Key tax changes and measures from the 2026 Federal Budget

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The government has handed down one of the most significant budgets for tax in recent years, with the budget containing fundamental changes to the taxation of capital gains and trusts, incentives for small businesses and an overhaul of the R&D tax incentive.

Chartered Accountants ANZ (CA ANZ) chief executive Ainslie van Onselen said the budget contained ‘genuine positives’ and acknowledged the government's willingness to address “long-standing balances".

Colonial First State head of technical services Craig Day said the Federal Budget was significant from a tax perspective, and in many ways went “further than expected”.

“This budget is particularly significant for individual investors who hold assets that are subject to capital gains tax or who are using negative gearing. For those individuals, there are transitional provisions in place which will help those investors manage the impact,” said Day.

Treasurer Jim Chalmers said the government was hopeful that the tax reforms and productivity measures announced in the 2026-27 budget would back business innovation and investment.

“New tax incentives will encourage more entrepreneurship and back hundreds of millions of dollars in new research and development for young firms and start‑ups,” said Chalmers.

“The government’s productivity package will reduce regulatory costs by $10.2 billion a year, boost long‑run GDP by around $13 billion a year through work underway with states and territories, and promote $400 million in additional R&D among young firms.”

The Treasurer also said the government would consult with stakeholders on key details of the Government’s capital gains tax reforms, including the treatment of early‑stage and start‑up businesses given the unique features of the tech and start‑up sector.

Measures to boost small business

The budget contained a number of measures designed to support business investment including a permanent instant asset write-off and the return of the two‑year loss carry back

The accounting industry and business advocacy groups have welcomed the extension of the $20,000 instant asset write-off for business with turnover under $10 million and the re-introduction of carry loss provisions which allow companies to offset current-year losses against tax paid in the prior two years.

H&R Block Australia’s director of tax communications Mark Chapman said for small businesses navigating today's difficult trading environment, “the ability to recover previously paid tax “provides genuine breathing room”.

Business Council Chief Executive Bran Black also welcomed the changes, stating that they would “help businesses invest, grow and create jobs".

CA ANZ tax and superannuation lead Susan Franks said that for years the short-term, year-to-year thresholds for these incentives had created confusion for businesses and advisers, undermining investment planning and adding unnecessary complexity.

“Locking in a stable, long-term setting is exactly the kind of practical reform we’ve been advocating for, as it cuts red tape, supports confidence and lets businesses focus on running and growing their operations, not second-guessing the next Budget,” said Franks.

CA ANZ said the reform demonstrates the “value of stable, durable tax settings that provide clarity rather than uncertainty, and noted that it aligns with the organisation’s long-standing call for predictable frameworks that support productivity and long-term economic resilience”.

A ‘fundamental rewrite’ of the capital gains rules

Franks said this year's budget "fundamentally rewrites the rules on capital gains".

“For the first time in 40 years, pre-1985 assets are being brought into the tax net. The 50 per cent discount is replaced by indexation, and a new 30 per cent minimum tax applies to all capital gains,” Franks explained.

"Bringing pre-1985 assets into the tax net for the first time in 40 years is a significant step. Australians who have held assets their entire investment life need clarity and urgent advice on what this means for them.”

Franks warned that the transitional arrangements will be costly as taxpayers will need to document the market value.

“Existing investors made long-term decisions based on the old rules and deserve stronger protection,” she said.

"These changes reshape the incentives for every investor in Australia. Property, shares, crypto, collectibles - if you have an investment portfolio, this budget matters to you."

CFS head of technical services Craig Day explained that under the proposed measures, for assets purchased before 1 July 2027 and then sold after that date, both the current 50 per cent discount method and the new CPI-based method will apply.

“The existing rules will apply to June 30, and then the CPI indexation method will apply to gains after 1 July,” said Day. “That means asset values are going to need to be determined as at 1 July 2027, which will involve some additional work, including seeking a valuation as at 1 July.

Day also noted that the government has indicated that the ATO will be releasing tools to support the changes.

BDO chief economist Anders Magnusson said that with most of the current CGT discount flowing to owners of existing residential property, reducing it may shift incentives toward other assets.

"[This] should, over time, support more business investment and innovation,” said Magnusson.

The government also confirmed that it would limit negative gearing to new builds from 1 July 2027.

H&R Block Australia’s director of tax communications Mark Chapman said this was structural change that would require careful planning from property investors.

“Those holding established properties as of Tuesday night retain full existing entitlements, but anyone looking to purchase in future will need professional advice to understand their options,” said Chapman.

“The ability to carry forward losses — even if they can no longer be offset against wages — preserves some flexibility.”

Trust distribution tax

The budget also confirmed that the government plans to introduce a 30 per cent minimum tax on discretionary trust distributions.

Treasury outlined that the minimum tax would not apply to other types of trusts such as fixed and widely held trusts, including fixed testamentary trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts. Some types of income such as primary production income, certain income relating to vulnerable minors, amounts to which non-resident withholding tax applies, and income from assets of discretionary testamentary trusts existing at announcement would also be excluded.

Under the changes, the government said it will also provide expanded rollover relief for three years from 1 July 2027 to support small businesses and others that wish to restructure out of discretionary trusts into another entity type, such as a company or a fixed trust.

The Council of Small Business Organisations Australia (COSBOA) warned that the proposed changes to the taxation of trusts, along with changes to capital gains tax have the potential to "significantly disrupt the retirement plans of many small businesses".

“For many Australians, their business is their retirement asset. Changes that reduce the value of business sale proceeds or associated property holdings could have major long-term consequences for owners who have spent decades building their businesses,” said COSBOA chief executive Skye Cappuccio.

Cappuccio said the government must undertake extensive consultation with the small business sector before implementing the proposed reforms.

“Small business needs fairness in the tax system, but it also needs stability, certainty and simplicity,” she said.

BDO tax partner Mark Molesworth said this year's budget fundamentally shifts how income from investment assets is taxed, with 30 per cent “emerging as the new floor".

“Over time, that will reshape investment structures with more new investments and businesses likely to be held through companies rather than trusts or personal structures. As always, the devil will be in the detail particularly around transitional measures,” said Molesworth.

Reforms to the R&D tax incentive and venture capital tax incentives

The government also provided details on its plans to reform the research and development tax incentive which include increasing the offset for core R&D expenditure by around 25 to 50 per cent through a 4.5 percentage point increase in core R&D offset rates.

It also intends to reduce the intensity threshold from 2 per cent to 1.5 per cent, which it said wold enable more firms that engage in substantial core R&D to qualify for higher offset rates.

Other proposed changes include removing eligibility of supporting R&D expenditure for the R&DTI and enabling growing firms to retain access to the refundable tax offset for longer by increasing the turnover threshold for the highest offset rate from $20 million to $50 million.

For firms below the $50 million turnover threshold, Treasury said the government would maintain older firms’ eligibility for the higher offset rate while limiting refundability to firms under 10 years of age.

The government will also lift the maximum R&DTI expenditure threshold from $150 million to $200 million; and lift the minimum expenditure threshold from $20,000 to $50,000, with research activities valued below this amount required to be undertaken with a registered Research Service Provider or Cooperative Research Centre to be eligible for the R&DTI.

BDO tax partner Mark Molesworth warned that changes to the R&D tax incentive make it less supportive of early‑stage innovation.

“By narrowing eligibility and time-limiting refundable offsets, the Budget shifts the benefit toward mature, profitable firms,” said Molesworth.

“Even though the headline benefit has been increased, the changes risk reducing Australia’s already low R&D investment over time.”

The government also plans to expand venture capital tax incentives in order to better facilitate venture capital investment and support early stage and growth businesses.

Treasury said that from 1 July 2027 the venture capital limited partnership (VCLP) cap on the asset size of the investee business at the time of investment will be increased to $480 million, from $250 million.

The early stage venture capital limited partnership (ESVCLP) cap on the asset size of the investee business at the time of investment will be increased to $80 million, from $50 million, it added.

The ESVCLP tax incentive cap on the asset size of the investee business, at which investment returns can be fully tax exempt, will also be increased to $420 million, from $250 million and the maximum fund size of ESVCLPs will be increased to $270 million, from $200 million.

The government said the increases will apply to new and existing funds and to new investments they make, including where funds make further investments in businesses already held.

"ESVCLPs must remain in compliance with their existing investment plans or seek approval for a replacement plan. The eligible venture capital investor program will be closed to new applications from 7.30PM (AEST) 12 May 2026," the budget papers said.

Working Australians tax offset

The budget also contained a measure which introduces a $250 Working Australians Tax Offset from the 2027–28 income tax year.

Treasury outlined that the Working Australians Tax Offset will provide a permanent annual tax offset for Australians for their income derived from work, such as wages and salaries and the business income of sole traders, from 1 July 2027.

"The Working Australians Tax Offset gives workers some immediate relief, but it doesn't fix the underlying problem,” said Franks.

"With inflation still elevated, bracket creep continues to push Australians into higher tax bands without any increase in real income.

"Indexing personal tax thresholds is the only lasting fix. It restores fairness and stops quiet tax increases from eating into people's pay."

12 May 2026
By Miranda Brownlee
accountantsdaily.com.au