Budget 2026-27 Tax Reform: What It Means for You

Published 13 May 2026 · By Michael Wilczynski CA · Reading time: 12 minutes

Last night the Government announced the largest tax reform package in 25 years. If you own an investment property, distribute through a discretionary trust, or just want to know what your take-home pay looks like from July 2027, you need to read this.

The headline changes: the 50% CGT discount is being replaced with inflation indexation plus a 30% minimum tax. Negative gearing on existing residential property is being limited to new builds for properties purchased after 7:30pm AEST 12 May 2026. Discretionary trusts will face a 30% minimum tax on retained taxable income from 1 July 2028. And every worker gets a new $250 tax offset plus a $1,000 instant deduction.

I've built four calculators below so you can model the impact on your own numbers. First, the dates that matter.

1. Personal Tax Cuts: WATO + Instant Deduction

This is the simple part. From the 2026-27 income year you can claim a $1,000 instant deduction for work-related expenses without receipts or substantiation. Claim more than $1,000 in actual expenses if you have them, but the $1,000 floor is automatic.

From 1 July 2027, a new $250 Working Australians Tax Offset (WATO) applies to income earned from work, including sole trader business income. The offset is non-refundable and phases out at higher incomes per a formula yet to be finalised, but Treasury figures suggest 97% of the 13 million eligible workers will get the full $250.

The combined effect, when stacked with the already-legislated rate cuts (bottom rate dropping from 16% to 14%), is meaningful.

2. Capital Gains Tax: 50% Discount vs Indexation

The 50% CGT discount has been with us since 1999. From 1 July 2027 it is replaced with cost base indexation (using CPI) plus a 30% minimum tax on real capital gains. The minimum tax only bites if your marginal rate is below 30%, so for most working clients it is a non-issue. For retirees and low-income beneficiaries timing a sale, it matters.

Assets you already own get split treatment. The gain up to 30 June 2027 keeps the 50% discount. The gain from 1 July 2027 onward uses indexation plus the minimum tax. Asset value at 1 July 2027 will be determined by valuation or an ATO apportionment formula.

3. Negative Gearing Changes

From 1 July 2027, rental losses on established residential property purchased after announcement can no longer offset salary, business income or other unrelated income. Losses are quarantined and can only offset:

• Rental income from any residential property
• Capital gains from residential property
• Excess losses carry forward indefinitely

Three rules to remember on what is affected:

1. Held before 7:30pm 12 May 2026 (including contracted but unsettled): Grandfathered. Keep negative gearing for life of the investment.
2. Purchased 12 May 2026 to 30 June 2027: Can negatively gear until 30 June 2027, then quarantined from 1 July 2027.
3. Purchased from 1 July 2027: Quarantined immediately, unless it's an eligible new build.

New builds (construction on vacant land, or knock-down rebuilds that increase dwelling count) keep negative gearing in full. Subsequent purchasers of that same dwelling do not.

4. Discretionary Trust Minimum Tax

This is the change that will reshape Australian SME and family group structures. From 1 July 2028, the trustee of a discretionary trust pays 30% tax on the taxable income of the trust. Beneficiaries still include distributions in their returns and receive non-refundable tax credits for the trustee's 30%.

The key word is non-refundable. If a beneficiary's marginal rate is below 30%, the excess credit is lost. Income splitting to low-income family members no longer works to drop below 30%.

Two more important integrity rules:

• Corporate beneficiaries do not get the tax credit. Bucket companies cannot be used to convert the trustee's 30% into refundable franking credits at the shareholder level.
• Franking credits received by the trust must be used to pay the minimum tax first. This stops trusts using franked dividends to defease the new tax.

What's excluded

• Fixed and widely-held trusts (most MITs)
• Complying super funds (including SMSFs)
• Special disability trusts, charitable trusts, deceased estates
• Primary production income
• Certain income relating to vulnerable minors
• Income from assets of testamentary trusts existing at announcement
• Income subject to non-resident withholding tax

What you can do about it

From 1 July 2027, three-year rollover relief is available to restructure a discretionary trust into a company or fixed trust without triggering income tax or CGT. For SME clients, paying family members a wage rather than a distribution sidesteps the minimum tax entirely, since wages are deductible to the business and don't attract trustee-level tax.

What you should do this week

Different clients need different actions. A quick guide:

If you're a property investor

• Pull together a list of every investment property and confirm purchase date and contract date. Anything contracted before 7:30pm 12 May 2026 is grandfathered.
• If you're mid-purchase right now (contract signed, settlement pending) you're still grandfathered. Settle as planned.
• If you've been considering a new build, the policy preference has just shifted in your favour. Both concessions remain available.
• For pre-2027 assets, start thinking about valuation strategy at 1 July 2027. Contemporaneous evidence will matter.

If you operate through a discretionary trust

• You have until 30 June 2028 before the minimum tax bites. Use the time.
• Map current distributions against marginal rates. Distributions to beneficiaries already on 30%+ are unaffected.
• For trading trusts, consider whether wages or director fees achieve the same family outcome with no minimum tax exposure.
• Bucket company strategies need reassessment. The franking credit pathway is being closed off.
• Rollover relief is available 1 July 2027 to 30 June 2030. We'll be running structure reviews from August.

If you're an employee or sole trader

• The $1,000 instant deduction starts 1 July 2026. If your work-related expenses are below $1,000, you're better off taking the deduction.
• If your expenses are above $1,000, keep substantiating as you do now.
• WATO is automatic on lodgement from 1 July 2027.

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