Reform, rebalancing and strategic implications: A new era of Tax reforms
The Australian Federal Budget 2026–27, delivered on 12 May 2026, comes at a time of heightened global uncertainty, with economic conditions shaped by geopolitical tensions, elevated energy prices and persistent inflationary pressures.
The Government has positioned this Budget as both a near-term response to cost-of-living pressures and a longer-term reform agenda focused on productivity, fiscal sustainability and structural change within the tax system.
From a tax perspective, this represents one of the most significant reform packages in recent decades. The clear policy direction is to rebalance the system toward working Australians, while reshaping investment incentives and broadening the tax base.
Key measures include fundamental changes to capital gains tax and negative gearing from 1 July 2027, alongside a proposed 30% minimum tax on discretionary trusts from 1 July 2028. These are complemented by targeted business reforms and incremental personal tax relief measures.
Overall, the Budget reflects a deliberate balancing of priorities, delivering immediate relief, pursuing long-term structural reform and maintaining fiscal discipline, while leaving key questions on future reform direction.
The proposed overhaul of the capital gains tax (CGT) regime represents the most significant change since its introduction. The removal of the 50% CGT discount from 1 July 2027 and the return to indexation fundamentally alters how investment gains will be taxed.
Under the new framework:
Transitional rules create a dual system, with gains accrued pre- and post-1 July 2027 treated differently, introducing complexity and a likely requirement for valuations at that date.
The key exemptions from the new measure are for:
Transitional rules for Capital Gains Tax changes
There has been a lot of speculation around how the transitional rules will operate, and they are seemingly designed to prevent any knee jerk reactions from investors:
PKF Insight:
This reform significantly increases the effective tax burden on future disposals and shifts the focus from tax-driven investment decisions to underlying asset performance. Business owners, investors and founders should review exit strategies early, as after-tax outcomes will materially change under the new regime.
Negative Gearing – Structural shift in property investment
The Budget introduces a fundamental reshaping of negative gearing rules from 1 July 2027, restricting the ability to offset rental losses against other income.
Key changes include:
The changes will apply to established residential properties acquired from 7:30 PM (AEST) on 12 May 2026.
Importantly, properties acquired before this time (including those under contract but not yet settled) will be grandfathered, meaning the current negative gearing rules will continue to apply until the property is sold.
The new rules will apply broadly across individuals, partnerships, companies, and trusts, although widely held trusts and superannuation funds will be excluded.
The reforms continue to support housing supply by preserving full negative gearing benefits for new builds.
A new build is defined as a property that genuinely adds to housing supply, including construction on vacant land and redevelopment where more dwellings are created than previously existed.
However, knock-down rebuilds and substantial renovations that do not expand supply will not qualify.
Additional criteria that a new build cannot have been previously sold, unless the first owner was the builder and not occupied for greater than 12 months. These new builds will also be able to access the 50 per cent CGT discount.
During the transition period, negative gearing remains fully available across all property types. From 1 July 2026 onwards:
| Acquisition type | Negative Gearing available |
| Established property acquired before 7:30 PM (AEST) on 12 May 2026 | Yes |
| Established property acquired after 7:30 PM (AEST) on 12 May 2026 | Limited (only against rental income or capital gains from residential property) |
| New builds | Yes |
PKF Insight:
This is a clear policy lever aimed at redirecting capital toward new housing supply. The impact is expected to shift investor behaviour - away from reliance on tax losses and toward a stronger emphasis on yield, asset quality and development opportunities.
From 1 July 2028, the Government proposes a 30% minimum tax on discretionary trust income, representing a major structural change to longstanding trust planning strategies. The measure forms part of the Government’s broader tax reform agenda and is intended to align the taxation of trust income more closely with the tax rates paid by wage and salary earners. The reform is forecast to raise approximately $4.5 billion in its first year of operation.
Under the proposal:
This creates a de facto “floor” on the taxation of trust income and may reduce the effectiveness of income-splitting strategies.
The Government has also signalled a preference toward corporate structures, noting that companies can more easily retain earnings, support working capital requirements and facilitate business succession through share ownership. Companies with turnover under $50 million may also continue to access the lower 25% corporate tax rate.
To support affected taxpayers, expanded rollover relief will be available for three years from 1 July 2027, allowing eligible businesses and investors to restructure into companies or fixed trusts without immediate income tax or capital gains tax consequences.
Importantly, proposed exclusions include:
PKF Insight:
The measure signals a clear shift away from discretionary trust flexibility toward corporate structures. SME groups and family investment structures should assess their position early, particularly given potential impacts on corporate beneficiaries and retained earnings strategies.
Broader business Tax reforms
The Budget introduces a targeted package of business tax measures focused on cash flow, resilience and operational investment. While there are no material changes to corporate tax rates, the measures reflect a clear policy shift toward supporting operational activity and economic resilience, rather than tax‑driven planning. The reforms are phased, with most measures proposed to apply from 1 July 2026, and key innovation changes from 1 July 2028, requiring forward planning.
Key reforms include:
PKF Insight:
The emphasis is on supporting real economic activity rather than tax arbitrage. Businesses should review capital expenditure timing, group structures and loss utilisation strategies to maximise the benefits of these changes.
The R&D tax incentive will be refocused from 1 July 2028, with changes designed to strengthen support for genuine innovation while tightening eligibility.
Key changes include:
PKF Insight:
While the enhanced focus on core R&D is positive, the narrowing of eligible activities and expected increase in scrutiny will require stronger governance, documentation and alignment with technical definitions.
FBT concessions for electric vehicles will be recalibrated from 1 April 2027, with a shift toward supporting more affordable vehicles.
Key changes:
| 100% EV FBT exemption | 25% Discount on FBT | |
| Existing treatment: Up to 31 March 2027 | Up to the fuel-efficient luxury car tax limit of $91,387 (2025-26) | Not available |
| Phase 1: 1 April 2027 to 31 March 2029 | Up to and including $75,000 | 25% discount on FBT implemented through the FBT statutory formula method only (i.e. a 15% statutory formula rate instead of 20% previously) up to the fuel-efficient luxury car tax threshold |
| Phase 2: 1 April 2029 onwards | Not available |
PKF Insight
The changes incentivise more cost-effective EV options and will influence fleet strategies and novated lease planning. Businesses and employees should reassess vehicle choices ahead of the transition.
The Budget delivers targeted relief for individuals through:
PKF Insight:
While these measures provide modest support, much of the benefit is deferred and incremental. Importantly, the relief is partially funded by broader tax reforms targeting investment income, reinforcing the Budget’s redistributive approach.
This Budget represents a clear pivot in Australia’s tax and economic policy settings.
At its core, it shifts the balance:
For clients, the key takeaway is that structure, timing and strategy will matter more than ever.
The scale of reform introduced, particularly across CGT, negative gearing and trusts, means early planning is critical. Those who proactively assess the implications across investment, business operations and structuring will be best placed to manage risk and capture opportunities as these changes take shape.
