The 2026/27 Federal Budget has introduced a series of significant proposed tax reforms that will reshape how individuals, investors, and business owners structure their affairs over the coming years. While many headlines have focused on housing affordability and cost-of-living relief, the technical detail beneath these announcements reveals substantial changes to capital gains tax, trust distributions, and investment strategies. These reforms signal a broader shift in policy direction, particularly around the taxation of passive wealth and the use of traditional structures such as discretionary trusts.

At Eagle Financial, we understand that navigating these changes can be complex, especially where multiple rules interact or transitional provisions apply. To assist, we have simplified the key measures most relevant to our clients and provided practical commentary on what they may mean in real terms. Importantly, most of these announcements are not yet legislated and may evolve before becoming law. As always, the impact will depend heavily on your individual structure, so we strongly recommend seeking tailored advice before making any decisions.

We strongly recommend speaking with us before acting, as the application will be highly dependent on your structure.

CGT reform

50% CGT discount abolished, replaced with an inflation-based cost adjustment (AKA indexation) alongside a 30% minimum tax

* No changes proposed for main residence or small business CGT concessions

** Remember, exchange/contract date is the important one for CGT purposes, not settlement date.

Who this affects: Individuals, partnerships, and trusts

What it means: New residential property purchases, have the option to use the 50% CGT general discount or indexation method.

For all other existing properties:

  • If sold before 1 July 2027, these changes do not impact you.
  • If owned before 1 July 2027, but sold after; a mix of 50% general discount, indexation and 30% minimum tax all need to be considered.
  • If bought after 1 July 2027, only the indexation and 30% minimum tax need to be considered.

Individuals with income under $45,000 before adding the capital gain, will be worse off considering the new minimum 30% taxing rule eats into the lower income tax brackets.

Pre 20 Sept 1985 assets, to become taxable under this indexation and minimum 30% tax, for gains post effective date (i.e. tax free up until 1 July 2027).

The minimum 30% tax exemption for government income support recipients and pensioners.

Proposed effective date: From 1 July 2027

Discretionary trust distributions – 30% tax

Trusts will pay 30% tax on distributions, carried to beneficiaries as non-refundable tax offsets (credits)

Who this affects: Discretionary trusts and its beneficiaries

What it means: Beneficiaries can use these credits to offset their personal tax, but excess credits are lost (not refundable in contrast to franking credit associated with dividends from a company).

Before receiving a trust distribution, an individual beneficiary with:

  • a wage and other taxable income already above $45,000, will not be impacted by this change.
  • no other income, worse off if the trust distribution is under $200,000 as demonstrated per the below table with various scenarios:
    Trust Distribution (gross) $150,000 $200,000 $250,000
    Tax calculation:      
    Tax owed on the gross distribution $39,838 $60,000 $78,638
    Non-refundable trustee credit (30%) ($50,000) ($60,000) ($75,000)
    Tax Position Previously $10,162 refundable, now nothing under new proposal Neutral $3,638 payable, no change under new proposal

The use of companies to receive trust distributions will be worse off, because in addition to the trust paying 30% tax, the company is then obligated to pay a further 30%.

This puts a lot more emphasis on year-end tax planning, and trust distribution minutes.

Proposed effective date: From 1 July 2028

Negative gearing restrictions

Negative gearing limited to new builds

* Remember, exchange/contract date is the important one for this negative gearing rule, not settlement date.

Who this affects: Residential property investors

What it means: Grandfathering (as in, if you already own the property before budget night); retain full negative gearing benefits remain (i.e. no change).

From 7:30pm 12th May 2026, purchased established residential properties cannot be negatively geared against salary or other income. The negatively geared property losses may be quarantined and carried forward against future property income or CGT.

From 1 July 2027, negative gearing tax benefits are only available for newly constructed residential properties (including off-the-plan and those that add to the housing availability – i.e. demolishing a single house to build a duplex).

SMSF assets unchanged, slight change in contribution limits

No change to CGT in super, concessions move slightly

Who this affects:
Superannuation

What it means: No changes to taxation of assets held inside super. Continues to support long-term accumulation and pension planning strategies.

From 1 July 2027 $32,500 concessional contribution limit and $130,000 non-concessional contribution limit.

FBT exemption on eligible EVs in companies winding back

Exemption phased out

Who this affects: Companies

What it means: 1 April 2027 – 31 March 2029 transitional rule; electric vehicles valued greater than $75,000 but less than the fuel-efficient LCT threshold, provided between 1 April 2027 and 31 March 2029, to receive a 25% FBT discount.

Until 1 April 2029; FBT rate for electric vehicles valued less than $75,000 and provided before 1 April 2029 to be grandfathered (i.e. no change)

From 1 April 2029; electric vehicles provided after 1 April 2029 to receive a 25% discount on FBT. Existing electric vehicle arrangements to retain the FBT discount date applicable at the commencement of the arrangement.

Proposed effective date: From 1 April 2027

Instant individual tax deduction

Choice to use for individuals not wanting to substantiate their deductions

Who this affects: Individuals

What it means: Choice to include the instant $1,000 tax deduction only against earned income (i.e. wages), meaning no other work-related expenses can be claimed.

Proposed effective date: From 1 July 2026

Instant asset write-off ($20k)

Extended

Who this affects: Small business

What it means: Immediate deduction for assets under $20,000 continues. Still a useful timing tool for 30 June planning.

Proposed effective date: From 1 July 2026

Earned income tax offset ($250)

New offset introduced

Who this affects: Individuals

What it means: $250 non-refundable offset for earned income (i.e. wages).

Proposed effective date: From 1 July 2027