The Government is presenting this Budget as a fairness, housing affordability and productivity package. For SME owners and private groups, the practical reality is broader and more confronting. This Budget reaches directly into structures commonly used for business ownership, family wealth, succession
planning, asset protection and investment.

PERSONAL TAX

Working Australian Tax Offsets

The Government will introduce a Working Australians Tax Offset (‘WATO’) of $250 from the 2028 income year for income derived from work. The WATO will apply to every working Australian, including sole traders.

Tax Rate Cuts

The Government has otherwise not announced any changes to the personal marginal tax rates. The marginal tax rates are still set to decrease from 1 July 2026 as follows:

 $1,000 instant deduction

From the 2027 income year, the Government will introduce an instant deduction of up to $1,000 for work-related expenses without providing receipts. This announcement was originally made in the 2025/26 Budget, and draft legislation has already been released. Taxpayers claiming more than $1,000 in work-related deductions will still be able to do so by substantiating all deduction with receipts. Charitable donations, union and professional association membership fees and other non-work related deductions can still be claimed on top of the instant tax deduction.

Medicare levy low-income thresholds

The Government will increase the Medicare levy low-income thresholds by 2.9% from the 2026 income year. 

TAXATION OF INVESTMENTS

Removal of 50% CGT discount and minimum tax on capital gains

From 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships will be replaced with cost base indexation and a 30% minimum tax rate on indexed capital gains.

Exclusions include:

• Recipients of means-tested income support payments will be exempt from the minimum tax if they receive any payment in the financial year in which they realise the capital gain. The changes to the CGT discount will still apply.
• Gains on new residential builds will continue to be eligible for the 50% CGT discount.

These changes will apply to all gains accruing after 1 July 2027. This includes gains on pre-CGT assets.

No changes will be made to the main residence exemption or the small business CGT concessions.

The new rules are summarised as follows:

Negative gearing changes

From 1 July 2027:

• Negative gearing for residential properties will be limited to new builds
• Losses related to all other residential properties purchased after 12 May 2026 will only be deductible against other income from residential properties, including capital gains.
• Any excess losses will be able to be carried forward to offset residential property income in future years.

Properties held at Budget time on 12 May 2026 will be exempt from the changes.

These changes will apply to individuals, partnerships, companies and most trusts. Widely held trusts and superannuation funds (including SMSFs) will be excluded.

Losses on other investments, such as commercial property or shares, will continue to be deductible.

 Taxation of Trusts

30% minimum tax on discretionary trusts

From 1 July 2028, the Government will introduce a 30% minimum tax on the taxable income of discretionary trusts. The tax will be paid by the trustee, and beneficiaries will declare their share of the trust income in their income tax returns. Beneficiaries (other than corporate beneficiaries) will then
receive non-refundable credits for the tax payable by the trustee.

This recognises the tax already paid by the trustee of the trust, with the intention being that the tax paid on the distribution income is not lower than 30%.

At this stage, the Government’s comments on the implications for corporate beneficiaries are unclear and require clarification. The Government has stated that it will consult on the treatment of franking credits in the trust.

The rules will not apply to primary production income, certain income relating to vulnerable minors, amounts subject to non-resident withholding tax, and income from assets of testamentary trusts existing at the time of the announcement.

In addition, fixed trusts, fixed testamentary trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts will be excluded from the discretionary trust minimum tax.

Rollover relief for restructuring out of discretionary trusts

The Government proposes expanded rollover relief for three years from 1 July 2027 to assist small businesses and other taxpayers to restructure out of discretionary trusts into companies or fixed trusts. The Government says this will provide relief from income tax consequences, including CGT, for those who choose to restructure.

 Business Measures

Instant asset write-off (IAWO)

The $20,000 IAWO for small businesses will be made permanent from 1 July 2026. Small businesses with turnover of under $10 million will be able to immediately deduct eligible assets costing less than $20,000.  This permanently extends the current IAWO which was otherwise due to expire on 30 June 2026.

Companies—Loss Carry Back

From 1 July 2026, a permanent 2-year loss carry back will apply for companies with turnover of up to $1 billion. Companies will be able to use their current year tax losses to claim a refund for the tax paid in the prior two income years.

Similar loss carry back measures were temporarily introduced during the Covid-19 period, and the current changes are stated to provide timely support to businesses as they manage uncertainty from the conflict in the Middle East. of tax and superannuation liabilities by medium and large businesses and wealthy groups.

Start-Ups—Loss Refundability

The Government will introduce a tax refund for tax losses incurred by small start-ups in their first two years of operation. The refund will be capped at the amount of withholding tax on employee wages and Fringe Benefits Tax paid by the company.

The refund cap being based on employment taxes links this support to the employment and retention of staff, and therefore creation of jobs, during the early loss-making years. This measure will apply from 1 July 2028.

PAYG Instalments and Tax Obligations

To assist in the management of cash flow, businesses will have the choice to opt in to the following PAYG instalment changes from 1 July 2027:

• All businesses can choose to report and pay PAYG instalments monthly; and
• Small and medium businesses can choose to utilise an ATO-approved calculation embed in accounting software to calculate and vary instalments based on actual business performance.

As part of the measures targeted to ease the pressure on small businesses affected by fuel disruptions, the Government will also grant temporary relief for businesses unable to meet tax obligations due to fuel supply disruptions. 

Electrical Vehicles

The Government will begin a phased decrease in the tax break for new electric vehicle purchases from 1 April 2027, which will lower the fringe benefits tax discount on EVs worth more than $75,000 to 25%. The current policy exempts businesses from the tax if they buy a vehicle worth less than $91,387.

EVs costing less than $75,000 will still receive the full fringe benefits tax exemption until 1 April 2029, after which all vehicles under the luxury car tax threshold will be moved onto the lower 25%.

 Innovation Measures

Venture Capital Changes

From 1 July 2027, the Federal Government will increase the Venture Capital caps to support start-ups and high growth businesses :

• Venture Capital Limited Partnerships (VCLPs) eligibility will apply to investments in businesses with assets up to $480 million (up from $250 million
• Early-stage venture capital limited partnerships (ESVCLPs)  eligibility will apply to investments in business with assets up to $80 million (up from $50 million.
• ESVCLPs will retain full access to incentives as businesses grow their assets up to $420 million (up from $250 million)

The maximum committed capital for ESVCLPs will increase to $270 million (up from $200 million)

Research and Development Tax Incentive

The Government will reform the Research & Development (R&D) tax incentives in response to recommendations of the Ambitious Australia Report. The changes will be effective from 1 July 2028 and are summarised as follows: 

It is important to note that while the offsets are increasing on core R&D activities, with a 4.5 percentage point increase for all offset rates, they are removing expenditure for supporting activities from eligibility. The intensity threshold will reduce to 1.5%, providing higher offsets to firms undertaking substantial core R&D.

 Please contact MC Tax Advisors if you would like assistance with the issues identified in this bulletin.