for individual taxpayers. - Expanded Research & Development Incentives
Expected Effective Date: 1 July 2026
Expanded support is proposed for businesses undertaking eligible R&D activities, particularly in technology, manufacturing and innovation sectors.
What Should Taxpayers Do Now?
At this stage, there is no need to rush into major restructures or asset sales. Most measures are still subject to legislation, and many details remain unclear.
Importantly, the proposed grandfathering of capital growth up to 1 July 2027 means taxpayers currently have time to:
- Review existing structures
- Assess long-term investment strategies
- Obtain advice once legislation becomes clearer
These proposed reforms could significantly impact:
- Investment property ownership
- Family trust structures
- Business structuring
- Succession planning
- Retirement planning
- Capital gains outcomes
We are monitoring the changes closely
Our team is currently reviewing the Budget announcements and awaiting further Treasury and legislative detail.
If you would like to discuss how any of these proposed changes may affect your personal or business circumstances, please feel free to contact one of our team.
Please note the above measures are proposals only and remain subject to legislation. Final outcomes may differ materially from the Budget announcements.
We will continue to keep clients updated as further information becomes available.
Shaun Donaldson
Director