2026 Federal Budget – headline issues

On 12 May 2026 Treasurer Jim Chalmers handed down a budget, touted as a once in a generation plan.  Whilst ambitious, the devil will ultimately, as always, be in the detail as the legislation required to implement some of the proposals is complex.

The Treasury Laws Amendment (Tax Reform No.1) Bill 2026 was introduced to the House of Representatives on 28 May 2026.  It deals with the budget proposals regarding capital gains tax, negative gearing, the working Australians tax offset and the standard deduction for work-related expenses.  The legislation for the proposed changes to discretionary trusts has yet to be introduced.

This article is a short summary designed to highlight some of the main issues for investors and individuals in respect of the capital gains tax, negative gearing and discretionary trust proposals, noting that things may change before any final legislation passes through the Senate. 

Capital Gains Tax

At a high level, the proposals in respect of capital gains tax include:

1. Replacing the current 50% capital gains tax discount (for assets held for more than 12 months) with an indexation method – including in respect of pre-CGT assets (assets held since before 20 September 1985).
2. Applying a minimum 30% tax rate to net capital gains under the abovementioned indexation method, with exemptions for income support payment recipients, including those receiving the Age Pension.
3. These changes will only apply to capital gains arising on or after 1 July 2027.

Negative Gearing

Under the current taxation regime, where a taxpayer owns residential property and incurs a net loss in a financial year, losses can be offset against other income earned by the taxpayer.  The Budget proposals change this position significantly as follows:

1. From 1 July 2027 negative gearing will be limited to new residential builds, with losses from existing residential properties only able to be deducted against rental income or capital gains from residential property (as opposed to all income earned by the taxpayer).
2. This will apply to existing residential property acquired from 7:30pm AEST on 12 May 2026.
3. Existing residential property held prior to this date will be exempt until sold.
4. Widely held trusts and superannuation funds will be exempt from the proposal.

Discretionary Trusts

This proposal has a significant impact on structuring considerations (including for asset protection).  Broadly the changes mean:

1. A 30% minimum tax on the taxable income of discretionary trusts is proposed from 1 July 2028.
2. This will be payable by the trustee, before resolving distributions to beneficiaries of any such trust.
3. Beneficiaries, excluding corporate beneficiaries, will receive non-refundable credits for the tax paid by the trustee.
4. While deceased estates are not caught by this proposal, testamentary trusts that are not fixed and did not exist at the time the budget was announced will be caught in these measures. This has significant estate planning implications.
5. Certain income will be excluded including:
   1. primary production income
   2. income from assets of non-fixed testamentary trusts that existed before the budget
   3. income relating to vulnerable minors, and
   4. amounts subject to non-resident withholding taxIt has been proposed that there will  be expanded rollover relief to allow restructures out of discretionary trusts for three years commencing on 1 July 2027.  
6. It has been proposed that there will be expanded rollover relief to allow restructures out of discretionary trusts for three years commencing 1 July 2027.

We recommend you seek advice before taking any steps to restructure your assets or change your estate planning intentions, particularly given final legislation has yet to be implemented.