Federal Budget 2026-27: Trust, CGT and Property Changes

The 2026-27 Federal Budget was handed down on 12 May 2026 against a backdrop of a global oil shock, rising inflation and renewed economic uncertainty. For most households, the headline was cost-of-living relief. For investors, business owners and anyone who uses a family trust, the real story sits in the tax reform chapter.

This is the most significant change to investment taxation in over a decade. The Government has announced a new minimum tax on discretionary trusts, significant proposed changes to the capital gains tax discount, and limits on negative gearing. Our view is simple: these measures are announced, not yet legislated, and that gap is exactly where good planning happens.

What is changing for discretionary trusts?

This is the measure that matters most to our client base. For families who distribute to adult children or a lower-income spouse to reduce the overall tax bill, the value of that income splitting would be largely removed. Where distributions go to a corporate beneficiary (a bucket company), the non-refundable credit is not expected to be available, which may reduce the benefit of bucket company strategies.

It is not a blanket tax on every trust. According to CA ANZ's budget analysis, fixed trusts, widely held trusts, complying superannuation funds, deceased estates, charitable trusts and fixed testamentary trusts are excluded. Some income is also outside the net, including primary production income and income from discretionary testamentary trust assets that existed at Budget night.

The non-tax features of trusts, including asset protection and access to concessions in appropriate cases, may remain relevant. Any restructure should be reviewed against the small business CGT concession rules and your asset protection objectives. What changes is the tax-rate advantage. To help groups respond, the Government has proposed a three-year window from 1 July 2027 to restructure a trust into a company or a fixed trust. If you are unsure how a discretionary trust actually works before weighing up a change, our explainer on how trusts work in Australia is a useful starting point, and our business tax services team can model the numbers for your group.

How is the capital gains tax discount changing?

The current 50 per cent discount sits in Division 115 of the Income Tax Assessment Act 1997. Under the new approach, you are taxed only on the gain above inflation, with a floor of 30 per cent. As Baker McKenzie notes, the change reaches broadly across CGT assets, including pre-1985 assets, where they are held by individuals, trusts or partnerships. For pre-1985 assets, gains accruing before 1 July 2027 would remain exempt; only gains arising after that date would be brought into the new rules.

There is important transitional relief. For an asset held before 1 July 2027 but sold after, the 50 per cent discount still applies to the gain accrued up to that date, and the new rules apply only to the gain after it. Investors in new residential builds may choose between the old discount and the new method, as set out in the Government's tax reform measures. For anyone holding growth assets such as shares or an investment property, this is a reason to model disposal timing carefully. Our property tax accounting team works through these calculations before any sale.

What is happening to negative gearing?

The cut-off time is the detail that catches people out. A property acquired before 7:30pm AEST on Budget night keeps the current treatment for as long as you hold it. This includes a contract entered before that time, even if settlement has not yet occurred. Buy an established home after that point and the rental losses are quarantined to property income, with any excess carried forward.

There are carve-outs. Widely held trusts, superannuation funds, build-to-rent developments and private investors supporting government housing programs are excluded, and negative gearing remains available on non-residential assets such as shares and commercial property. For clients weighing an established purchase against a new build, the financing and structure decision now carries a tax consequence. We coordinate this through our residential finance advisory alongside the tax position.

What is changing for individual taxpayers?

The cost-of-living measures are genuine relief. The Budget cost of living overview confirms an average earner is around $1,978 better off in 2026-27 and $2,496 from 2027-28, relative to 2023-24 settings. The $1,000 instant tax deduction lets workers reduce taxable income by up to $1,000 without keeping receipts, simplifying many returns.

One point worth flagging for higher-balance clients: the Division 296 tax on superannuation balances above $3 million is unchanged by this Budget and still commences on 1 July 2026. If you lodge as an individual or investor, our personal tax advisory team can confirm what these settings mean for you.

What do the changes mean for business owners?

For small and medium businesses, the Budget is mostly good news on cash flow. The permanent instant asset write-off, set under Subdivision 328-D of the Income Tax Assessment Act 1997, removes the annual uncertainty over whether the threshold will be extended. Loss carry back is expected to benefit up to 85,000 companies, but the eligibility conditions matter: it applies to companies with aggregated annual turnover under $1 billion, covers revenue losses only (not capital losses), and the refund is capped by the company's franking account balance. Start-ups in their first two years gain loss refundability from 2028-29, a package analysts have described as a welcome productivity and investment measure.

On instalments, businesses currently paying quarterly PAYG will be able to opt in to monthly reporting and payment from 1 July 2027, including dynamic instalment calculations through ATO-approved software, helping instalments track real-time trading conditions.

There is also a move to a permanent 25 per cent fringe benefits tax discount for electric cars over $75,000 from 1 April 2027, with the full exemption continuing for eligible vehicles up to $75,000 where the arrangement starts before 1 April 2029. We sequence these levers into capex and forecasting through our small business accounting service, and for founders, our startup advisory team models the refundability timing. Builders and trades clients can review the write-off against project equipment through our construction accounting service.

What about the Victorian Budget 2026/27?

For Melbourne business owners and property holders, the state Budget offers continuity rather than relief. Payroll tax is forecast to raise around $12.5 billion in 2026-27 with no reform, and property-based taxes continue to do most of the heavy lifting. The COVID Debt Levy adjustments to land tax remain in place until 30 June 2033. Our earlier guide on 2026 Victorian land tax sets out what investors should check.

When do the changes start?

Timeline drawn from Treasury Budget 2026-27 papers and Pitcher Partners' key-dates summary.

How should you prepare before the rules begin?

The most important point is that these measures are announced, not yet legislated. They are expected to proceed, but the detail can shift through Parliament. The practical risk is the opposite of complacency: the effective planning windows close well before the start dates, so preparation needs to begin now. Here is where we would focus first.

• Review every discretionary trust against the exclusions and the beneficiary profile, then decide whether the rollover to a company or fixed trust is worthwhile.
• Model capital gains on growth assets under both the old and new methods, and consider disposal timing relative to 1 July 2027.
• Confirm the grandfathering status of any property you already hold, and weigh established versus new-build before any new purchase.
• Plan capital expenditure and loss positions to make the most of the permanent write-off and the return of loss carry back.
• Lock in electric car arrangements before the FBT thresholds change if a vehicle is part of your remuneration planning.

How 42 Advisory helps you respond

A budget summary tells you what changed. Our role is to identify the options, model the tax impact, and help you make an informed decision before the rules commence. In our experience working with professional services groups, property investors and trading businesses across Melbourne, the families who act early in a reform cycle keep far more options open than those who wait for the legislation.

Consider a common structure: a family group running a trading company, with profits distributed through a discretionary trust to a bucket company and to adult family members. Under the announced rules, the trust-level minimum tax and the loss of refundable credits for the corporate beneficiary materially change that picture. We model the post-2028 outcome, compare it against a company or fixed-trust structure, and use the rollover window deliberately rather than at the last minute.

That work runs across our services rather than in isolation. Trust and structure reviews sit with our business tax team; capital gains and property decisions with property tax accounting; and individual positions with personal tax advisory. As a fixed-fee CPA firm, we build this into year-round advisory, so the planning happens before the deadline, not in the rush at lodgement.

The bottom line

The 2026-27 Federal Budget delivers real cost-of-living relief alongside the deepest changes to investment taxation in years. The trust minimum tax, the capital gains tax overhaul and the negative gearing limits will reshape how many Melbourne families and businesses are structured. None of it is law yet, which is precisely why now is the time to review your position. The cost of acting early is a planning conversation; the cost of waiting is lost flexibility.

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