What Every SME Owner Needs to Know About This Budget
The headlines have focused on what was taken away. Here's a complete breakdown - including three things the major media outlets missed that matter most to business owners.
Last night Treasurer Jim Chalmers handed down what he called the most ambitious budget in 26 years. He was not wrong. The reforms to capital gains tax, negative gearing, and discretionary trusts are the most significant changes to private wealth and business structures since the Howard government introduced the CGT discount in 1999.
By now you've seen the headlines. CGT discount gone. Negative gearing restricted. Trusts taxed at 30%. We're going to cover all of that clearly and completely. But we're also going to cover three things that are not in the mainstream coverage this morning - and for SME business owners, they matter more than anything else being reported.
This article is structured so you can read it in order for the full picture, or jump to the section most relevant to you.
At a Glance
Here's a summary of every major measure, when it starts, and what it means for you.
| Measure | When | Who it affects | Status |
|---|---|---|---|
| 50% CGT discount scrappedReplaced with indexation + 30% minimum rate | 1 July 2027 | Individuals, trusts, partnerships selling assets | Announced |
| Negative gearing restrictedNew builds only from budget night | From 7:30pm 12 May 2026 | Property investors buying established property | Announced |
| Discretionary trust minimum tax30% on all trust taxable income | 1 July 2028 | All discretionary trust users - esp. bucket company structures | Announced |
| Pre-1985 assets - CGT rules changingGains after 1 July 2027 will be taxable. Get a valuation at that date to lock in the exempt portion - you don't need to sell. | 1 July 2027 | Anyone holding assets acquired before Sept 1985 | Action needed |
| Small business CGT concessionsDivision 152 - untouched | No change | Qualifying business owners | Preserved |
| $20k instant asset write-offMade permanent | 1 July 2026 | Businesses under $10M turnover | Announced |
| Loss carry back reintroducedOffset losses against prior 2 years tax | 1 July 2026 | Companies under $1B global turnover | Announced |
| $250 Working Australians Tax OffsetAnnual tax cut for workers | 1 July 2027 | 13.3 million workers | Announced |
| $1,000 instant work deductionNo receipts needed | 2026-27 returns | All employees and sole traders | Announced |
| Payday superannuationSuper on every payday | 1 July 2026 | All employers - 6 weeks away | Already law |
| Division 296 - $3M super taxAdditional 15% on balances over $3M | 1 July 2026 | Super fund members with balance over $3M | Already law |
| Income tax rate cut16% drops to 15% on $18,201-$45,000 | 1 July 2026 | All taxpayers | Already law |
| LISTO increaseLow income super offset threshold $37k to $45k, max $500 to $810 | 1 July 2027 | Low-income earners with super balances | Already law |
| Private health insurance rebateAge-based uplift removed for over-65s | 1 April 2027 | Australians 65+ with private health insurance | Announced |
Three Things the Media Missed
These are the findings that aren't in the mainstream coverage this morning. We verified all three directly from Budget Paper No. 2 - the primary source document released last night.
The Small Business CGT Concessions Are Completely Untouched
Every headline this morning is about the 50% CGT discount being scrapped. What nobody is saying is that the small business CGT concessions - Division 152 of the tax law - do not appear once in 161 pages of Budget Paper No. 2.
That means the following concessions are fully preserved for qualifying business owners:
- •15-year exemption - own an active business asset for 15 years, be 55 or older and retiring, pay zero tax on the entire gain
- •50% active asset reduction - halve your capital gain on active business assets
- •$500,000 retirement exemption - exclude up to $500k of gains from tax, paid into super or taken directly if you're 55+
- •Small business rollover - defer the gain by rolling proceeds into a replacement asset
Meanwhile, a passive investor selling the same dollar value in investment property from July 2027 faces inflation indexation plus a 30% minimum tax rate, with none of these concessions available.
The relative gap between selling a business and selling an investment property has never been wider. Tonight business ownership became a much more tax-advantaged path to building and exiting wealth - not because anything got better for business owners, but because everything else got materially worse by comparison.
Who should act on this: Any business owner approaching 15 years of ownership, anyone approaching $6M in net assets (the gateway test), and anyone with a mixed structure holding both active business assets and passive investments.
Pre-1985 Assets: 40 Years of Full CGT Exemption Is Changing
This is the most significant unreported finding from last night's budget. We have not seen it in any mainstream media coverage this morning.
Assets acquired before 20 September 1985 have been fully exempt from CGT since the day the tax was introduced in Australia. For 40 years, gains on these assets - property, shares, business interests - have been completely outside the CGT system.
Budget Paper No. 2 is explicit: "These changes will apply to all CGT assets, including pre-1985 CGT assets."
From 1 July 2027, gains arising after that date on a pre-1985 asset will be subject to the new CGT rules. Critically, all growth up to 1 July 2027 remains fully exempt - that 40 years of appreciation is locked in regardless of when you eventually sell.
How it works in practice: the asset is valued at 1 July 2027. Any gain above that valuation date value is taxed under the new rules on eventual sale. Everything that accrued before 1 July 2027 remains fully exempt.
If you hold property, shares, or a business interest acquired before September 1985 - you do not need to sell before 1 July 2027. But you should get a formal valuation done at that date to establish your CGT cost base and lock in the exempt portion. Get specific advice now to make sure this is structured correctly.
The Death of the Bucket Company
The trust minimum tax has a sting in the tail that is not in any mainstream coverage this morning.
From 1 July 2028, trustees will pay 30% minimum tax on all discretionary trust income. Beneficiaries receive a non-refundable credit for that tax - which means the 30% is a hard floor, not a timing mechanism like franking credits.
But here is what the budget papers actually say: "Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits."
Corporate beneficiaries - bucket companies - are explicitly excluded from receiving any credit for the 30% already paid at the trust level.
Here is what that means in practice:
| Trust earns | $100 |
| Trustee pays 30% minimum tax | - $30 |
| Distributed to bucket company | $70 |
| Bucket company pays 25% corporate tax on $70 | - $17.50 |
| Net in bucket company | $52.50 |
| Total tax on original $100 | $47.50 (47.5%) |
To put that in context: operating through a straight company would result in 25% tax on $100 with full franking credits on the way out. The trust-to-bucket-company arrangement, as announced, costs 47.5% on the same income with only partial franking credit recovery.
Good news: Expanded CGT rollover relief opens from 1 July 2027 for three years, allowing restructuring out of a discretionary trust into a company or fixed trust without triggering CGT. This window needs to be planned now - not in 2027.
The final legislative detail may address the bucket company interaction. But as announced in the primary budget papers, this is the outcome. Every client using this structure needs a specific review.
Capital Gains Tax - The Full Picture
What's changing
From 1 July 2027, the 50% CGT discount is replaced with:
- •Inflation indexation of the cost base - only real gains above inflation are taxed
- •A 30% minimum tax rate as a hard floor on net capital gains
Who is affected
- •Individuals, trusts and partnerships selling CGT assets from 1 July 2027
- •Companies are unaffected - they don't receive the CGT discount under current law
- •Age Pension and income support payment recipients are exempt from the 30% minimum - confirmed from BP2
- •Self-funded retirees not on income support are not exempt
Transitional arrangements
| Asset purchased | Asset sold | CGT treatment |
|---|---|---|
| Any time | Before 1 July 2027 | Old rules apply - 50% discount |
| Before 1 July 2027 | After 1 July 2027 | 50% discount on gain to 1 July 2027; new indexation + 30% minimum on gain after that date |
| After 1 July 2027 | Any time | New rules apply - indexation + 30% minimum |
| New build (any time) | Any time | Can elect: 50% discount OR new indexation method - whichever is better |
| Pre-September 1985 | Before 1 July 2027 | Old rules - fully exempt |
| Pre-September 1985 | After 1 July 2027 | Split treatment - gain up to 1 July 2027 valuation fully exempt; gain above that valuation taxed under new rules. Get a valuation at 1 July 2027 to lock in the exempt portion. |
Michael - what the CGT transition looks like in practice
Michael owns an investment property purchased before 12 May 2026. He can continue to negatively gear it against other income indefinitely.
He sells two years after 1 July 2027 for $560,000. The property was worth $500,000 at 1 July 2027. After two years of inflation at 2.5%, his taxable capital gain for the post-July 2027 period is $34,688 - slightly more than the $30,000 he would have had under the old 50% discount method.
At a 47% marginal rate, tax on the post-July 2027 gain is $16,303 versus $14,100 under the old rules. The difference is marginal. He pays no CGT until he sells.
Source: Budget 2026-27 Government Fact Sheet - Negative Gearing and Capital Gains Tax Reform
Negative Gearing
What's changing
Negative gearing for residential property is restricted to new builds only from 1 July 2027. Losses on established property purchased after tonight can only be offset against other property income - not wages or other income. Unused losses carry forward to future years.
What's grandfathered
- •Properties held before 7:30pm AEST 12 May 2026 - fully protected, nothing changes
- •Contracts exchanged but not yet settled before 7:30pm are also grandfathered - confirmed from BP2, not widely reported
- •Properties in SMSFs and widely held trusts - explicitly excluded from the negative gearing changes
- •Build-to-rent developments and investors supporting government housing programs
What this means
An SMSF can still negatively gear an established residential property acquired after tonight. For clients considering property investment, the SMSF structure has just become materially more advantageous relative to personal or trust ownership.
Discretionary Trusts - 30% Minimum Tax
What's changing
From 1 July 2028, all discretionary trusts will be subject to a 30% minimum tax, paid by the trustee on the trust's taxable income. Beneficiaries continue to declare trust income in their own returns.
The credit mechanism
Non-corporate beneficiaries receive a non-refundable credit for the 30% paid at the trust level. Unlike franking credits, if your credit exceeds your tax bill you do not receive the difference as cash - the 30% is a permanent floor, not a prepayment.
What is excluded
| Excluded trusts | Excluded income types |
|---|---|
| Fixed trusts and widely held trusts | Primary production income |
| Complying superannuation funds | Income relating to vulnerable minors |
| Special disability trusts | Non-resident withholding tax amounts |
| Deceased estates | Income from assets of discretionary testamentary trusts existing at announcement |
| Charitable trusts | - |
The restructuring window
Expanded CGT rollover relief opens 1 July 2027 and runs for three years to 30 June 2030. This is broader than the existing small business restructure rollover under Subdivision 328-G and is specifically designed to support businesses moving out of discretionary trust structures. Start planning now.
Kurt vs Loretta - which structure wins under the new rules?
Both earn $300,000 running small businesses in 2028-29. Both pay themselves $100,000 salary. Both retain the remaining $200,000 to build the business.
| Loretta's salary tax | ~$22,002 |
| Company tax on $200,000 retained (25%) | $50,000 |
| Total tax | $72,002 |
| Kurt's salary tax | ~$22,002 |
| 4 family members at $50k each - low tax | ~$20,008 |
| Total tax (current) | $42,010 |
| Kurt's salary tax | ~$22,002 |
| Trust minimum tax on $200,000 (30%) | $60,000 |
| Remaining family member tax on distributions | ~$4,000 |
| Total tax (new rules) | $86,002 |
The government's own fact sheet is explicit: Kurt would pay less tax operating through a company than through a trust once the minimum tax is in place. The restructuring conversation is no longer theoretical - it is the financially correct answer for many clients.
Source: Budget 2026-27 Government Fact Sheet - Minimum tax on discretionary trusts
Small Business - Practical Measures
$20,000 instant asset write-off - now permanent
Made permanent from 1 July 2026 for businesses under $10M turnover. Per asset under $20,000. Assets at $20,000 or more can still go into the simplified depreciation pool. The 5-year bar on re-entering simplified depreciation after opting out remains suspended until 30 June 2027. Remove this from the annual planning conversation - it is now a standing strategy.
Loss carry back reintroduced
Companies making a loss in 2026-27 can claim a cash refund against tax paid in the prior two years. Key constraints to check before assuming a refund is available:
- •Companies only - not trusts, individuals or partnerships
- •Global turnover under $1 billion
- •Revenue losses only - capital losses do not qualify
- •Limited by the company's franking account balance - a company with a low or nil franking account balance cannot access the full benefit
R&D tax incentive - changes from 1 July 2028
- •Refundable offset threshold lifts from $20M to $50M turnover
- •Refundability limited to firms under 10 years of age
- •Minimum claim threshold rises from $20k to $50k - smaller claims locked out unless working with a recognised Research Service Provider
- •Net effect for most SME clients: slightly worse on the minimum threshold
Dining Co - two measures stacking together
Dining Co runs a local restaurant with $1M turnover. It generated $50,000 profit and paid $12,500 tax in 2025-26 at the 25% small business rate.
In 2026-27, it purchases $65,000 of new equipment - each piece under $20,000, all immediately deducted under instant asset write-off.
| Underlying profit before new equipment | $50,000 |
| Less instant asset write-off | - $65,000 |
| Tax loss reported in 2026-27 | $15,000 |
| Tax paid in 2026-27 | $0 |
| Cash refund via loss carry back ($15k x 25%) | + $3,750 |
A business investing in growth gets immediate deductions and a cash refund on prior year tax. These two measures are designed to work together.
Source: Budget 2026-27 Government Fact Sheet - Tax reform for workers, businesses and future generations
EV and Novated Leases
| Vehicle | Period | FBT treatment |
|---|---|---|
| EVs under $75,000 | Until 1 April 2029 | Full FBT exemption |
| EVs under $75,000 | From 1 April 2029 | 25% discount on FBT only |
| EVs over $75,000 | Until 1 April 2027 | Full FBT exemption |
| EVs over $75,000 | From 1 April 2027 | 25% discount on FBT only |
Reportable fringe benefits continue to be determined as if a 20% FBT statutory rate applied - this affects salary packaging calculations. For clients with novated leases, the sub-$75k threshold is now a meaningful financial decision point on any new arrangement.
Already Law - Action Required Now
Payday Super starts 1 July 2026. Super must be paid on every payday and clear the fund within 7 business days. The ATO will be watching via Single Touch Payroll from day one - there is no grace period. If your payroll software is not updated before 1 July you will be non-compliant immediately. Call us this week if you are not across this.
Other confirmed law
- •Income tax rate cut - 16% drops to 15% on $18,201-$45,000 from 1 July 2026. Every taxpayer above $45,000 saves $268 automatically
- •Division 296 - $3M super tax - Royal Assent received 13 March 2026. Confirmed law. First assessments for 2026-27, first bills due mid-2028. Transfer Balance Cap increases to $2.1M from 1 July 2026
- •Paid Parental Leave super - 12% super on government-funded Parental Leave Pay has been law since 1 July 2025. Check every client with staff on parental leave - some payroll systems are still not processing this correctly
- •Junior pay rates - phasing out for 18-20 year olds in retail, fast food and pharmacy. Update payroll cost modelling for any affected clients
What Was Left Out
Worth knowing so you can answer client questions confidently.
- •No new apprenticeship support for general small business
- •No training tax deduction - the 120% deduction lapsed and was not renewed
- •No small business technology adoption incentive
- •No increase to the $6M net asset threshold for Division 152 - still not indexed
- •No payroll tax relief - only a commitment to work with states
- •No change to Division 7A
- •No Section 100A legislative clarification
- •No change to the 25% small business tax rate
Your Action Plan
Based on everything above, here is what we recommend every SME owner does in the next 30 days.
| Priority | Action | Who it applies to |
|---|---|---|
| Urgent | Confirm payroll software is updated for Payday Super from 1 July 2026 | All employers |
| Urgent | Check if you hold any assets acquired before September 1985 - arrange a formal valuation at 1 July 2027 to lock in the fully exempt portion. You do not need to sell - but you do need advice before that date. | Anyone with pre-1985 assets |
| Urgent | Review your trust-to-bucket-company structure in light of the double taxation issue | Discretionary trust users with corporate beneficiaries |
| Important | Review your business exit timeline against the small business CGT concession eligibility tests | Business owners planning exit in next 5-10 years |
| Important | Assess $6M net asset threshold position - flag if approaching the gateway test | Growing businesses with appreciating assets |
| Important | Check loss carry back eligibility AND franking account balance before assuming a refund is available | Company clients with prior year tax paid |
| Important | Review any property investment plans in light of negative gearing and CGT changes | Clients planning new property investment |
| Plan ahead | Begin trust restructure planning to use the rollover relief window from 1 July 2027 | All discretionary trust clients |
| Plan ahead | Model exit scenarios under new CGT rules vs small business concessions | Business owners with large embedded gains |
Private Health Insurance - Age Uplift Removed
From 1 April 2027, the age-based uplift in the private health insurance rebate is being removed. Currently, Australians over 65 receive a higher rebate rate - this uplift is being abolished, with all eligible policyholders moving to the base rebate rate regardless of age. Savings are being reinvested in aged care.
| Age group | Current base tier rebate | From 1 April 2027 |
|---|---|---|
| Under 65 | 24.118% | 24.118% (unchanged) |
| 65-69 | 28.139% | 24.118% (reduced) |
| 70 and over | 32.158% | 24.118% (reduced) |
Low Income Superannuation Tax Offset - Already Law
Already legislated - from the 2027-28 income year:
- •LISTO eligibility threshold increases from $37,000 to $45,000
- •Maximum LISTO amount increases from $500 to $810 - reflecting the 12% superannuation guarantee rate
Lower-income workers - including part-time staff, casual employees, and workers in retail, hospitality and healthcare - will have more super tax offset applied automatically.
HELP Student Debt - One-Off 20% Reduction
Already law since August 2025 - worth communicating to staff who may not be aware:
- •Outstanding HELP loan balances reduced by 20% one-off
- •Minimum repayment threshold increased to $67,000 for 2025-26 and indexed annually
- •From 1 July 2025, repayments calculated on income above the threshold only
Other Measures Worth Knowing
Fuel excise reduction - already in effect
Fuel excise reduced by 60.9% (32 cents per litre) for three months from 1 April 2026. For clients in transport, logistics or agriculture this is a temporary cash flow benefit - plan ahead for when it reverts.
Venture capital tax incentives expanded
From 1 July 2027, VCLP cap moves from $250M to $480M. ESVCLP cap from $50M to $80M. Maximum fund size from $200M to $270M. Relevant for clients with VC fund investments or early-stage business interests.
ATO fraud powers expanded
$86.3M over four years for Phase 2 of the Counter Fraud Strategy. New ATO powers to pause debt recovery for victims of tax agent fraud and recover debts from intermediaries. If any client has been the victim of tax agent fraud, the ATO now has broader powers to assist.
Director ID registrations - tighten now
$136.1M to link Director IDs to the Companies Register and uplift ABN authentication. Director verification will become tighter. Clients with multiple directorships or complex corporate structures should ensure their Director IDs are correctly registered and up to date.
Not sure where you stand?
This budget has created genuine urgency for a specific group of business owners. If anything in this article sounds like it applies to you, the right move is a conversation.
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