14 May 2026
The 2026–27 Federal Budget has delivered one of the most significant tax reform agendas Australia has seen in decades.
Against a backdrop of rising global instability, persistent inflation, and ongoing cost-of-living pressures, the Government has framed this year’s Budget as a long-term economic reform package rather than short-term stimulus.
For small and medium-sized businesses, the Budget introduces several proposed changes focused on reshaping the way Australia taxes income, capital, investment, and business activity over the coming years.
While many measures are still subject to legislation, business owners should begin considering how these reforms may impact structures, investment decisions, and long-term planning now.
Major tax reform is underway
There had been significant speculation leading into this year’s Budget around how aggressively the Government would pursue broader tax reform.
Over recent months, there has been growing discussion surrounding the taxation of trusts, negative gearing, capital gains tax concessions, and business restructuring.
This Budget has now provided clarity around many of those rumours.
Importantly, the Government has confirmed proposed reforms affecting discretionary trusts, corporate beneficiaries, capital gains tax, residential investment property taxation, and the permanent reinstatement of the $20,000 Instant Asset Write-Off.
There were also several unexpected measures announced, including:
- The reintroduction of loss carry-back provisions
- Refundable loss offsets for eligible start-up companies
- Significant reform to the R&D tax incentive regime
Overall, the Budget reflects the Government’s focus on productivity, innovation, economic growth, and increasing tax integrity as Australia continues to deal with inflationary pressures and broader economic uncertainty.
Discretionary trusts are under pressure, and the Corporate Beneficiary Strategy is ending
One of the most significant announcements for business owners and family groups is the proposed introduction of a 30% minimum tax on discretionary trust income from 1 July 2028.
This represents a major shift in how discretionary trusts will be taxed moving forward and significantly reduces the effectiveness of traditional income-splitting strategies.
Under the proposed rules, trustees will pay a minimum 30% tax on trust income unless a higher tax rate already applies.
While beneficiaries will still declare trust distributions in their own tax returns, corporate beneficiaries will no longer receive credits for tax already paid by the trustee. In practice, this reduces the effectiveness of using “bucket companies” to defer tax or generate refundable franking credits.
The proposal appears to be a direct response to the ATO’s recent Bendel case loss and signals a broader shift in the Government’s attitude toward discretionary trust structures.
Importantly, fixed trusts, superannuation funds, deceased estates, and charitable trusts are proposed to remain excluded. Existing primary production income and testamentary trusts in place at the time of the Budget announcement are also proposed to be excluded.
To support the transition, the Government has proposed rollover relief from 1 July 2027 for businesses restructuring from discretionary trusts into companies or fixed trusts.
For many SMEs and family groups, these proposed reforms may trigger a reassessment of existing structures, succession planning, and long-term tax strategies.
Re-establishment of Loss Carry-Back improves cash flow for some businesses
The Budget also proposes the reintroduction of loss carry-back rules aimed at improving cash flow for businesses experiencing cyclical downturns.
From tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover below $1 billion may be able to offset current year losses against tax paid in the previous two years.
This measure is designed to provide more commercially practical treatment of tax losses and may offer welcome relief for businesses facing temporary declines in profitability.
However, the availability of the carry-back will still depend on a company’s franking account balance, meaning the overall benefit may vary between businesses.
Refundable Loss Offsets provide targeted support for start-up companies
The Budget also introduces a refundable tax offset for eligible early-stage companies from tax years commencing on or after 1 July 2028.
The measure is targeted toward start-up companies with aggregated annual turnover below $10 million that generate tax losses during their first two years of operation.
Under the proposal, those tax losses may generate a refundable tax offset capped by the value of FBT and PAYG withholding tax paid on Australian employee wages during the relevant year.
For newer businesses and founders, this may provide valuable early-stage cash flow support during periods where businesses are investing heavily into growth and development.
Permanent $20,000 Instant Asset Write-Off brings long-awaited certainty
One of the more practical and predictable outcomes for SMEs is the decision to permanently reinstate the $20,000 Instant Asset Write-Off.
For several years, businesses have faced ongoing uncertainty around whether the concession would continue to be extended each financial year.
Making the measure permanent provides greater certainty around capital expenditure planning and investment decisions.
Eligible businesses will continue to immediately deduct assets costing less than $20,000 rather than depreciating those purchases over multiple years.
For many SMEs, this creates a clearer environment for equipment upgrades, technology investment, and operational improvements without needing to wait for annual Budget announcements.
Capital Gains Tax (CGT) reform changes the long-term equation
The Government has announced significant proposed reforms to the capital gains tax regime from 1 July 2027.
The key proposal involves replacing the existing 50% CGT discount for individuals, trusts, and partnerships with a cost-base indexation regime, alongside a proposed 30% minimum tax on realised capital gains.
Rather than automatically receiving a 50% discount on assets held longer than 12 months, taxpayers would instead broadly be taxed on gains above inflation.
One of the most significant aspects of the reform is the proposed extension of the CGT regime to pre-CGT assets sold after 1 July 2027.
While gains accrued before that date would remain exempt, future gains may become subject to the new rules.
This could have major implications for taxpayers holding long-term assets, including farmland and intergenerational family investments.
Importantly, the Government has stated that the main residence exemption and existing small business CGT concessions are proposed to remain unchanged.
Negative Gearing is being narrowed to new residential supply
The Budget also proposes significant changes to negative gearing rules from 1 July 2027.
Under the proposal, negative gearing for residential property investments would be limited to new residential builds.
Losses from existing residential investment properties would no longer be deductible against salary and wages and would instead be carried forward to offset future property income or capital gains.
Importantly, grandfathering provisions are proposed to apply.
Owners of existing residential investment properties held prior to 7:30pm AEST on 12 May 2026 would continue to access current negative gearing rules until the property is sold.
New residential builds that genuinely increase housing supply would remain eligible for the concession.
The proposed changes are designed to encourage additional housing supply while reducing tax incentives attached to existing residential property investments.
Relief targeted at households could indirectly support businesses
The Budget also includes several measures aimed at supporting households and consumer spending, including:
- A new $250 Working Australians Tax Offset
- Additional income tax relief
- Expanded instant deductions for individuals of up to $1,000
While these measures are primarily directed toward households rather than businesses, they may provide modest support for:
- Consumer confidence
- Household spending
- Retail activity
For SMEs operating within discretionary spending sectors, any improvement in consumer sentiment may provide some support through the next economic cycle.
What business owners should be doing now
While many of the proposed reforms are not immediate, the broader policy direction is becoming increasingly clear.
Business owners and family groups should use the next 12–24 months to proactively review:
- Business and investment structures
- Succession planning strategies
- Asset ownership arrangements
- Capital expenditure plans
- Tax planning strategies
- Estate planning
- Property investment positions
- Financing structures
Importantly, the proposed rollover relief from 1 July 2027 may create strategic opportunities for some businesses considering restructuring away from discretionary trusts.
Businesses that begin planning early are likely to place themselves in a significantly stronger position as these reforms continue to evolve through legislation and consultation.
The bottom line: structure and timing matter more than ever
This year’s Federal Budget is less about immediate tax outcomes and more about long term positioning. The proposed reforms signal a clear shift in how the Government views discretionary trusts, capital taxation, and investment incentives, and that shift will influence business decisions well before legislation is finalised.
For SME owners, the real risk is not change itself, but leaving structural questions too late. Ownership, succession, asset holding, and funding strategies often take years to unwind or realign. Those who use the next 12–24 months to review their position deliberately—rather than reactively—are far more likely to preserve flexibility and value.
At AR&B Advisors, we work with WA business owners to bring clarity to these decisions, weighing risk, timing, and trade offs in a commercial context.
If you would like to discuss how the Federal Budget may impact your business, investments, or structure, please contact our team.