Treasurer Jim Chalmers handed down his fifth Federal Budget on 12 May 2026, describing it as the “most important and ambitious Budget in decades.” For C-Suite leaders, there are implications. From small business incentives to a reintroduced loss carry-back regime, this Budget demands attention.
The Macro Picture: Deficits, Inflation and Economic Headwinds
Before diving into the tax specifics, executives need to understand the economic environment framing this Budget. The Budget forecasts ongoing deficits: $28.3 billion in 2025-26, widening to $31.5 billion in 2026-27 and reaching $34.4 billion in 2028-29 before narrowing to $25.3 billion in 2029-30. Gross debt is expected to hit $1.051 trillion (34% of GDP) in 2026-27. As a share of GDP, gross debt is forecast topeak at 35.8% in 2028-29.
The Middle East conflict is a major driver of near-term uncertainty, disrupting global oil and gas supply chains, pushing headline inflation higher and weighing on growth Headline inflation is forecast to peak at around 5% through the year to the June quarter 2026, \above the RBA’s target band of 2–3%. However, the Budget frames much of the spike as fuel-driven. Trimmed mean inflation – a key underlying inflation measure – was 3.3% through the year to March 2026 and inflation (excluding the impact of fuel prices) is forecast to return to the RBA’s target band by mid-2027. In the nearer term, the RBA lifted interestrates three times in 2026 to 4.35% in May. The Budget forecasts assume a further interest rate increase in the September quarter 2026, consistent with market expectations. Real GDP growth is projected to slow from 2.25% in 2025-26 to just 1.75% in 2026-27, with unemployment expected to gradually rise to 4.5% by the June quarter 2027
For business leaders, this is the backdrop against which all investment, restructuring and remuneration decisions must now be made.
The Headline Reform: Capital Gains Tax Overhauled
These are some of the he most significant proposed changes to the CGT regime since the CGT discount was introduced in 1999.. From 1 July 2027, the Government proposes to replace the 50% CGT discount for assets held for more than 12 monthswith an inflation-adjusted cost base method, together with a30% minimum tax on net capital gains . (together, proposed new CGT arrangements).
The proposed new CGT arrangements are proposed to apply to CGT assets held by individuals, trusts and partnerships, including pre-1985 assets, but only in respect of gains arising on or after 1 July 2027. Income support payment recipients, including Age Pension recipients, will be exempt from the minimum tax.
Critically, the proposed new CGT arrangements are prospective. For assets already held on 1 July 2027, the existing CGT rules will continue to apply to gains arising before that date. The new CGT arrangements will apply only to gains arising from 1 July 2027, with the asset’s value at that date becoming the key reference point. Taxpayers can work out that value by either obtaining a valuation or using a specified apportionment formula, supported by ATO tools, that estimates the asset’s value based on its average return over the holding period.
For pre-1985 assets, the increase in value up to and including 30 June 2027 will remain exempt from CGT; only the increase in value from 1 July 2027 will be brought within the proposed new CGT arrangements.
The current small business CGT concessions will continue unchanged. Investors in new residential properties will be able to choose between the existing 50% CGT discount and the new CGT arrangements.
The Government has also flagged further consultation on the treatment of early-stage and start-up businesses, acknowledging the unique features of the tech and start-up sector.
For affected taxpayers with significant investment portfolios, shareholdings or privately held business interests, the timing of planned asset disposals now takes on greater strategic importance.
An important carve-out: complying superannuation funds, including SMSFs, are not expected to be directly impacted. A Treasury official confirmed in the Budget Lockup that these funds will continue to receive a CGT discount of 33.33%, resulting in an effective tax rate of 10% on eligible gains.
Negative gearing: established home losses quarantined; new housing supply protected
From 1 July 2027, losses from established residential properties will generally only be deductible against rental income or capital gains from residential properties. Excess losses can be carried forward and used against residential property income in later years.
The proposed change applies to established residential properties acquired from 7:30pm AEST on 12 May 2026. Properties acquired before this time, including under contracts entered into but not yet settled, will be exempt from the changes until disposal.
Eligible new builds are exempt and properties in widely held trusts and superannuation funds are excluded, with targeted exemptions for build to rent developments and private investors supporting government housing programs.
Discretionary trusts: 30% minimum tax and targeted restructure relief
From 1 July 2028, trustees of discretionary trusts will pay a 30% minimum tax on the trust’s taxable income. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for tax paid by the trustee.
The minimum tax will not apply to fixed trusts (including fixed testamentary trusts), widely held trusts, complying superannuation funds, special disability trusts, deceased estates or charitable trusts. Some income is also excluded, including primary production income, certain income relating to vulnerable minors, amounts to which non-resident withholding tax applies and income from assets of discretionary testamentary trusts that existed when the measure was announced.
A three-year rollover relief window will apply from 1 July 2027 for small businesses and others wanting to restructure out of discretionary trusts into another entity type, such as a company or fixed trust.
Government will consult on key details, including the mechanism for collecting the minimum tax on trusts, how trustees use excess franking credits and details of rollover relief for restructuring.
Business Taxation: Opportunities Amid Complexity
Amid the major structural reforms, the Budget delivers several meaningful measures for business leaders to act on.
Loss carry-back regime reintroduced. For tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion can carry back a tax loss and offset it against tax paid up to two years earlier. This applies to revenue losses only and is limited by the company’s franking account balance. Up to 85,000 companies are expected to benefit each year, with the measure estimated to decrease receipts by $2.3 billion over five years.
For tax years commencing on or after 1 July 2028, small start-up companies with aggregated annual turnover below $10 million will be able to use losses from their first two years of operation to generate a refundable tax offset. That offset is capped by the value of FBT and withholding tax on wages paid for Australian employees in the loss year.
For businesses that have experienced losses in a volatile environment, this is a significant cash flow opportunity.
Instant asset write-off permanently extended. From 1 July 2026, the $20,000 instant asset write-off for small businesses with turnover up to $10 million will be permanently extended, removing the uncertainty that previously surrounded temporary annual extensions. This provides greater planning certainty for small business capital expenditure decisions.
PAYG – opt in for monthly instalments: From 1 July 2027 small and medium businesses will be able to opt in to reporting and paying PAYG instalments monthly and to using an ATO approved calculation embedded in their accounting software to work out and vary their instalments. This measure seeks to better reflect real time business activity.
R&D tax incentive overhauled. From 1 July 2028, the R&D Tax Incentive (RDTI) will be significantly reformed. Core R&D offset rates will increase by 4.5 percentage points, the intensity threshold will be reduced from 2% to 1.5%, and the turnover threshold for the highest offset rate will rise from $20 million to $50 million. For firms below the $50 million turnover threshold: younger firms under 10 years old will retain access to the refundable offset, while older firms will be eligible for the higher offset rate on a non-refundable basis. The maximum R&DTI expenditure threshold will also rise from $150 million to $200 million. However, supporting R&D expenditure, such as literature reviews and equipment maintenance, will no longer be eligible. The minimum expenditure threshold will also rise from $20,000 to $50,000 (R&D below this must be undertaken with a Research Service Provider or Cooperative Research Centre). Businesses currently relying on the R&DTI should model the impact of these changes well ahead of the 2028 start date.
Venture capital tax incentive (VCTI) caps lift for start-ups and growth firms – From 1 July 2027, VCTI caps will be lifted, bringing more early stage and growth businesses within reach of tax concessional VC investment. Key changes include raising the: VCLP investee asset cap from $250 million to $480 million; ESVCLP investee cap from $50 million to $80 million; ESCVLP tax-free return cap from $250 million to $420 million; and the maximum fund size from $200 million to $270 million. The changes target firms that have outgrown the lower caps but remain too capital intensive or unproven for traditional bank finance.
FBT for EVs: full exemption narrows, 25% discount becomes long-term setting The full FBT exemption for eligible electric vehicles (EVs) is to be transitioned to more limited settings. Importantly, no changes take effect in the current FBT year ending 31 March 2027. From 1 April 2027, eligible EVs valued over $75,000 and up to and including the fuel-efficient LCT threshold will receive a 25% FBT discount (statutory formula rate of 15%) where provided between 1 April 2027 and 31 March 2029.. From 1 April 2029, a permanent 25% FBT discount will apply to all eligible EVs valued at up to and including the fuel-efficient LCT threshold.
Importantly, the transitional rules preserve the FBT discount rate that applied when the arrangement commenced. Eligible EVs valued up to and including $75,000 and provided before 1 April 2029 will therefore continue to receive the full FBT exemption for that arrangement.
EVs above the fuel-efficient luxury car tax threshold remain outside the concession and continue to attract the standard 20 per cent statutory formula rate.
For organisations with salary packaging or fleet programs, remuneration policies will need to be updated accordingly.
Personal Tax: Relief for Your Workforce
For executives thinking about talent attraction and retention, the Budget delivers a package of personal tax measures. Already-legislated cuts will reduce the tax rate on income between $18,201 and $45,000 from 16% to 15% from 1 July 2026, and further to 14% from 1 July 2027. A new $250 Working Australians Tax Offset (WATO) will apply from 1 July 2027, and a standard $1,000 deduction for work-related expenses is to be introduced from the 2026-27 income year. The Government estimates the combined benefit for a worker on average earnings will be up to $2,816 per year from 2027-28 relative to 2023-24 tax settings.
The Strategic Imperative
This Budget represents the start of structural shift in Australia’s tax settings, not a marginal adjustment. The replacement of the 50% CGT discount with cost base indexation and a minimum tax on net capital gains, the restriction of negative gearing for established residential property and a 30% minimum tax on discretionary trusts collectively represent some of the most significant investment tax reforms in decades. At the same time, measures like the reintroduced loss carry-back regime (for revenue losses only and capped to a company’s franking account balance) and permanent instant asset write-off provide real opportunities for businesses positioned to act.
C-Suite leaders should be engaging their tax advisers now to assess the implications for asset disposal timing, remuneration arrangements, R&D programs and EV fleet policies. Several key reforms remain subject to consultation, legislation and passage through Parliament. With operative dates beginning in 2027, early scenario planning is prudent, even where final settings may shift.
