Monthly technical briefing - June 2026

On the 12^th of May 2026 the Federal Treasurer, the Hon Dr Jim Chalmers MP, delivered his fifth Federal Budget, with a focus on tax reforms for capital gains, negative gearing and discretionary trusts.

A summary of the key reforms affecting the advice provided by financial advisers is provided below. These proposals are not law at the time of writing.  

Note: The summary below is based on the material provided by the Government at Budget time. On the 28^th of May 2026 the Government introduced two bills to Parliament, being Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026 and Treasury Laws Amendment (Tax Reform No. 1) Bill 2026. This summary does not consider the content of these bills. The areas covered in the summary below and these bills are:

• Capital gains tax (CGT) – move to cost base indexation
• Capital gains tax (CGT) – minimum 30 per cent tax rate
• Negative gearing
• $1,000 Instant tax deduction for work related expenses
• Working Australians Tax Offset

Analysis of these bills will be provided where appropriate in future technical briefings.

The Government has announced a change to the way capital gains will be calculated from 1 July 2027. Key features of this proposal include:

1. Taxpayers affected – the proposed changes apply to:
   
   1. Individuals
   2. Trusts
   3. Partnerships
2. 50 per cent CGT discount – the ability to use the 50% discount method for calculating capital gains on assets held for at least 12 months will be removed for gains accrued from 1 July 2027.
3. Pre-CGT assets – the CGT exemption for pre-CGT assets (i.e. those acquired before 20 September 1985) will be removed for capital gains accrued from 1 July 2027.
4. Grandfathering – capital gains accrued at 1 July 2027 will fall under the following transitional rules:
   1. Assets held for at least 12 months will be able to apply the 50 per cent discount approach for accrued gains to 1 July 2027.
   2. For pre-CGT assets, capital gains accrued to 1 July 2027 will continue to be exempt from tax.
5. Indexation method – from 1 July 2027, accrued capital gains will be calculated using an indexed cost base using the Consumer Price Index (CPI). Cost base indexation will apply to all assets held for at least 12 months, including pre-CGT assets.
   The Government has indicated that the new methodology will be similar to arrangements that were in place between 1985 and 1999 and that the ATO will provide guidance and tools to support the change.
6. Market value at 1 July 2027 – under the grandfathering rules, determining the market value of the asset at 1 July 2027 will be important for determining the capital gains/loss of the asset. This will be required at the time of completion of the tax return for the year of CGT event. The Government has indicated that taxpayers can either:
   1. Seek a valuation of the asset as at 1 July 2027, which will include using quoted prices for assets such as shares, or
   2. Use a specified apportionment formula that estimates the asset’s value on 1 July 2027, based on its growth rate over the asset’s holding period. The ATO will provide tools to estimate this value for taxpayers.
7. Assets impacted – the changes apply to CGT assets (e.g. shares, managed funds, property) with certain exemptions noted below.
8. Asset exemptions – although the change applies broadly to CGT assets, there are a few exceptions as follows:
   1. Main residence – the current main residence exemption rules will continue to apply
   2. New residential property builds – investors who buy new builds that add to the supply of residential property will be able to use either the 50 per cent discount method or indexation method when calculating the capital gain for assets held for at least 12 months. This will include:
      1. Dwelling constructed on vacant land
      2. Where existing properties are demolished and replaced with a greater number of dwellings.

      The table below expands on arrangements that will and won’t qualify (taken from the Government Fact Sheet – Negative Gearing and Capital Gains Tax Reform)

   3. Affordable housing – the 60 per cent discount will be retained.
   4. Tech and start-up sectors – the Government will consult on the proposed reforms and incentives for investment in early-stage and start-up businesses.

   Eligible new build	Not an eligible new build
   A newly constructed apartment bought off-the-plan.	An established property that has recently been extended to add additional bedrooms.
   A duplex constructed through a knock-down rebuild replacing a single, free-standing house.	A free-standing house constructed through a knock-down rebuild replacing an older, smaller free-standing house.
   Any residential construction on previously vacant land.	A granny flat built adjacent to an established property that is not eligible for negative gearing.
   A newly built property which is occupied for less than 12 months before being first sold.	A newly built property which is occupied for more than 12 months before being sold to a subsequent investor.

   Given these proposed changes, there will be a number of iterations with regards to the way in which capital gains tax will be calculated by individuals for assets held for at least 12 months going forward. These include:

   Acquisition				Disposal		CGT methodology
   Pre 20 Sep 1985	Pre 21 Sep 1999	Pre 1 Jul 2027	From 1 Jul 2027	Pre 1 Jul 2027	From 1 Jul 2027
   Yes				Yes		Current rules apply: Exempt
   Yes					Yes	Gains accrued to 1 July 2027: Exempt Gains accrued from 1 July 27: Cost base indexation
   	Yes			Yes		Current rules apply: Cost base indexation or 50% discount
   	Yes				Yes	Gains accrued to 1 July 2027: 50% discount or cost base indexation Gains accrued from 1 July 27: Cost base indexation
   		Yes		Yes		Current rules apply: 50% discount
   		Yes			Yes	Gains accrued to 1 July 2027: 50% discount Gains accrued from 1 July 27: Cost base indexation
   			Yes		Yes	Cost base indexation Residential property that qualifies as a ‘new build’ will also have the choice of the 50% discount

   Further information can be found here:

   Government Fact Sheet – Negative Gearing and Capital Gains Tax Reform

The Government has proposed a minimum 30 per cent minimum tax rate on capital gains. Key features of this proposal include:

1. Taxpayers affected – the proposed changes apply to:
   1. Individuals (excluding those in receipt of means-tested income support payments from the Government, such as the Age Pension or JobSeeker, will be exempted from the minimum tax if they receive any payment in the financial year in which they realise the capital gain)
   2. Trusts
   3. Partnerships
2. Timing – applies to capital gains that accrue from 1 July 2027.
   Capital gains that accrue to 1 July 2027 will not be subject to the minimum rate of tax.

   Tax is only payable once the asset is realised.

3. Exempt income – the minimum 30 per cent tax rate will not apply to capital gains on new residential property builds that have added to the supply of residential property. Refer to point 8 of the section ‘Capital gains tax (CGT) – move to cost base indexation’ above for further details.

One reason the Government has provided for this proposal is to reduce the benefit of taxpayers deferring the realisation of capital gains to years where their marginal tax rates are low and to ensure their gains are subject to a tax rate closer to the rate they faced during their working life.

The existing marginal tax rates for individuals for 2027-28 are provided in the table below. As can be seen, those with taxable income below $45,000 have a marginal tax rate of less than 30 per cent. These people are likely to pay more tax due to this change, unless the exclusion noted above applies.

* Excludes Medicare levy

Further information can be found here:

Government Fact Sheet – Negative Gearing and Capital Gains Tax Reform

Changes are proposed to negative gearing into residential properties from 1 July 2027. From this date, losses on residential properties acquired on or after the time of the 2026 Budget announcement will only be deductible against rental income or capital gains generated from residential properties. Key features of this proposal include:

1. Taxpayers affected - the proposed changes apply to:

   1. Individuals

   2. Trusts (excluding widely held trusts (e.g. managed funds) and super funds (e.g. limited recourse borrowing arrangement LRBA within an SMSF))

   3. Partnerships

   4. Companies

2. Exempt assets – the proposal does not apply to the following assets:

   1. Existing residential properties – must have been acquired before the Budget announcement (i.e. before 7:30 PM (AEST) on 12 May 2026). Acquisition time is usually the time that the sale contract is entered into.

   2. New residential property builds – investors who buy new builds that add to the supply of residential property. Refer to point 8 of the section ‘Capital gains tax (CGT) – move to cost base indexation’ above for further details.

   3. Assets that are not-residential property – these proposals don’t apply to other investments, such as commercial property, shares or managed funds.

   4. Affordable housing – private investors who support government housing programs, for example, through the provision of affordable housing.

3. Loss carry forward – for residential properties that are impacted by this change, any excess losses can be carried forward to offset residential property income in future years, ensuring investors can still claim deductions for these outgoings.

4. Transitional period – residential properties acquired between 7:30 PM (AEST) on 12 May 2026 and 30 June 2027 can be negatively geared during that specific period, but not from 1 July 2027 onwards.

Further information can be found here:

Government Fact Sheet – Negative Gearing and Capital Gains Tax Reform

Discretionary trusts will be subject to new taxation rules from 1 July 2028 with trustees being taxed at a minimum rate going forward. Key features of this proposal include:

1. Minimum tax rate - from 1 July 2028, a minimum tax of 30 per cent will be paid by the trustee on the taxable income of discretionary trusts.
2. Beneficiary treatment - beneficiaries will still include assessable distributions in their tax returns but will receive a 30 per cent non-refundable tax offset for the tax already paid by the trustee.
   The nature of this offset is different to franking credits paid to shareholders of a company, which are refundable.
3. Corporate beneficiaries - the non-refundable tax offset will not be available to corporate beneficiaries. This measure is designed to prevent tax avoidance strategies where income is cycled through "bucket" companies to defer tax for underlying shareholders.
4. Rollover relief – expanded rollover relief will be available for three years from 1 July 2027 for "business owners and others" who wish to restructure out of a discretionary trust into other entity types, such as a company or fixed trust. This relief aims to facilitate restructuring by ensuring no income tax consequences, including capital gains tax, arise during the transition.
   The announcement indicates that the Government will provide support from 1 January 2027 to small businesses to help them understand the options available and where they can get further advice.
5. Entities excluded from minimum tax - the minimum tax will not apply to the following trusts:

   1. fixed and widely held trusts

   2. complying superannuation funds

   3. special disability trusts

   4. deceased estates, and

   5. charitable trusts.

6. Income exclusions - certain income types are also excluded, such as:

   1. income from assets of testamentary trusts existing at 7:30 PM (AEST) on 12 May 2026

   2. primary production income

   3. specific income for vulnerable minors, and

   4. amounts subject to non-resident withholding tax.

Further information can be found here:

Government Fact Sheet – Minimum tax on discretionary trusts

The Government will remove the age-based uplift of the Private Health Insurance Rebate from 1 April 2027 to enable a simplified, more equitable distribution of the rebate and help improve intergenerational equity.

Resources redirected from this measure will support the aged care sector to deliver more residential aged care beds and improve affordability and access to home care supports. Additionally, the Government will undertake consultations on further reforms to improve the private healthcare system. The Department of Health, Disability and Ageing will oversee the implementation of these measures.

Further information can be found here:

Budget Paper No. 2: Budget Measures

The Government is introducing a $1,000 instant tax deduction for work-related expenses with the aim of simplifying the completion of personal tax returns. Key features of this proposal include:

1. Commencement – 2026-27 income year
2. Deduction amount - $1,000
3. Substantiation – No substantiation required.

According to the Government’s fact sheet, taxpayers claiming more than $1,000 in work-related deductions will still be able to do so in the usual way. Also, charitable donations, union and professional association membership fees and other non‑work related deductions can still be claimed on top of the instant tax deduction.

Further information can be found here:

Government Fact Sheet – New tax cuts for Australian workers

The Government has proposed the introduction of a permanent annual tax offset called the Working Australians Tax Offset (WATO). Key features of this proposal include:

1. Commencement – 2027-28 income year
2. Offset amount – up to $250 per annum
3. Eligible people – Australian workers, including sole traders
4. Administration - processed automatically upon the lodgement of the individuals tax return.

Further information can be found here:

Government Fact Sheet – New tax cuts for Australian workers

The Government has announced adjustments to the FBT rules for electric cars.  From 1 April 2029, a permanent 25 per cent discount on fringe benefits tax (FBT) will apply to all electric cars valued up to and including the fuel-efficient luxury car tax (LCT) threshold, delivered through a 15 per cent rate in the FBT statutory formula.

The transitional and permanent arrangements are structured as follows:

1. Transitional arrangements - Exempt vehicles (valued up to $75,000): Electric cars valued up to and including $75,000 that are provided before 1 April 2029 will remain eligible for a 100 per cent discount on FBT, implemented through a 0 per cent rate in the FBT statutory formula.
   
   Mid-tier vehicles (valued between $75,000 and the LCT threshold): Electric cars valued above $75,000 and up to the fuel-efficient LCT threshold that are provided between 1 April 2027 and 1 April 2029 will receive a 25 per cent discount on FBT, implemented through a 15 per cent rate in the FBT statutory formula.
   
   Grandfathering rules: All eligible electric cars will permanently retain the specific FBT discount rate that was in place at the time their leasing or provision arrangement commenced.
   
   
2. Standard and administrative rules - Other vehicles: The standard 20 per cent statutory rate will continue to apply to all other vehicles, including electric cars with a value exceeding the fuel-efficient LCT threshold.
   
   Reportable fringe benefits: For reporting purposes, reportable fringe benefits for eligible electric cars will continue to be determined as if a standard 20 per cent FBT statutory formula rate or the cost basis method applied.

Further information can be found here:

Budget Paper No. 2: Budget Measures

The Government will amend eligibility for the Pension Supplement by:

• Extending payment of the full rate of Pension Supplement from six weeks to 12 weeks for recipients who are temporarily absent from Australia, and
• Ceasing the Pension Supplement for those recipients who are residing permanently overseas or who are temporarily absent from Australia for longer than 12 weeks.

Further information can be found here:

Modernising payment of the pension supplement to recipients overseas

The Government will improve the affordability and accessibility of home care supports. This initiative includes:

• Fully funding personal care services (such as showering) for all care recipients under the Support at Home program.
• Implementing program refinements to assessments, hardship applications, and the end-of-life pathways.
• Accelerating the release of Support at Home program places.

Further information can be found here:

Budget Paper No. 2: Budget Measures

The Government will increase the number of aged care beds by 5,000 each year to protect equity of access, principally for supported residents with limited financial means. Additionally, dementia care supports will be enhanced, which includes expanding the Hospital to Aged Care Dementia Support program.

Further information can be found here:

Budget 2026-27: A stronger care system for all Australians

Personal transfer balance cap indexation information

The ATO has advised that personal transfer balance cap information for those subject to proportional indexation for the 2026-27 year will be available on the ATO services site from 13 July 2026.

Further information can be found here:

ATO Upcoming personal transfer balance cap changes

Final tax ruling on rental properties

On 20 May 2026 the ATO released TR 2026/1 Income tax: rental property income and deductions for individuals who are not in business. It covers earning income from:

• The short-term rental market (such as, using online booking or sharing platforms), including renting out a holiday home or letting a room (or rooms) in a home
• Letting out a property, or part of a property to long-term tenants.

This Ruling explains:

• When amounts you receive for the use of your rental property will be assessable income
• When losses or outgoings you incur relating to your rental property can be claimed as deductions
• How to apportion your deductions when there are both income-producing and non-income-producing uses of your rental property
• When certain deductions for your holiday home, that you also use as a rental property, will be denied because it is a 'leisure facility'.

Further information can be found here:

ATO – TR 2026/1

On 27 May 2027 the Government announced ‘once-in-a-generation reform’ of the employment services system.

The Government has stated that their vision for employment services reform is to deliver a system that gives people the best opportunity to secure a well-paid job.

They’ve proposed the following four core ideals to underpin this vision:

1. employment is the primary goal
2. support is meaningful, tailored and proportionate to a person’s needs
3. services are high-quality and responsive
4. the system is designed to continuously improve.

According to the Government’s media release, the announced changes will help Australians into work by introducing the following service streams:

• A digital service that provides participants with individualised resources and brief interventions when they need it for people who are ready to work and need help finding the right job
• High-quality targeted provider-led support for people who need help to build skills and confidence to return to the job market
• Intensive services for people facing complex barriers providing them with more time, more flexibility and more joined up support to build confidence and capability as they move towards work.

The media release also states:

• Mutual obligations remain and will become more purposeful, individualised and focused on helping people move towards suitable work.
• Job Plans will be replaced by a new Employment Goal Plan, giving people a clearer pathway into work by setting out their goals, barriers and the practical steps needed to succeed.

A public discussion paper has been launched and will remain open until 31 July 2026.

Further information can be found here:

Media release - Ending one-size-fits-all employment services

Department of Employment and Workplace Relations – Employment services reform

The Treasury - Working Future: The Australian Government’s White Paper on Jobs and Opportunities