Major Tax Changes that could impact you
Changes from 1st July 2026
Division 296 Tax on earnings of Total Super Balances over $3 million
This is a personal tax on individuals with personal superfund balances over $3 million. While it commences from the 1st July 2026 the first assessments will be for the financial year ending the 30th June 2027. A portion of the superfund (s) earnings relating to the amount above $3 million will be taxed at an extra 15% and the proportion above $10 million taxed at an extra 10%. Under the current regulations a members death can give rise to an ongoing Div 296 assessment until the member’s interest in the fund is paid out. This could give rises to issues within the estate due to the Div 296 tax being a personal tax.
Annual super contributions base/Transfer Balance Cap
The concessional contributions base increased to $32,500 and the non-concessional base increased to $130,000. The Transfer Balance Cap increased to $2.1 million.
$1,000 Instant Tax deduction for work related expenses
This applies (when legislated) from the 1st July 2026 so is effective for the 2026/27 financial year. It replaces all other work related and work from home expenses. Donations and unions and professional membership fees can be claimed in addition to the $1,000. Taxpayers are able to claim actual expenses if these are in excess of the $1,000, but must be able to substantiate the expense.
Health Insurance Rebates
From the 1st April 2027 the government is proposing to remove the current higher health insurance rebates for older Australians. Currently people aged 65-69 enjoy an additional 4% rebate to people under 65 and those over 70 enjoy an additional 8%. Given that health fund increases to premiums normally occur on the 1st April this will potentially present a nasty increase to health costs.
1st July 2027
Working Australian’s tax offset
This is the much hyped $250 of tax savings. It first applies for the 2027/28 financial year. It is a non-refundable tax offset which along with the reduction in personal tax rates is proposed to give tax relief.
Low Income Superannuation Tax Offset
This is an expansion of the exist relief by increasing the income threshold from $37,000 to $45,000 and the maximum offset will be increased from $500 to $810. The amount is automatically paid into your superfund by the ATO.
Capital Gains Tax
From the 1st July 2027 the current 50% capital gains discount for assets held for more than 12 months will be replaced with inflation based indexation. This will apply to individuals, partnerships and trusts. The changes do not apply to superfunds which will continue to enjoy the 1/3rd discount they currently receive. It should be remembered that companies do not receive the general CGT discount.
Capital gains accruing to 1st July 2027 will be grandfathered and continue to be subject to the 50% discount. The indexation method will apply to gains accruing after that date. Most taxpayers will want to carry out a valuation of property and unlisted assets as at the 1st July 2027 to be able correctly apportion gains subject discounting and those subject to indexation. The ATO is yet to publish an alternative method to allocate gains between pre and post 1st July 2027 gains.
The capital gains subject to the 50% discount will be taxed under normal assessment rules. The gain subject to indexation will be taxed at a minimum of 30%. Taxpayer who receive an income support payment such as the aged pension will not be subject to the 30% minimum tax.
There will also be a carve out for new residential and affordable housing. Taxpayers will be able to chose to apply the 50% discount to new residential housing sold after the 1st July 2027. Affordable housing will still be subject to the 60% discount. By choosing to have the 50% or 60% discount apply to the gain the assessable amount will not be subject to the 30% minimum tax.
The government has also announced that the small business CGT rules will not be changed other than the turnover qualification for small business will be increased to $10 million from $2 million. However not all the small business concessions will apply for qualifying entities with a turnover between $2 million and $10 million. The 15 year CGT exemption will not apply, nor will the active asset roll over or the $500,000 CGT retirement exemption. If fact the only one the will apply is the 50% discount. The gain will still be subject to the 50% general discount until 1st July 2027 and indexation there after. This could mean that all small business may need to get a valuation as at 1st July 2027 or apply the yet to be announced ATO apportioning method.
Negative Gearing
From the 12th May 2026 any loss from renting an established residential property can no longer be offset against other income such as salary and wages. The loss from one residential property can be offset against the profit from another residential property. Other wise the loss is carried forwarded and offset against the profit if the property does become income positive. It can also be offset against a capital gain if the property is subsequently sold.
The quarantining of the loss only applies to properties purchased after the 12th May 2026. If a property is purchased between 12th May 2026 and the 30th June 2027 any loss can still be used in the 2026/27 financial year, but is quarantined after that date. The loss from a property owned prior to the 12 May 2026 which is negatively geared can still be offset against other income such as salary and wages. This includes a main residence which subsequently becomes a rental property.
New residential properties are excluded from the quarantining. The changes do not affect borrowing to buy commercial properties or other assets such as shares or managed funds.
Whilst not strictly negative gearing the government has also banned SMSFs from borrowing to buy residential properties from the 10th August 2026. This ban extends to all residential properties.
1st July 2028
30% tax on Discretionary Trusts
The government is proposing to levy a 30% tax on distributions of trust income from the 1st July 2028. It should be noted that if the trust income is not distributed the trustee will pay 47% tax on that income. The tax is paid in the form of a non refundable tax offset. Consequently if a beneficiaries tax rate is less than 30% they will not receive a refund of the trust tax paid. The excess can not be carried forward nor can it reduce the medicare levy.
The tax will not apply to fixed trusts. A unit trust is not necessarily a fixed trust and many unit trust deeds allow the entitlements and the trust to be varied by a 75% majority of unit holders. If this is the case the trust will not be a fixed trust. The 30% tax rate will also not apply to deceased estates, charitable trusts, special disability trusts, complying superfunds and widely held trusts. The tax was also slated to apply to testamentary trusts, but the government backed down and excluded testamentary trusts. However confusion still abounds as the government has said the testamentary trust must be established for legitimate estate planning purposes. Also the beneficiaries are limited to individuals and tax exempt entities if established after 1st July 2028.
Distributions by trusts to companies have the potential for double tax. The company will not receive a tax offset for the 30% tax paid by the trustee and the company will be assessed for tax on the trust income received. The 30% tax will not apply to primary producers, vulnerable minors such as disabled and orphans, foreign residents (distributions still subject to foreign resident withholding tax) and tax exempt entities such as charities. Where a trust receives a franking credit the trustee will be required to offset the franking credit against the 30% tax offset. If excess franking credits arise the government is proposing that the excess either gets refunded to the trustee or gets carried forward.
The government is proposing a 3 year window from the 1st July 2027 to allow discretionary trusts to rollover into another structure such as a company or fixed trust. The rollover relief would allow the transfer of assets with no immediate capital gains and other tax implications. How family trust elections affect the rollover still need to be clarified. The major problem in some states will be stamp duty. In South Australia stamp duty doesn’t apply to commercial property transfers and business assets. In certain cases stamp duty may not apply to primary production transfers.
Conclusion
The changes are reasonably major and it appears that the legislation was rushed and many questions still need to be answered about the impact of the changes.
