With the budget now a week old and the noise settling down, I thought it time to provide a summary of the bits that will be most relevant to our clients.

We must remember that the changes are not yet legislated, and I can’t help thinking that they may be somewhat watered down. Perhaps the idea was always to suggest massive changes to all CGT assets, and then revised them to just affecting property? As ever the devil will be in the detail, none of which is available yet. The various accounting bodies are providing feedback to the government which will also need to be taken into account.

Starting with the easy bit: what didn’t change – well, super didn’t change. No changes to contributions, no changes to the utopian tax free environment for the first $2.1m in a pension account, no change to pensions being tax free for those over 60 (except state pensions), no change to the 15% tax rate on earnings for balances up to $3m, no changes to capital gains. Super continues to be the best place (after the family home) to accumulate wealth.

Action – make sure you are putting as much into super as your current situation allows. Concessional, salary sacrifice, non-concessional and downsizer contribution are all worthwhile. As everyone’s situation is different, you need to get in touch well before 30 June if you require assistance.

Negative Gearing – will be no longer available for purchases of property after 7.30pm on the 12th May 2026, unless they are a new build. Losses can however be carried forward and set off against future income or capital gains from that property. It is therefore a delay in the tax benefit rather than an outright removal. Those with existing negatively geared properties will not be affected.

Capital Gains Calculations – from 1 July 2027 will revert to the indexation system that used to be in place – and was changed in 1999 because it was too complex. Perhaps AI will be helping with the calculations now!

Indexing is thought to be fairer as it only taxes gains that are due to real growth rather than inflation. The kicker, however, is a new minimum 30% tax on net capital gains and the inclusion of pre 1985 assets to include their growth from 1 July 2027. Note the new rules are for individuals, partnerships and trusts (not superfunds). Also note that companies never got any kind of CGT discount anyway.

Action – consider triggering gains before 30 June 2027 if they will be taxed more favourably under the old 50% system. Arrange for 30 June 2027 valuations of pre CGT assets.

Discretionary Trusts – For years the ATO has been trying to attack income splitting from trusts and they appear to have done that now with a sledgehammer. There will be a 30% tax on trust income BEFORE it is distributed to beneficiaries. This is a massive change as it captures the tax at the trust level rather than the beneficiary level – less chance therefore of it getting lost in webs of trusts. However, the main issue is that the 30% tax paid will be a NON-REFUNDABLE credit – and only for individuals. So, unlike like a franking credit on a dividend that you get refunded if your marginal tax rate is less than the franking rate, if the beneficiary’s tax rate is less than 30% the additional tax paid is lost.

The outcome will be far higher tax on trust distributions, bucket companies no longer being useful (as they don’t get the credit for tax paid), and the 30% taxation of income from testamentary trusts (ie those created by wills). The tax effects will be worse for small trusts whose beneficiaries total income incurs less than 30% tax. Where beneficiaries already receive large distributions that take their tax rate to more than 30% it will make no difference.

Action – It may be that trust structures need to be revised or changed to corporate structures. It is proposed there will be a mechanism that allow this without triggering other tax effects. However, we must also take into account the asset protection trusts provide and the way in which they are used for estate planning and intergenerational wealth transfer. Wills will also need to be revisited, especially those with testamentary discretionary trusts.

Other bits and bobs

For those business making losses there will be the ability to carry losses back 2 years to claw back tax paid (if any) in better times. The $20k instant asset write off will be made permanent, individuals can claim a $1000 flat deduction against employment income and there will be a $250 offset against income from work. Hidden well down is a new ownership registration tax on aircraft.

We wait to see in what form these changes eventually settle.

Lindsay