Newsletter - May 2026
- May 13
- 10 min read
Updated: May 14
From Hock & Susan:
The 2026 Federal Budget has proposed significant changes to investment taxation, including reforms to negative gearing and capital gains tax (CGT). Investors will be the biggest losers from this 2026 Budget.
While the Budget is yet to be legislated, the proposed changes highlight the importance of reviewing long-term investment and tax strategies ahead of the planned 1 July 2027 and 2028 tax changes. We suggest clients review existing strategies well before then to understand the potential impact on future cash flow, tax outcomes and retirement plans.
The good news is that there were no further changes to superannuation announced in the Budget.
Australian Federal Budget 2026 (Not Legislated)
Capital Gains Tax Reform
This is the most consequential measure in the Budget for investors holding shares, managed funds, property and other growth assets outside of superannuation. The reform applies to individuals, trusts, and partnerships — but importantly, not to superannuation funds.
What it is:
From 1 July 2027, the existing 50% CGT discount for assets held more than 12 months will be replaced by two new mechanisms:
Inflation-adjusted cost base (indexation): The purchase price of an asset is increased by CPI for the period the asset has been held since 1 July 2027, reducing the nominal gain to a ‘real’ gain only.
30% minimum tax on real capital gains: After applying indexation, the resulting capital gain is subject to a minimum effective tax rate of 30%. If your marginal rate is higher, then ordinary rates apply.
Who is affected:
The proposed legislation will apply to individuals, trusts, and partnerships holding:
Listed shares and ETFs;
Managed funds and unlisted unit trusts;
Investment property held personally or in a family trust; and
Pre-CGT assets (acquired before 20 September 1985) — for gains accruing from 1 July 2027 only.
The following assets/entities are NOT affected:
Superannuation funds, including SMSFs — the 33.33% CGT discount for super remains unchanged;
Main residence exemption — fully preserved;
Small business CGT concessions — unchanged;
New residential builds — investors may choose between the old 50% discount or the new regime on disposal; and
Income support recipients (including Age Pension recipients) — exempt from the 30% minimum tax.
How it works:
The three main scenarios are:
Assets sold before 1 July 2027
No change to existing tax arrangements.
Pre-CGT assets remain exempted.
Post-CGT assets can utilise 50% CGT discount if owned for at least 12 months.
Discounted gain included in assessable income and taxed at Marginal Tax Rates (MTR).
Assets acquired and sold after 1 July 2027
No CGT discounting (except for eligible new property builds).
Indexation of cost base available if assets are held for at least 12 months.
Net capital gain taxed at relevant MTR, with 30% minimum rate if MTR is lower.
Assets acquired before 1 July 2027 and sold after 1 July 2027
Pre-CGT assets acquired before 20 September 1985:
Asset will assume market value cost base as of 1 July 2027.
Indexation will apply to the new cost base until time of sale.
Net gain from 1 July 2027 subjected to tax, with a minimum 30% tax rate.
Post-CGT assets:
Market value of asset determined as at 1 July 2027.
50% CGT discount available for growth from date of acquisition to 30 June 2027.
Amount included in taxable income and taxed at applicable rates.
Indexation method to apply to growth from 1 July 2027 until time of sale.
Net gain from indexation component subjected to tax at a minimum 30% tax rate .
Example:
Asset purchased in July 2024 for $300,000
Market value on 1 July 2027 of $500,000
Asset sold in July 2030 for $800,000
Inflation assumed at 3% per annum
Step 1 – Discounted Capital Gain
$200,000 growth from 2024 to 2027 eligible for 50% discount.
$100,000 net gain included in 2031 tax return.
Step 2 – Indexed Gain
Growth from 2027 to 2030 subject to inflation-adjusted method.
Inflation-adjusted cost base in 2030 is $546,363.50.
Indexed gain of $253,636.50 included in 2031 tax return, subject to minimum 30% tax.
Negative Gearing
From 1 July 2027, proposed changes to negative gearing rules will prevent losses from residential investment properties from being offset against other forms of assessable income, such as salary and wages. Instead, any net rental losses will be carried forward and used to offset future positive income or capital gains generated by the investment property. While the tax deduction is not lost, access to the benefit will effectively be deferred to future years.
The proposed changes will only apply to residential investment properties acquired after 7:30pm on 12 May 2026 (Budget night) and will affect individuals, trusts, companies and partnerships. Existing property holdings acquired before this date are expected to retain current negative gearing treatment under grandfathering provisions. Importantly, the changes will not apply to commercial property, shares or other investment assets, with newly built residential properties also exempt.
Discretionary Trusts - Minimum 30% Tax
From 1 July 2028, a minimum 30% tax will apply to the taxable income of discretionary trusts, broadly aligning the treatment of trust distributions with the taxation of wages. This will affect clients holding investment portfolios via family discretionary trusts. Three years of rollover relief (1 July 2027 – 30 June 2030) is available for those wishing to restructure out of trusts into other entities.
Instant Tax Deduction for Workers
From the 2026–27 income year, employed individuals may claim an instant deduction of up to $1,000 for work-related expenses without the need to retain receipts. Applicable to both employees and eligible sole traders.
Working Australia Tax Offset (WATO)
The Government has announced a permanent annual tax offset of up to $250 from 1 July 2027, aimed at reducing the amount of tax payable on earned income, including salary and wages and eligible business income earned by sole traders. The offset will not apply to individuals without earned income, such as retirees or those whose income is derived solely from investments. The offset will also be non-refundable, meaning any unused portion cannot be paid out as a cash refund.
Pension Supplement Overseas Extension
Age Pension recipients who travel overseas will have the full rate of the Pension Supplement extended from 6 to 12 weeks. This benefits approximately 92,000 pensioners who travel internationally for extended periods each year.
Uniform Private Health Insurance Rebate
From 1 April 2027, the higher private health insurance rebate currently available to Australians aged 65 and over will be removed. This change is expected to increase premiums for older Australians, effectively reducing the level of government support provided through the rebate.
Commencing 1 July 2026 - Previously Legislated Measures
Division 296 – Better Targeted Superannuation Concessions
The Government has advanced legislation (the Building a Stronger and Fairer Super System Bill 2026) that has passed the Senate (in March 2026). Commonly referred to as Division 296, it introduces additional tax on super earnings for individuals with balances above $3 million. It takes effect from 1 July 2026, with the first tax assessments expected after 30 June 2027. However, draft regulations are yet to be finalised.
What it is:
This measure aims to make super tax concessions fairer by applying extra tax to the portion of earnings linked to Total Superannuation Balances (TSB) above $3 million (with the thresholds indexed to inflation). It does not change contribution caps, the current $2.0 million transfer balance cap, which increase to $2.1 million on 1 July 2026, or the tax-free status of pension payments and lump-sum withdrawals.
How it works:
Your super fund still calculates and pays its normal tax on earnings (15% in accumulation phase; 0% in pension phase).
Separately, the ATO will assess you personally on earnings attributed to any balance above $3 million or $10 million.
In all years after 2026–27, the proportion of super above the $3m or $10m threshold is based on the greater of the member’s Total Superannuation Balance at the start and end of the financial year, which prevents avoidance strategies involving large withdrawals late in the year.
However, for the first year only (2026–27), eligibility for Division 296 is determined solely by the member’s Total Superannuation Balance at 30 June 2027, which means that members who intend to reduce their super balance below $3 million and have satisfied a condition of release have until 30 June 2027 to do so.
Earnings are broadly the annual change in your Total Superannuation Balance, adjusted for contributions and withdrawals (with a revised focus on realised gains/losses under the latest design).
The tax is then applied proportionally only to the portion of your benefit above the threshold(s).
Tax implications
For balances between $3m and $10m: additional tax on the relevant portion of earnings.
Accumulation phase → effective rate up to 30%.
Pension phase (most common for retiree clients) → effective rate of 15% on that portion (previously 0%).
For balances above $10m: a higher additional tax of 25% is applied.
The tax is payable personally (although you may elect to have the funds released from your super fund).
If your combined super and pension balances are approaching or above $3 million, it is worth reviewing strategies such as contribution timing, investment mix, or estate planning well in advance of 30 June 2027.
SMSF Cost Base Reset — Critical Election Before 30 June 2027
A significant transitional measure is available (only) to SMSFs: an optional cost base reset, which resets the cost base of all CGT assets held in the fund to their market value as at 30 June 2026. This means capital gains accrued before Division 296 commences are excluded from future Division 296 earnings calculations when those assets are eventually sold.
Key Features of the Cost Base Reset Election:
Opt-in only and not automatic. Election is lodged via an approved form via your SMSF accountant by the due date of the 2026–27 SMSF annual return.
The cost base reset applies to all CGT assets in the fund at 30 June 2026, you cannot select individual assets.
For Division 296 purposes only. The cost base reset does not alter the fund’s cost base for ordinary income tax or CGT calculations. If opting in, two sets of cost base records will be required.
Note that the election to reset cost bases is irrevocable. Once made, the election cannot be reversed.
Assets in an unrealised loss position will also have their cost base reset to market value and this could be disadvantageous and must be carefully modelled before any election is made.
Marginal Tax Rate Cut
From 1 July 2026, the 16% tax rate, which applies to taxable income between $18,201 and $45,000, will be reduced to 15%. From 1 July 2027, this tax rate will be reduced further to 14%.
Thresholds | Rates in 2025/26* | Rates in 2026/27* | Rates in 2027/28* |
$0 - $18,200 | Tax free | Tax free | Tax free |
$18,201 - $45,000 | 16% | 15% | 14% |
$45,001 - $135,000 | 30% | 30% | 30% |
$135,001 - $190,000 | 37% | 37% | 37% |
> $190,000 | 45% | 45% | 45% |
*Individual resident taxpayer and excludes 2% Medicare Levy.
Superannuation Indexation
Concessional Contribution Cap
The concessional contributions (CC) cap — which covers employer SG contributions, salary sacrifice, and personal deductible contributions — increases from $30,000 to $32,500 from 1 July 2026. This cap is indexed in $2,500 increments to Average Weekly Ordinary Time Earnings (AWOTE).
The carry-forward concessional contributions rule allows individuals with a Total Superannuation Balance below $500,000 to access unused CC cap amounts from prior years (rolling 5-year period). From 1 July 2026, any unused cap from 2020–21 or earlier permanently lapses. The current financial year (2025–26) is therefore the last opportunity to use any unused CC from that year.
Non-Concessional Contribution Cap
The non-concessional contributions (NCC) cap increases from $120,000 to $130,000 from 1 July 2026 (calculated as four times the CC cap) and the bring-forward rule, which allows eligible individuals aged under 75 to contribute up to three years’ worth of NCC cap in a single year, increases accordingly to $390,000.
Eligibility for NCCs and the bring-forward amount available depends on your Total Superannuation Balance as at the previous 30 June.
Note: Total Superannuation Balance is measured at the previous 30 June, not at the date of contribution. If you have already triggered the bring-forward rule in a prior year, the thresholds in place at the time of triggering continue to apply until the bring-forward period expires.
Transfer Balance Cap & Total Superannuation Balance Thresholds
The general Transfer Balance Cap (TBC) — which limits the amount of superannuation that can be transferred into the tax-exempt pension phase — increases from $2.0 million to $2.1 million on 1 July 2026.
This increase has several flow-through consequences:
Individuals who have not previously reached or exceeded their personal TBC will receive a proportional increase in their cap.
The NCC cap becomes nil for members with a Total Superannuation Balance at or above the general TBC ($2.1m from 2026–27).
The Defined Benefit Income Cap (DBIC) increases to $131,250 for 2026–27 (from $125,000).
RBA Key Economic Snapshot (7 May 2026)
Source: RBA
Potential Implications for Australian Assets
Cash and term deposits are expected to be largely unaffected by the proposed Budget changes. However, high government spending makes it harder to bring inflation back within the 2–3% target range and may lead to the RBA increasing interest rates further.
Bond markets may experience slightly less upward pressure on yields, with projected smaller medium-term budget deficits reducing the need for increased government borrowing.
Residential property is likely to be the most impacted asset class. The tightening of negative gearing and changes to the CGT discount may reduce investor demand by lowering after-tax returns, potentially placing downward pressure on prices in the short term. This effect could be amplified by higher interest rates, although any price softness is expected to be temporary given ongoing structural supply shortages.
Equities are relatively unaffected by the changes and may become more attractive on a relative basis compared to property. The shift in CGT treatment may also increase the appeal of higher dividend-yielding stocks over growth-oriented companies.
Superannuation is expected to benefit as a comparatively more tax-effective and unchanged investment environment.
Foreign exchange impacts are expected to be limited, with the Budget unlikely to materially alter the broader upward trend in the Australian dollar.
Notice of Fee Review — Effective 1 July 2026
As part of our ongoing commitment to delivering the quality of advice and service our clients deserve, we wish to advise that our standard hourly rate will increase from $450 to $500 (exclusive of GST) or $495 to $550 (inclusive of GST) effective 1 July 2026. This is our first fee adjustment in over three years, a period during which our practice costs — including professional indemnity insurance, licensing, ASIC levies, compliance obligations and the technology platforms we use to serve you — have risen considerably in line with broader inflationary pressures.
We have deliberately deferred this adjustment for as long as practicable, and we remain focused on ensuring the advice you receive continues to represent genuine value relative to its cost. Any engagements quoted or agreed prior to 1 July 2026 will be honoured at the current rate. Should you have any questions about how this change may affect your ongoing advice arrangements, please do not hesitate to contact our office — we are happy to discuss your specific circumstances.
Final Thoughts
The 2026–27 Budget is a timely reminder that retirement planning rewards those who act early. With significant changes to CGT, Division 296 now law, and new contribution opportunities from 1 July, the next twelve months present both challenges and genuine planning advantages for our clients. We encourage you to reach out to our office to schedule your review — the sooner we can assess your position, the more options we have at our disposal.
The information on this site is general in nature. It does not take into account your specific needs/circumstances into consideration. You should review your financial position, objectives and requirements and seek financial advice before making any financial decisions.