Federal Budget Wrap: Where Key Proposals Now Stand

Since the Treasurer handed down the 2026–27 Federal Budget on 12 May 2026, several of its more contentious measures have generated considerable debate — chief among them, the plan to replace the CGT discount with an indexation model and introduce a 30% minimum tax rate on discretionary trusts.

Since our last update on this front, the Government has revised several of these proposals and has also moved on some related areas of the tax system that weren’t originally part of the Budget.

CGT Changes

On Budget night, the Treasurer confirmed that the existing 50% CGT discount for individuals and trusts would be replaced by an indexation approach, paired with a 30% minimum tax rate on capital gains accruing from 1 July 2027, subject to limited exceptions.

Since then, the Government has flagged a new Innovative Business CGT Concession, which would preserve a 50% CGT discount for early-stage investors — including founders and employee share scheme participants — in innovative start-up businesses. A consultation paper on how this concession would be designed has already been released.

Separately, the Government is moving to lift the annual turnover threshold used to determine whether a small business or its owner can access the existing 50% active asset reduction under the small business CGT concessions, taking it from $2 million to $10 million. This change is proposed to start from 1 July 2027.

The $2 million turnover threshold will stay in place for the other three small business CGT concessions — the 15-year exemption, the retirement exemption and small business rollover relief. Taxpayers who don’t meet the turnover test can still qualify for these concessions if they satisfy a $6 million net asset value test instead.

Testamentary Trusts

The Budget also introduced a 30% minimum tax rate on the net taxable income of discretionary trusts, due to start from 1 July 2028. The Government had originally signalled that this would extend to testamentary trusts, other than those already in existence as of 12 May 2026.

That position has now shifted — the Government has announced that income from all testamentary trusts will be exempt from the new minimum tax rate rules, provided the trust qualifies as a genuine testamentary trust under the proposed rules.

This exclusion will only cover income derived from assets of the relevant deceased estate. For discretionary testamentary trusts set up on or after 1 July 2028, the exclusion will be further limited to trusts that can only benefit individuals and income tax-exempt entities.

SMSF Borrowing Arrangements

As part of negotiations with the Greens over the CGT discount and negative gearing changes, the Government has agreed to remove SMSFs’ ability to borrow to purchase residential property — arrangements more commonly known as limited recourse borrowing arrangements.

Existing arrangements are expected to be grandfathered under the change.

These measures are subject to legislation, and further amendments remain possible before they become law. We’ll continue to monitor developments and keep you informed of any significant changes. In the meantime, get in touch if you’d like to talk through how any of this affects your position.