Trusts, Negative Gearing & CGT: What’s changed?

When the 2026–27 Federal Budget was handed down in May, it included some significant proposed changes affecting family trusts, investors, businesses and individuals.

Several measures have now become law, while others have been revised or remain under consultation.

Here’s a recap of the key changes and what they may mean for you.

STILL SUBJECT TO LEGISLATION

Family Trusts

One of the most significant Budget announcements was the proposed 30% minimum tax on discretionary or family trusts from 1 July 2028.

Since Budget night, there has been an important development. Under draft legislation released in September, discretionary trusts that exist on 1 July 2028 may be able to elect out of the proposed 30% minimum tax rules.

Instead, a trust could nominate beneficiaries and distribute income to them in fixed percentages each year. These beneficiaries may include individuals and eligible companies, including corporate or “bucket company” beneficiaries, with beneficiaries generally paying tax at their normal individual or company tax rate.

This could provide welcome relief for families and businesses with established trust structures, particularly those that regularly distribute income to corporate beneficiaries, and may allow them to retain their existing trust rather than restructure.

However, there is an important trade-off. Electing into the fixed distribution system would mean giving up much of the flexibility traditionally associated with a discretionary family trust. Distributions would generally need to follow the same nominated percentages each year, with only limited circumstances allowing beneficiaries to be changed.

Under the current proposal, if a trust deviates from its fixed distribution election, the trustee could be taxed at 47% in that year. The trust would then revert to the 30% minimum trust tax rules from the following year and would not be able to re-enter the fixed distribution regime.

Alternatively, proposed three-year rollover relief may assist eligible taxpayers who decide to restructure out of their discretionary trust. While this may provide relief from certain CGT and income tax consequences, other costs, including possible stamp duty, may still arise.

Importantly, these measures are still in draft form and are not yet law. No action is required at this stage and we recommend clients do not make changes to their trust structures solely in response to these proposals.

Electric Vehicles & FBT

Changes to the FBT treatment of electric vehicles are also proposed.

The current proposal will progressively reduce the full FBT exemption and ultimately move eligible electric vehicles towards a 25% FBT discount.

These changes remain subject to legislation, so businesses considering salary-packaged or employer-provided electric vehicles should seek advice before making longer-term arrangements.

NOW LAW

Negative Gearing

From 1 July 2027, negative gearing will be restricted for established residential properties purchased after 7.30pm on 12 May 2026.

Rental losses on these properties will generally no longer be deductible against salary, wages and other income. Instead, losses can be used against other residential property income and relevant capital gains, with unused amounts carried forward.

Importantly:

• properties held before the Budget announcement are protected

• new residential builds remain eligible for existing negative gearing treatment

• commercial property and superannuation funds are not subject to the above changes

Capital Gains Tax

From 1 July 2027, the existing 50% CGT discount will be replaced by cost base indexation and a minimum 30% tax rate on relevant capital gains.

The changes will also bring gains accruing after 1 July 2027 on previously exempt pre-CGT assets into the CGT system.

Transitional arrangements will preserve the existing treatment of gains accruing before 1 July 2027.

For clients who have held property, shares or other investments for many years, valuations and good record keeping from 1 July 2027 will be particularly important.

$20,000 Instant Asset Write-Off

The $20,000 instant asset write-off has been made permanent from 1 July 2026.

Eligible small businesses with aggregated turnover of less than $10 million can immediately deduct eligible depreciating assets costing less than $20,000.

The threshold applies to each asset individually.

Company Loss Carry-Back

Eligible companies can now carry tax losses back against tax paid in either or both of the previous two income years, subject to eligibility requirements and franking account limitations.

This applies from the 2026–27 income year.

$1,000 Work-Related Expense Deduction

From the 2026–27 tax year, eligible Australian resident workers can claim a standard $1,000 deduction for work-related expenses without needing receipts for those expenses.

If actual deductible work-related expenses exceed $1,000, taxpayers can choose to claim their actual expenses instead, although normal substantiation requirements will apply.

Eligible donations, union fees and professional association memberships can continue to be claimed separately.

Working Australians Tax Offset

From 1 July 2027, eligible workers will receive a Working Australians Tax Offset of up to $250.

The offset will also be available to eligible sole traders.

Personal Income Tax Cuts

From 1 July 2026, the tax rate applying to taxable income between $18,201 and $45,000 has reduced from 16% to 15%.

It is scheduled to reduce again to 14% from 1 July 2027.

What Does It Mean for You?

While many of the major structural changes don't commence until 2027 or 2028, planning ahead will be important, particularly for clients who have family trusts, own investment properties or significant assets, or may be considering changes to their business or investment structures.

There is generally no need to make immediate changes.

We will continue to monitor the legislation and keep you updated as further details become available.

If you would like to discuss how these changes could affect you please contact your Sullivan Dewing Client Manager.