Federal Budget 2026: Key Tax Changes for Business Owners and Investors

The 2026 Federal Budget included several proposed tax changes that may affect business owners, investors, trustees and family groups.

Key areas include capital gains tax, negative gearing, discretionary trusts, the instant asset write-off, PAYG instalments, and ATO compliance activity.

Importantly, many of these measures are still proposals. Draft legislation has not yet been released; details may change, and the final rules may look different. Before making decisions about your business structure, investments or tax planning, it is important to seek tailored advice.

Proposed Changes to Capital Gains Tax (CGT)

One of the most significant announcements is a proposed overhaul of the CGT system from 1 July 2027.

Replacement of the 50% CGT Discount

The Government has proposed replacing the current 50% CGT discount with a cost base indexation model for assets held longer than 12 months, alongside a proposed minimum 30% tax rate on net capital gains.

Based on information released so far, the proposal would apply broadly to:

• Individuals

• Trusts

• Partnerships

• Existing and future investments

Importantly, the Budget papers indicate that pre-20 September 1985 assets (currently exempt from CGT) may also become subject to CGT from 1 July 2027.

The Government has indicated that:

• Gains arising before 1 July 2027 should remain exempt; and

• The changes are intended to apply prospectively from that date.

This proposal has created considerable uncertainty for long-held family assets, investment portfolios and business succession planning.

Potential Impact on Business Owners

The proposed CGT changes may extend well beyond property investors and could have implications for many small business owners and family groups.

If enacted in their current form, the changes could potentially impact:

• Sale of business goodwill;

• Disposal of investment assets;

• Succession planning;

• Intergenerational wealth transfers; and

• Long-term investment strategies.

Notably, the Budget materials do not currently mention any specific carve-outs for:

• Small business CGT concessions;

• Business owners generally;

• Start-ups; or

• Employee equity arrangements.

This does not necessarily mean those concessions will be removed, but rather that the Government has not yet provided sufficient detail.

We expect the interaction between these proposed changes and the existing small business CGT concessions to become a major focus once draft legislation is released.

Proposed negative gearing changes for residential property investors

From 1 July 2027, the Government proposes limiting negative gearing benefits for established residential properties.

Under the proposal:

• Losses from established residential properties would only be deductible against residential property income or gains;

• Excess losses could be carried forward to future years.

Importantly, existing properties acquired before 7:30 pm AEST on 12 May 2026 are proposed to be grandfathered until sold.

Exemptions are proposed for:

• Eligible new builds

• Build-to-rent developments

• Superannuation funds

• Widely held trusts

Proposed 30% minimum tax for discretionary trusts

From 1 July 2028, discretionary trusts may become subject to a proposed 30% minimum tax on taxable income.

Some exclusions are proposed, including:

• Primary production income

• Certain testamentary trusts

• Income already subject to withholding tax

The Government has also proposed temporary rollover relief from 1 July 2027 to 30 June 2030 to assist businesses and investors who choose to restructure out of discretionary trusts.

What Could This Mean for Small Business Owners?

Many Australian small businesses operate through discretionary trusts and family group structures. As a result, this proposal could significantly affect how business profits are taxed and distributed.

Currently, discretionary trusts provide flexibility to distribute income among family members in a tax-effective manner. Under the proposal, trustees may instead pay a minimum 30% tax on trust income before beneficiaries receive distributions.

While many details remain unknown, potential implications could include:

• Reduced flexibility in year-end tax planning;

• Increased effective tax rates for some family groups;

• A need to review existing business and investment structures;

• Greater consideration of company or fixed trust structures; and

• Possible restructuring activity ahead of the proposed commencement date.

At this stage, it remains unclear:

• How “discretionary trust income” will be defined;

• Whether trading businesses will receive concessions;

• How corporate beneficiaries will interact with the rules; or

• Whether small business groups will ultimately receive carve-outs or transitional relief.

Given the widespread use of discretionary trusts in small-business structures, this is likely to be one of the most closely scrutinised measures in the Budget.

Small business tax measures in the 2026 Federal Budget

Permanent Instant Asset Write-Off

The $20,000 instant asset write-off for eligible small businesses is proposed to become permanent from 1 July 2026.

Dynamic PAYG Instalments

From 1 July 2027, eligible SMEs may be able to opt into ATO-calculated monthly PAYG instalments integrated through accounting software.

Businesses with compliance concerns may be required to move to monthly PAYG reporting.

Increased ATO Compliance Activity

The Budget also includes additional funding for the ATO to modernise fraud detection systems and undertake targeted compliance activities.

This reinforces the importance of maintaining strong record-keeping, governance and tax compliance processes.

Measures for Individuals

New $1,000 Instant Work-Related Deduction

Australian workers may be eligible for a standard deduction of up to $1,000 without needing to itemise work-related expenses.

New Working Australians Tax Offset

A proposed annual $250 tax offset would apply from 1 July 2027 for individuals earning employment or sole trader income.

Previously Legislated Tax Cuts Still Proceeding

The revised Stage 3 tax cuts are proposed to continue as planned:

• 1 July 2026: 16% tax rate reduces to 15%

• 1 July 2027: 15% tax rate reduces to 14%

What should business owners do now?

At this stage, the most important step is not to make rushed decisions. These measures are proposed, and the final legislation may change.

However, business owners, investors and trustees may wish to:

1. Review current business and investment structures

2. Identify assets that may be affected by future CGT changes

3. Consider whether discretionary trust structures remain appropriate

4. Review succession, exit or intergenerational wealth plans

5. Keep records up to date so decisions can be made with accurate information

6. Seek advice before restructuring, selling assets or changing investment strategies

If any of the proposed measures may affect you, your investments, or your business structure, contact us before making decisions. We’ll continue to monitor developments closely and provide updates as more information becomes available.

This summary is general information only and should not be relied upon as tax, legal or financial advice.