The Australian Federal Budget for 2026-2027 proposes significant changes to the Australian tax system, which will have a substantial impact on various taxpayers. The budget introduces a 30% minimum tax on discretionary trusts, abolishes the 50% capital gains tax (CGT) discount.
From 1 July 2028, trustees of discretionary trusts will be required to pay 30% tax on their net taxable income, with some exclusions. This measure is aimed at eliminating discretionary trusts as a structure by creating a more punitive taxation regime than applies to companies.
The changes to discretionary trusts will result in company beneficiaries effectively paying double tax on distributions received from a discretionary trust. This will have a profound impact on a wide range of business and professional structures, with the rollover relief being the incentive to restructure out of discretionary trusts.
The budget also abolishes the 50% CGT discount for individuals, partnerships, and trusts.
Investors in new residential properties will be able to choose either the 50% CGT discount or cost base indexation and the minimum tax is not mentioned in the source and thus removed. The existing 33 1/3% discount for capital gains made by superannuation funds, 60% discount on capital gains on qualifying affordable housing, and discounts and exemptions under small business CGT concessions will not be impacted.
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The changes to the CGT regime are a major concern for start-ups, including founders and those given equity in start-ups as compensation. The lack of specific relief announced will likely have a dampening effect on start-up investment and the ability to use equity as an incentive to join start-ups.
However, some of the venture capital tax incentives will be broadened, allowing greater access to the tax offset for investing into early-stage venture capital investments.
From 1 July 2027, the ability to deduct net investment losses against salary or other income for residential property investments will be removed for properties acquired from 12 May 2026. Instead, losses from established residential properties will only be deductible against rental income or the capital gains from residential properties.
Excess losses will be carried forward and able to be offset against residential property income, including capital gains, in future years. The changes will not apply to eligible new builds of residential property, properties held in widely held trusts, managed investment trusts, and superannuation funds.
For acquisitions from 12 May 2026, the ability to deduct losses is preserved for new housing only, meaning investor demand may move toward new construction or assets that generate income rather than capital growth. Investors should consider the implications of these changes on their liability and overall financial situation.
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