What Last Night’s Federal Budget Means for You, Your Family and Your Business

Federal Budget nights usually come and go without changing much that you’d notice the next morning. Last night was not one of those nights. The Treasurer described his package as the most significant tax reform in more than a quarter of a century, and the Budget Papers themselves show why. Capital gains tax, discretionary trusts, negative gearing, small business depreciation and electric vehicle salary packaging are all changing. So is the way the Government is responding to the global oil shock, the way it is supporting first home buyers, and the level of tax relief it is delivering to working Australians.

This piece walks through the announcements most likely to affect Melbourne households and businesses. Most of the major changes start from 1 July 2027 onward, and several still need to pass through Parliament. The detail in the legislation will matter, and grandfathering and transitional arrangements will affect different people in different ways.

If anything in this piece raises a question for you, you’re welcome to call us on (03) 8888 4000 or email info@thepractice.com.au at any point. We’d be glad to talk it through.

The Economic Backdrop

Before getting into the measures, a word on the picture the Treasurer set out. The Budget is framed against the impact of the war in the Middle East and the closure of the Strait of Hormuz, which has pushed the oil price from around $60 a barrel at the start of the year to above $100 for most of the past two months. Treasury now expects global growth to slow to 3% this year, and inflation to peak around 5% mid-year. Australian growth is forecast at 1.75% next financial year, half a percentage point lower than previously expected. Real wages are still expected to grow, and unemployment is forecast to stay in the mid 4s.

The Treasurer presented a more severe scenario where oil peaks at $200 and takes three years to come back down. In that scenario, unemployment rises to pre-pandemic levels and inflation peaks above 7%. Australia avoids recession in both cases.

The deficit for 2026-27 is forecast at $31.5 billion, $2.8 billion better than expected at MYEFO. Gross debt peaks at $982 billion. The Government has announced $63.8 billion in savings, the largest savings package in any Budget on record. Real spending growth averages 1.5% per year for the eight years to June 2030, the lowest in any eight-year period in nearly 35 years.

A 30% Minimum Tax on Discretionary Trusts

Of all the measures, this is the one most likely to come up first in conversation for families running a business or holding investments through a trust. From 1 July 2028, discretionary trusts will pay a minimum 30% tax on taxable income at the trustee level. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax paid by the trustee. The Government’s stated intent is to better align the tax paid on trust distributions with the tax paid on wages.

The scope of the rule has been carved out carefully. Fixed trusts, widely held trusts (including fixed testamentary trusts), complying superannuation funds, special disability trusts, deceased estates and charitable trusts are all excluded. Some types of income are also excluded, including primary production income, income relating to vulnerable minors, income to which non-resident withholding tax applies, and income from assets that were already in a discretionary testamentary trust at the time of the announcement.

For family groups operating through a discretionary trust, the practical impact depends on the historical distribution pattern. Trusts that distribute to adult beneficiaries on marginal rates above 30% are less affected because their distributions are already taxed at or above the new minimum. Trusts that distribute to beneficiaries on lower brackets see a larger change. Bucket company arrangements and the interaction with the 30% corporate tax rate also need a careful read.

The Government has acknowledged the disruption and built in a meaningful concession. Three-year rollover relief has been provided from 1 July 2027 for small businesses and other groups that want to restructure out of a discretionary trust into a company or a fixed trust. The rollover prevents the restructure from triggering CGT consequences in the transition. For anyone whose trust arrangements have been set up some years ago, the next 12 to 18 months are the window to revisit them carefully.

Capital Gains Tax: The 50% Discount Replaced

The other headline tax reform is the replacement of the 50% capital gains tax discount. From 1 July 2027, the discount is being replaced with cost base indexation for assets held longer than 12 months, with a new 30% minimum tax on net capital gains.

In practical terms, the mechanics change from “reduce your gain by half before applying your marginal rate” to “index the cost base by inflation and tax the real gain at your marginal rate, with a 30% minimum on the net gain”. For high-income earners in low-inflation environments, the new approach generally increases tax payable on a sale. For lower-income earners and very long holding periods, the calculation can produce different outcomes case by case.

Three points are critical and easy to miss in the headlines. First, the change applies to all capital gains tax assets, not just property. Shares, business assets and investment properties held by individuals, trusts and partnerships are all in scope, including pre-1985 assets. The family home remains exempt. Second, the changes are prospective. The 50% CGT discount continues to apply to gains that arise on or before 30 June 2027. So existing investors keep current treatment for the gains that have already built up. Only gains that arise on or after 1 July 2027 are subject to the new rules. Capital gains on pre-1985 assets arising before 1 July 2027 remain exempt. Third, Age Pension and other income support payment recipients are exempt from the minimum tax. New residential properties retain the option of either the old 50% discount or the new indexation-plus-minimum-tax approach, to keep an incentive on new housing supply.

For anyone holding investment assets with significant unrealised gains, the next 12 to 18 months are the window to model what your position looks like under the announced rules and think carefully about timing. Selling before 1 July 2027 locks in the existing treatment. Selling after that date applies the new framework to the post-1 July 2027 portion of the gain.

Negative Gearing Limited to New Builds

From 1 July 2027, losses from established residential properties will only be deductible against rental income or capital gains from residential property. Excess losses will be carried forward and able to be offset against residential property income in future years. The intent is to direct investor capital toward new housing supply rather than toward established stock that competes with first home buyers.

The cut-off date for new acquisitions matters. The new rules apply to established residential properties acquired from 7:30pm on Budget night, 12 May 2026. Properties acquired before that time, including contracts that were entered into before 7:30pm but had not yet settled, are grandfathered until they are disposed of. Existing investors with established properties retain the current negative gearing treatment for those properties for as long as they own them.

Eligible new builds are exempt from the changes, which keeps the deduction available for investment that increases the housing stock. Properties held in widely held trusts and superannuation funds are excluded, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs.

The detail of how grandfathering works through restructures, ownership changes and refinances will matter as the legislation is drafted. For anyone with established residential property in their portfolio, the announced grandfathering means no immediate action is required. The longer-term planning conversation around portfolio expansion, succession, and the choice between new and existing stock does shift meaningfully.

A Strong Run of Wins for Small Business

After three sections of structural change, this part of the Budget is much easier news. The Government has assembled a substantial package of permanent improvements and new concessions for small business owners. Most of the measures start from 1 July 2026, with a few following in subsequent years.

$20,000 instant asset write-off, now permanent

After more than a decade of annual extensions, the $20,000 instant asset write-off has been made permanent for small businesses with turnover up to $10 million, from 1 July 2026. The annual end-of-financial-year scramble to bring forward eligible asset purchases before the legislation expired is now over. The threshold stays at $20,000 per asset, with assets above that figure continuing to be eligible for the small business simplified depreciation pool. The five-year re-entry restriction on the simplified depreciation regime is suspended through to 30 June 2027. Capital expenditure decisions can now be timed against business merit and cash flow, not legislative cliffs.

Loss carry-back made permanent

Loss carry-back is being permanently reintroduced for companies with global turnover under $1 billion. From 1 July 2026, eligible companies will be able to carry a tax loss back and offset it against tax paid up to two years earlier, generating a refund of tax previously paid. The measure is restricted to revenue losses and limited by the company’s franking account balance. For businesses heading into a softer period, or absorbing the impact of the global oil shock, this converts past tax paid into present cash flow.

Loss refundability for start-ups

Loss refundability is being introduced for small start-up companies from 1 July 2028. Start-ups with aggregated annual turnover under $10 million that generate a tax loss in their first two years of operation will be able to convert that loss into a refundable tax offset, limited to the FBT and PAYG withholding on wages paid to Australian employees in the loss year. For founder-led businesses navigating the first two years, this lifts a real cash flow constraint.

Dynamic PAYG instalments

From 1 July 2027, small and medium businesses will be able to opt into reporting and paying PAYG instalments monthly, using an ATO-approved calculation embedded in accounting software to vary instalments based on real-time business activity. The current system, where instalments are calculated from prior-year results and adjusted later, has been a long-running cash flow irritant for growing businesses. The new approach lets the tax outflow track what the business is actually doing in the current quarter.

Compliance and red tape reductions

The Government has announced regulatory cost reductions across the economy worth around $10.2 billion a year. The financial sector alone accounts for $780 million a year of the saving. Around 600 nuisance tariffs are being abolished. Climate-related financial disclosures are being simplified. Construction industry fees of up to $1,600 to access mandatory Australian standards are being scrapped, with the standards themselves moving to free public read-only access. Australian Business Registers are being uplifted, the Consumer Data Right is being extended, and electronic record-keeping with financial regulators is being made easier.

Venture capital and R&D incentives expanded

For businesses in the start-up and growth ecosystem, the venture capital incentive caps are being lifted significantly from 1 July 2027. The early stage venture capital limited partnership tax incentive cap rises from $250 million to $420 million, and the maximum fund size rises from $200 million to $270 million. The Research and Development Tax Incentive is also being reformed from 1 July 2028, with offset rates for core R&D expenditure increasing by 4.5 percentage points, the intensity threshold dropping from 2% to 1.5%, and the turnover threshold for the highest offset rate rising from $20 million to $50 million.

Rollover relief for trust restructures

Worth noting again here, the three-year rollover relief from 1 July 2027 to restructure out of a discretionary trust into a company or fixed trust is a meaningful design feature for many small business owners. It provides a structured window to consider the right vehicle for the next stage of the business without triggering CGT consequences in the transition.

Electric Vehicle FBT Phase-Out

The Fringe Benefits Tax exemption that has driven the popularity of EV novated leases over the past three years is being phased out. The transition runs in stages.

From 1 April 2027, the full FBT exemption will continue to apply to eligible electric vehicles priced up to and including $75,000. Vehicles priced above $75,000 and up to the fuel-efficient luxury car tax threshold will move to a 25% FBT discount, implemented through a 15% statutory rate in the FBT formula.

From 1 April 2029, the full exemption ends. All eligible electric vehicles priced up to the fuel-efficient luxury car tax threshold will move to a permanent 25% FBT discount.

Existing arrangements are grandfathered. Any eligible EV provided before 1 April 2029 keeps the FBT discount rate that was in place when the arrangement commenced. For anyone currently on a novated lease, nothing changes. For anyone considering a salary-packaged EV in the coming years, the maths now depends on vehicle price and on the start date of the lease. A vehicle priced under $75,000 entered into before 1 April 2029 still gets the full exemption for the lease term. A vehicle priced above $75,000 entered into after 1 April 2027 gets the 25% discount, not the full exemption. A vehicle priced above the fuel-efficient luxury car tax threshold moves to standard FBT.

If you are mid-decision on a novated lease, this is the time-sensitive part of the Budget.

New Tax Cuts for Working Australians

Two new cost-of-living measures sit alongside the personal income tax cuts already legislated in the 2025-26 Budget.

The first is a new $250 Working Australians Tax Offset from the 2027-28 income tax year. Paid annually and automatically through the tax return, it applies to income derived from work, including wages, salaries and the business income of sole traders. The offset lifts the effective tax-free threshold for work income by nearly $1,800, to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset). The Government has described it as the largest permanent increase to the effective tax-free threshold since 2012-13. Around 13.3 million workers are expected to benefit.

The second is a $1,000 instant tax deduction, available from the 2026-27 income tax year. Australian tax residents earning work income will be able to claim up to $1,000 in work-related deductions without itemising or holding receipts. Anyone with work-related expenses above $1,000 can continue to claim them the existing way. Charitable donations, union and professional membership fees and other non-work-related deductions can still be itemised separately, on top of the instant deduction.

Combined with the personal income tax cuts that take effect on 1 July 2026 and 1 July 2027, the Government estimates the average worker is up to $2,816 a year better off by 2028, or roughly $54 a week.

Cost of Living: Fuel, Medicines and Medicare

Fuel excise has been cut by 60.9% for three months, from 1 April 2026. That equates to a 32 cents per litre reduction for petrol and diesel. The heavy vehicle road user charge has been reduced from 32.4 cents per litre to zero for the same period. The Government has also doubled the maximum penalties under consumer law for petrol companies and increased monitoring.

Medicare Urgent Care Clinics are being permanently funded with $1.8 billion over four years and around half a billion a year ongoing. The 137 clinics around the country are now a permanent feature of the health system, and by July 2026 four in five Australians will be within a 20-minute drive of one.

The Government is investing $5.9 billion to list more medicines on the Pharmaceutical Benefits Scheme, including treatments for cystic fibrosis, chronic kidney disease and several cancers. The PBS general patient co-payment is staying at $25, and the concessional rate is frozen at $7.70 until 2030. Public hospitals receive an additional $25 billion under the renewed National Health Reform Agreement, lifting total Commonwealth hospital funding to $220.3 billion over five years.

The Medicare levy low-income thresholds have also been increased by 2.9% from 1 July 2025, providing modest relief for low-income individuals and families.

Housing Supply and First Home Buyers

The Government is investing $2 billion in a new Local Infrastructure Fund to help councils and state utility providers deliver water, power, sewerage and road connections for new housing developments. The funding is expected to support up to 65,000 new homes over the decade and is conditional on states committing to pro-supply reforms, including faster approvals, releasing more land, and harmonising the National Construction Code.

The temporary ban on foreign investors buying established residential dwellings has been extended by two years and three months, to 30 June 2029. Limited exceptions for purchases that genuinely support housing supply continue. The 5% Deposit Scheme that has supported more than a quarter of a million first home buyers since 2022 continues alongside the tax reforms. The Government estimates its combined housing tax changes will support an additional 75,000 first home buyers over the decade.

There’s also $59.4 million in this Budget to help community housing providers deliver social housing for around 4,000 young people aged 16 to 24 who are at risk of or experiencing homelessness.

NDIS, Defence and the Bigger Picture

The NDIS is being restructured, with the Government targeting $37.8 billion in savings over the forward estimates by tightening eligibility, cracking down on fraud and slowing the growth rate from above 10% to around 2% per year. A new $2 billion Thriving Kids program and a $3 billion provision for other foundational supports outside the NDIS aim to fill the gap for children with developmental needs.

Defence spending is increasing by $53 billion over the decade, reaching 3% of GDP by 2033 under the NATO measurement methodology. A new $600 million Counter-Terrorism Online Centre is being established in response to the Royal Commission on Antisemitism and Social Cohesion’s Interim Report.

What to Do Next

Don’t react to a single headline. The biggest tax changes don’t start until 1 July 2027 at the earliest, and the trust 30% minimum tax doesn’t start until 1 July 2028. Several measures still need legislation. The Budget will read differently in three months once the regulations are clearer.

Do start thinking about timing in three specific areas. If you operate through a discretionary trust, the next 12 to 18 months are the window to revisit whether the structure still suits, with the announced three-year rollover relief from 1 July 2027 available if a restructure makes sense. If you hold investment assets with significant unrealised gains, whether shares, business assets or property, modelling the position before and after 1 July 2027 is worth doing now. If you are considering a novated lease on an electric vehicle, vehicle price and lease start date now both affect the tax outcome materially.

Do think about life changes from the last twelve months. Marriage, separation, a new business, a property sale, an inheritance, a child starting work, retirement. Each of these intersects with the announced Budget differently, and a general summary like this one is not a substitute for a conversation about your own situation.

Let’s Talk It Through

This is the kind of Budget where the right next step depends on how the changes interact with your full picture. Tax, property, super, business structure, lending and estate planning all sit alongside each other, and a single change like the new trust minimum tax, the CGT discount replacement or the EV FBT phase-out can touch more than one of those at a time. If you’d like to talk through how any of this looks in your situation, we’d love to hear from you.

Call us on (03) 8888 4000 or email info@thepractice.com.au. Initial conversations are complimentary and there’s no obligation. We’re here to help you make sense of it.

Frequently Asked Questions

What does the 30% minimum tax on trusts mean for my family trust?

From 1 July 2028, discretionary trusts will pay a minimum 30% tax on taxable income at the trustee level, with beneficiaries (other than companies) receiving non-refundable credits for the tax paid. Fixed trusts, widely held trusts, fixed testamentary trusts, complying super funds, special disability trusts, deceased estates and charitable trusts are excluded. The practical impact depends on who your beneficiaries are and on their marginal rates. Three-year rollover relief from 1 July 2027 has been provided for small businesses and others who want to restructure out of a discretionary trust into a company or fixed trust.

Do the CGT changes apply to shares as well as property?

Yes. The replacement of the 50% CGT discount with cost base indexation and a 30% minimum tax on net capital gains applies to all CGT assets held longer than 12 months by individuals, trusts and partnerships, including shares, business assets and investment properties. The family home remains exempt under the existing main residence rules.

When do the CGT changes start?

From 1 July 2027. The changes are prospective, so the 50% CGT discount continues to apply to gains that arise on or before 30 June 2027. Only the portion of any gain that accrues from 1 July 2027 onward is subject to the new framework.

Will the changes to negative gearing affect my existing investment property?

As announced, established residential properties owned before 7:30pm on Budget night, 12 May 2026, are grandfathered for as long as you own them. Properties acquired after that date are subject to the new rules from 1 July 2027. New builds, widely held trust properties, super fund properties, build-to-rent developments and private investors supporting government housing programs are also exempt.

Is my electric vehicle novated lease still tax-effective?

Existing leases are not affected. EVs already on a novated lease keep the FBT discount rate that was in place when the lease commenced. EVs priced under $75,000 entered into before 1 April 2029 keep the full FBT exemption for the lease term. From 1 April 2027, EVs above $75,000 and up to the fuel-efficient luxury car tax threshold move to a 25% FBT discount. From 1 April 2029, all eligible EVs in that price range move to the 25% discount.

Has anything changed for my superannuation?

No changes were announced to super contribution caps, concessional tax rates or preservation rules in this Budget. The Government has indicated changes to the super performance test to encourage investment in emerging asset classes including energy and housing, but the substantive settings for individual super members remain in place.

Is the $20,000 instant asset write-off still available?

Yes, and the measure has now been made permanent from 1 July 2026 for small businesses with turnover up to $10 million. The annual end-of-financial-year scramble around extension legislation is gone. Eligible assets above $20,000 continue to enter the small business simplified depreciation pool.

What is loss carry-back and who can use it?

From 1 July 2026, companies with aggregated annual global turnover under $1 billion will be able to carry a current year tax loss back and offset it against tax paid up to two years earlier, generating a refund of tax previously paid. The measure applies to revenue losses only and is limited by the company’s franking account balance. It’s permanent.

Is the fuel excise cut permanent?

No. The 60.9% cut to fuel excise and the reduction of the heavy vehicle road user charge to zero apply for three months from 1 April 2026.

General advice warning

This article provides general information only and does not constitute personal financial advice. It does not consider your individual objectives, financial situation or needs. You should seek professional advice before making any financial decisions.