The Federal Budget handed down on 12 May 2026 is one of the most significant tax reform packages in recent memory. For families with discretionary trusts, property investors, business owners, and self-funded retirees, the changes are substantial and in some cases, the dollar impacts are severe.

Here's our plain-English overview of what's changing, when it kicks in, and what you should be thinking about now.

The key reform dates

Three dates matter most:

1 July 2026: The $20,000 instant asset write-off becomes permanent, loss carry-back provisions kick in for companies with turnover under $1 billion, the superannuation guarantee rate reaches its final 12% cap, and payday super begins (SG contributions must now be paid each pay run, not quarterly). Personal tax rates also begin their two-step reduction, dropping from 16% to 15%.

1 July 2027: The 50% CGT discount is replaced with CPI indexation plus a 30% minimum tax floor for individuals, trusts, and partnerships. Negative gearing on established residential properties acquired after 12 May 2026 is quarantined. The personal tax rate drops again, from 15% to 14%.

1 July 2028: Discretionary trusts face a 30% minimum tax at the trustee level. The bucket company credit is denied, effectively creating a double-tax on trust-to-company distributions.

Discretionary trusts: the 30% floor

From 1 July 2028, trustees of discretionary trusts will pay a 30% minimum tax on net trust income. Beneficiaries receive a non-refundable credit, but if their marginal tax rate is below 30%, that credit is simply wasted.

The impact scales dramatically depending on who's in the trust. A family of four distributing $200,000 across two parents and two adult university students (currently paying around $30,000 in combined tax) will face a $60,000 trustee tax bill under the new rules. That's $30,000 of credits forfeited to the ATO each year.

Even a modest two-adult café family sharing $120,000 in trust income 50/50 will see their combined tax bill nearly double from roughly $19,800 to $36,000, with $16,200 in wasted credits annually.

The worst-case scenario? Retired parents receiving $40,000 in rental support from a family trust. Under current rules, SAPTO and LITO offsets cover their entire tax liability. From 1 July 2028, the trustee pays $12,000 in tax and both retirees' credits are fully wasted, with nothing to offset against.

Three-year rollover relief is available from 1 July 2027 to 30 June 2030 to allow restructuring. This is the window to act but it requires careful planning, including modelling state transfer duty exposure before any property moves.

Bucket companies: effectively dead for new flows

If your current strategy flows trust distributions into a bucket company at the corporate 30% rate, that playbook is finished for new distributions from 1 July 2028.

Under the announced measures, the trustee pays 30% on net trust income first. The corporate beneficiary is then assessed on its full entitlement with no credit for the trustee tax already paid, and pays 30% again. That's an effective 60% tax rate on the same dollar.

On a $1 million trading trust overflowing $730,000 to a bucket company, the annual tax cost increases by approximately $232,000. A strategy that made structural sense for decades simply no longer works for new flows.

Pre-2028 accumulated reserves in existing bucket companies are expected to be unaffected. Companies still make sense as the structure of choice for capital-growth assets going forward; the 30% flat rate competes well against the new CGT landscape. But the trust-to-bucket-company pipeline is closed.

CGT reform: the 50% discount is gone

From 1 July 2027, the 50% CGT discount for individuals, trusts, and partnerships is replaced with CPI indexation of the cost base, plus a 30% minimum tax on the indexed gain.

Companies and super funds are unaffected. Age pension recipients are exempt from the 30% floor. Small business CGT concessions, including the 15-year active asset exemption, are preserved in full.

Everyone else faces a materially higher tax bill on capital gains.

The impact is starkest for low-MTR sellers. A self-funded retiree drawing a tax-free super pension who realises a $100,000 share gain currently pays around $6,300 in CGT. Under the new rules, the 30% floor applies regardless of their actual marginal rate, lifting that bill to $27,000. That's a 4.3x increase on the same gain.

For a couple selling an investment property with a $300,000 gain, each on an $80,000 salary, the CGT bill nearly doubles, from $45,000 to $84,000.

The critical deadline is 30 June 2027: the last date on which the 50% discount still applies. If you're sitting on large unrealised gains in individual or trust names, the question of whether to crystallise before that date is one of the most important decisions you'll make in the next 12 months.

Pre-CGT assets (acquired before 20 September 1985) retain their exemption for gains accrued before 1 July 2027,  but gains accruing after that date become taxable. If you hold pre-CGT assets, a formal market valuation at 30 June 2027 locks in the exempt portion. Without a valuation, the statutory apportionment formula applies and it's generally less favourable.

Property investors: negative gearing quarantined

Negative gearing on established residential properties acquired after 7:30 pm AEST on 12 May 2026 will be quarantined from 1 July 2027. Losses from these properties can no longer offset salary or other income, they can only offset future rental income or property CGT on disposal.

Properties contracted before that cut-off are grandfathered. Importantly, it's the contract date that matters, not settlement — so properties purchased before the Budget but settling in 2027 or 2028 retain full negative gearing.

New builds, off-the-plan purchases, and developments that add net new dwellings to the housing stock retain negative gearing in full. However, a knockdown-and-rebuild of a single dwelling does not qualify as a new build. The Treasury treats it as established property, so losses remain quarantined.

For a $1 million property with an 80% LVR running a $40,000 annual rental loss, this reform costs a 45% MTR investor $18,000 per year in lost tax refunds permanently, until the property turns positively geared or is sold.

Trust-held residential property acquired post-cutoff faces the toughest outcome: negative gearing quarantined, CGT discount replaced, and the trust 30% minimum tax layering on once the property turns positive. These three reforms compounding on the same asset make trust-held established property the most exposed structure under the new landscape.

Superannuation: Division 296 and payday super

Two superannuation changes take effect from 1 July 2026.

Payday super requires SG contributions to be paid at each pay run rather than quarterly. For a business with a $1 million payroll, this brings forward significant cash outflows and frees up (or eliminates) the working capital that was previously being held in anticipation of quarterly SG payments. Payroll systems need to be STP Phase 2 compliant by 30 June 2026.

Division 296 introduces a tiered additional tax on superannuation balances above $3 million. A member with a $5 million TSB faces an additional 15% tax on the TSB-proportional earnings above $3 million and critically, this includes unrealised gains. For SMSFs holding illiquid assets like commercial property or private equity, a revaluation can trigger a Div 296 liability with no corresponding cash to pay it.

Members approaching the $3 million threshold should be modelling their Div 296 exposure now and stress-testing SMSF liquidity against potential unrealised-gain events.

Six things to do before 30 June 2027

1. Stress-test every discretionary trust. Corporate beneficiary arrangements are the priority target for restructure. Model the credit waste at each beneficiary's MTR to understand the full annual cost.
   
   
2. Commission 30 June 2027 valuations for all pre-CGT assets, family business goodwill, farm land, and anything sitting on large unrealised gains. Valuer capacity will become a bottleneck so start early.
   
   
3. Consider crystallising gains before 1 July 2027 to lock in the 50% CGT discount, particularly for low-MTR sellers, retirees, or anyone anticipating a lower-income year.
   
   
4. Review your property pipeline. Confirm contract dates on anything in flight. Identify whether knockdown-rebuild plans qualify as new builds. Consider subdivision to restore negative gearing eligibility.
   
   
5. Upgrade payroll systems to STP Phase 2 before 30 June 2026 to comply with payday super requirements.
   
   
6. Plan the rollover window. The 1 July 2027 – 30 June 2030 window offers CGT rollover relief for restructuring out of discretionary trusts — but state transfer duty and land tax surcharges are not relieved. Always model the federal and state impact together.
   
   

Whilst we wait for many of the above changes to actually be legislated, there will be more information to come. Before making any decisions or changes, please get in touch with your Patison accountant. 

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Photo by Tom Rumble on Unsplash

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