The 2026 Federal Budget for Business Owners: What's Actually Material
For business owners, the 2026 Federal Budget is less about the property headlines and more about structure. The real question is how the proposed changes affect the way a business is owned, taxed, restructured and eventually sold – and whether owners are positioned to preserve the concessions that matter most when the time comes.
Most of the public commentary has focused on negative gearing and the capital gains tax (CGT) changes for property investors. That coverage is understandable. Residential property is politically louder, easier to explain and more immediately relevant to a broader audience.
But for SME owners, the measures that matter most are not necessarily the loudest ones.
The proposed CGT changes, the new minimum tax on discretionary trusts, the treatment of bucket companies, the permanent extension of the instant asset write-off and the reform of PAYG instalments all point to the same conclusion: structure matters more, timing matters more and the small business CGT concessions matter more than ever.
This article works through what was announced, what remains uncertain and where the practical planning levers sit for business owners.
Two framing points are important.
First, most of the measures discussed in this article are proposed, not legislated. They remain subject to consultation and the final design may differ from what has been announced.
Second, the small business CGT concessions – the concessions that drive many successful business sale outcomes in Australia – are confirmed as unchanged. For SME owners, that continuity may be one of the most important parts of the entire package.
A short summary of what was announced
The six measures most directly relevant to business owners:
1. Changes to the 50% CGT discount, from 1 July 2027.
For individuals, partnerships and trusts holding a CGT asset for more than 12 months, the 50% discount is to be replaced by CPI cost base indexation and a 30% minimum tax on real capital gains.
2. A 30% minimum tax on discretionary trusts, from 1 July 2028.
The trustee of a discretionary trust will pay 30% tax on taxable income at the trustee level, with non-corporate beneficiaries receiving non-refundable credits.
3. Negative gearing changes, from 1 July 2027.
Tax losses from established residential rental properties will only be deductible against other residential property income. New builds are exempt.
4. The $20,000 instant asset write-off is made permanent.
From 1 July 2026, for small businesses with aggregated turnover up to $10 million.
5. PAYG instalments are being reformed.
From 1 July 2027, eligible small and medium businesses will be able to opt in to monthly instalments and dynamic, software-embedded calculations.
6. New personal tax measures.
A $1,000 instant deduction for work-related expenses (from 2026–27) and a $250 Working Australians Tax Offset (from 2027–28).
The balance of this article works through each in turn.
The CGT discount changes: the most consequential measure for business sales
Under the current rules, an individual or trust selling a business asset held for more than 12 months reduces the gross capital gain by 50%, then pays tax at marginal rates. For a top-bracket taxpayer at 47%, the effective rate on a nominal gain is 23.5%.
From 1 July 2027, that mechanism changes. The 50% discount is removed for individuals, partnerships and trusts on CGT assets held for more than 12 months. The cost base is instead indexed by CPI and the indexed (real) gain is taxed at the seller's marginal rate, subject to a 30% minimum tax floor.
The 30% is a floor, not a separate CGT rate. If your marginal rate on the real gain is below 30%, the floor brings it up. If it's above 30%, you pay your marginal rate – which for a top-bracket individual is currently 47% including Medicare levy. For most business owners selling a meaningful asset in a single year, the gain pushes them into that top bracket.
Indexation softens the outcome – it removes the inflationary component from the tax base – but for assets that have grown materially in real terms, the after-tax position is meaningfully tighter than under the current discount.
A few important carve-outs:
Companies are not affected. Companies have never accessed the 50% CGT discount and continue to pay tax at the corporate rate (25% for base rate entities, 30% otherwise) on capital gains.
Pre-CGT assets are not fully spared. Assets acquired before 20 September 1985 retain their exemption for gain accrued up to 1 July 2027. Gain accruing after that date is subject to the new regime, using the asset's value at 1 July 2027 as the cost base.
A new build election exists for residential property. Investors who acquire eligible new build residential properties – broadly, properties that genuinely add to housing supply – will be able to elect between the 50% discount and the new regime when they sell. The election is available only to the first purchaser.
Recipients of means-tested income support payments (Age Pension, JobSeeker) will be exempt from the 30% minimum floor, though not from the indexation method itself.
Why 1 July 2027 is the date that matters
For an asset held at 1 July 2027 and sold afterwards, the gain is split. The portion accrued from acquisition to 1 July 2027 continues to attract the 50% CGT discount. The portion accrued from 1 July 2027 onwards is taxed under the new regime, using the asset's value at that date as the new cost base.
Two paths to establishing the 1 July 2027 value:
an independent market valuation of the asset at that date, or
a specified apportionment formula provided by the ATO, which estimates the value based on the asset's growth rate over the holding period.
The detailed legislative formula and ATO calculation tools have not yet been released. What we know is that the formula is, by necessity, a smoothing exercise – it estimates a mid-point value based on average growth across the holding period. For most businesses, that estimation is unlikely to reflect what actually happened. Growth is rarely linear.
A simplified illustration
The following is illustrative only. The final legislative formula and ATO calculation tools have not yet been released, so this example is intended to demonstrate the planning issue rather than calculate a precise tax outcome.
Consider two SME owners – Anna and Ben – selling the same business in 2032 for the same price. Both founded their businesses in 2017 with a nil cost base. Both sell for $8 million. Both are on the top marginal rate. The only thing that differs is when the business grew.
Anna built her business fast. By 1 July 2027 it was worth $8 million. After she stepped back, the business plateaued. She sells in 2032 for $8 million.
If Anna obtains a formal valuation at 1 July 2027, the valuation evidences that 100% of the gain was earned pre-2027. The full $8 million gain qualifies for the 50% CGT discount under the legacy rules. The post-2027 gain is nil.
If Anna instead defaults to the apportionment formula, the formula has no way of knowing growth was front-loaded. It would treat a meaningful portion of the gain as having accrued after 1 July 2027 – when in reality it had already happened. That portion loses the 50% discount and is instead indexed and taxed at the marginal rate. The taxpayer who defaults to the formula in this profile pays materially more tax than the one who obtains a formal valuation.
Ben built his business slowly. By 1 July 2027 it was worth $2 million. From 2027 onwards, growth accelerated. He sells in 2032 for $8 million.
For Ben, the formula may work in his favour. It would estimate that a meaningful portion of his gain accrued pre-2027 – when in reality only $2 million did. A formal valuation would lock in a $2 million baseline, meaning the remaining $6 million gain is treated under the new rules. Defaulting to the formula could shift more of the gain into the pre-2027 50%-discount bracket, reducing his tax.
The point: the formula isn't always against the taxpayer. But it's never accurate. Establishing a properly evidenced 1 July 2027 valuation – or deliberately deciding not to, where the formula is likely to benefit you – is among the most consequential pieces of pre-sale planning for owners selling between 2027 and roughly 2032.
The trust minimum tax: a separate but related issue
The CGT changes apply from 1 July 2027. The discretionary trust minimum tax applies from 1 July 2028 – a year later, and to a different structural question.
From 1 July 2028, trustees of discretionary trusts will pay 30% tax on the taxable income of the trust at the trustee level. Non-corporate beneficiaries receive non-refundable credits for the tax paid by the trustee. Where a beneficiary's marginal rate is at or above 30%, the credit offsets their liability and the outcome is broadly the same as today. Where their marginal rate is below 30%, the credit doesn't get refunded – the tax floor holds.
For lower-rate beneficiaries – the family members historically allocated trust income to access lower brackets – the practical benefit of those distributions narrows considerably.
The mechanics are still being consulted on. Treasury has signalled that the collection mechanism, the treatment of excess franking credits and the detail of the rollover relief are all subject to stakeholder consultation. Final design may differ from the announcement.
Several exclusions apply. The minimum tax will not apply to fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates or charitable trusts. Certain types of income are also excluded – primary production income, certain income relating to vulnerable minors, amounts subject to non-resident withholding tax and income from assets of testamentary trusts existing at announcement. For SME owners with family farming structures or testamentary trusts in their family group, those exclusions matter and are worth confirming.
The bucket company position
Under the proposed rules, corporate beneficiaries do not receive credits for the minimum tax paid by the trustee. The directional consequence is that flowing trust income through to a bucket company becomes meaningfully less efficient than under the current rules.
To illustrate, on $100 of trust income flowed through to a top-marginal-rate individual shareholder via a bucket company under the announced design:
The trustee pays $30 of minimum tax (30% of $100).
The bucket company receives $70 and pays $21 of company tax (no credit for the trustee's tax).
The shareholder receives $49 cash plus a $21 franking credit, grossing up to $70 of dividend income, and pays $11.90 of net additional tax.
Cumulative tax on the original $100: $62.90 – an effective rate of around 63%. Compare that to the same $100 distributed to a top-rate individual directly: roughly $47.
The specific number above is illustrative and based on the announced design. The treatment of franking credits in excess of the minimum tax remains subject to consultation, and the final rate could move.
Directionally, the implication is clear. The bucket company has historically been one of the most common tools used to manage trust distributions. Under the proposed rules, that strategy is materially worse than the alternative of distributing directly to a high-bracket individual, and significantly worse than restructuring the underlying business out of the trust altogether.
How the minimum tax applies to a one-off capital gain on the sale of a business held in a trust – particularly where the small business CGT concessions are applied – is one of the open consultation questions. For trust-held businesses contemplating a sale around or after 1 July 2028, the technical detail matters and should not be assumed.
Rollover relief – with a federal-state gap
The Budget includes a three-year window of rollover relief, from 1 July 2027, for businesses wishing to restructure out of a discretionary trust into a company or fixed trust. This is intended to remove the federal income tax friction that would otherwise apply to such a restructure.
That relief is welcome. But it only addresses federal tax.
Transferring business assets, goodwill or commercial property out of a trust and into a company can trigger state-level transfer duty, depending on the jurisdiction. The Commonwealth has no power to waive state duty. For trust-held businesses contemplating a restructure ahead of 1 July 2028, the stamp duty position in the relevant state needs to be modelled before any decision is made.
The small business CGT concessions remain – and matter more than ever
The four small business CGT concessions are confirmed unchanged. For owners who qualify, that continuity is the most consequential point in the entire reform package.
1. The 15-year exemption.
If the taxpayer is aged 55 or over and the sale occurs in connection with their retirement (or they are permanently incapacitated), and the active asset has been continuously owned for at least 15 years, the entire capital gain is exempt. For sales of shares in a company or interests in a trust, the age and retirement test applies to the significant individual of the entity. The reforms do not touch this concession.
2. The 50% active asset reduction.
Reduces the remaining capital gain on an active business asset by a further 50%, applied on top of the general 50% CGT discount where available. The combined effect under the current rules is that only 25% of the gain on an eligible active asset is taxable. How the active asset reduction stacks with the new post-2027 indexation and minimum tax framework will need to be clarified in the legislation.
3. The retirement exemption.
Allows up to $500,000 of capital gain to be disregarded over an individual's lifetime. For taxpayers under 55 at the time of the sale, the exempt amount must be contributed to a complying superannuation fund. For taxpayers 55 or over, no super contribution is required and the amount can be taken in cash. The cap is per individual, not per event or per business.
4. The small business rollover.
Allows a capital gain to be deferred by reinvesting the proceeds in a replacement active asset or making a capital improvement. The replacement must occur within a window starting one year before and ending two years after the CGT event. The deferred gain crystallises if the replacement asset stops being active or is sold within four years.
Eligibility for the concessions is tested at the time of the CGT event, but is shaped by structural decisions made years earlier: the $6 million maximum net asset value test, the $2 million aggregated turnover test, the active asset test and the significant individual and CGT concession stakeholder tests.
The gap between qualifying and not qualifying has always been material. Under the proposed new rules, that gap widens. An owner who qualifies for the 15-year exemption pays no tax on the sale. The same business sold by the same owner who has slipped over the $6 million net asset threshold faces the full force of the new regime on every dollar of post-2027 gain.
For owners sitting close to the eligibility lines, knowing precisely where the business sits – and understanding what would need to change to preserve eligibility – is among the highest-value work that can be done in the next twelve months.
How structure determines exposure
Three broad ownership profiles, three different sets of considerations:
1. Shares held personally.
A sale of shares by an individual triggers a personal CGT event. The new rules apply directly. If the asset was held at 1 July 2027 and sold after that date, the split calculation applies.
2. Business held through a discretionary trust.
Both the CGT discount changes and the trust minimum tax are in scope. A sale after 1 July 2028 involves a trustee-level capital gain, the application (or not) of the small business concessions, and then a distribution decision under the minimum tax regime. The interaction is complex and asset-specific advice matters more than usual.
3. Business held through a company.
The company itself is not affected by the 50% CGT discount changes. A sale of company assets generates a corporate-level gain taxed at 25% or 30%. The new individual-level CGT rules become relevant if and when shareholders later sell their shares.
Where the business sits across more than one of these structures – a trading company owned by a trust, for example – the analysis becomes layered. The general principle still holds: once proceeds reach an individual, the personal rules apply.
Negative gearing: relevant if you hold investment property personally
The negative gearing changes are not, strictly, a business measure. But many SME owners hold residential investment property personally, and the announcement-night cutoff creates a planning question worth addressing.
From 1 July 2027, losses from established residential rental properties will only be deductible against other residential property income (including capital gains from residential property). Losses cannot reduce salary, business or other investment income. Excess losses can be carried forward indefinitely.
The changes are grandfathered for properties held at 7:30pm AEST on 12 May 2026, including properties where contracts were exchanged before that time but not yet settled. Properties acquired between announcement and 30 June 2027 can be negatively geared up to 30 June 2027 only. Properties acquired from 1 July 2027 onwards cannot be negatively geared at all – unless they are eligible new builds.
Commercial property, shares and other non-residential asset classes are excluded from the changes. Widely held trusts and superannuation funds (including SMSFs) are also excluded.
For SME owners with personally held residential investment property, the planning point is narrow: confirm what you own and when you acquired it. If you exchanged contracts before 12 May 2026, you remain inside the existing regime indefinitely.
The $20,000 instant asset write-off is made permanent
For small businesses with aggregated turnover up to $10 million, the $20,000 instant asset write-off is being made permanent from 1 July 2026.
After more than a decade of annual extensions, the threshold is finally being locked in. Assets first used or installed ready for use on or after 1 July 2026 can be immediately deducted in the year of acquisition, provided they cost less than $20,000. Assets valued at $20,000 or more continue to be placed in the small business simplified depreciation pool.
This is not a dramatic change – the threshold has sat at $20,000 for several years – but the permanence matters. It removes a recurring source of timing uncertainty and allows genuine capital expenditure planning to occur on a multi-year basis rather than being squeezed into 30 June each year.
PAYG instalments: dynamic calculations and monthly opt-in
From 1 July 2027, small and medium businesses will be able to opt in to reporting and paying PAYG instalments monthly (rather than the current quarterly default), and use an ATO-approved calculation embedded in accounting software to calculate and vary their instalments based on real-time business activity.
The intent is to bring PAYG instalments closer to actual current-year performance, rather than relying on the prior-year multiplier that often bears little resemblance to current trading conditions. The administrative detail has not yet been released, and businesses should expect to wait on ATO guidance before re-engineering their processes.
Taxpayers with a demonstrated history of non-compliance will be required to report and pay PAYG instalments monthly. The carrot is opt-in for compliant taxpayers; the stick is mandatory monthly reporting for those who aren't.
For business owners already grappling with the cashflow recalibration that Payday Super brings from 1 July 2026, the PAYG changes the following year complete the picture: tax obligations more closely aligned to current activity, paid more frequently, with less buffer between accrual and payment.
The personal tax measures and start-up consultation
Two new personal tax measures complete the package. The $1,000 instant deduction for work-related expenses (from 2026–27) allows employees to deduct up to $1,000 without keeping receipts; whether the deduction extends to sole traders will be confirmed in the draft legislation. The $250 Working Australians Tax Offset (from 2027–28) is expressly available to sole traders and effectively raises the tax-free threshold by close to $1,800.
Separately, the Government has flagged that the interaction between the CGT changes and existing tax incentives for investment in early-stage and start-up businesses will be subject to further consultation. The two regimes affected – early stage venture capital limited partnerships (ESVCLPs) and early stage innovation companies (ESICs) – both provide tax concessions to investors in qualifying early-stage Australian businesses, and the interaction with the new CGT framework is yet to be confirmed. For owners and investors with positions in those regimes, the message is to watch this space.
Final thoughts
The 2026 Federal Budget is not the most significant tax reform package in recent memory, but for SME owners, its cumulative effect is more substantial than the headline coverage suggests.
The proposed removal of the 50% CGT discount, the introduction of a minimum tax for discretionary trusts and the weakening of the traditional bucket company strategy all point in the same direction: structure matters more, timing matters more and eligibility for the small business CGT concessions matters more than ever.
Most of the planning this Budget triggers is structural rather than reactive.
The owners who land best will be the ones who use 2026 to understand their position, 2027 to establish baseline valuations and consider restructure options, and 2028 onwards to operate within the new framework with their eligibility for key concessions deliberately preserved.
The 2025–26 EOFY is the natural starting point.
Almost every conversation about positioning for the new regime begins with the same questions: where does the business sit today, who owns it, what does it need to look like in 12 months and what work needs to be in train before the new rules commence?
The analysis above is based on the announced Budget design, which remains subject to consultation and legislation. Final detail may differ. As the mechanics are settled through 2026 and 2027, the planning conversation will continue to evolve.
If you’d like to talk through your position, model the impact of the proposed changes or plan the work that may need to be done ahead of 1 July 2027, please contact Resolve on 02 6147 6741 or via hello@resolve-advisory.com.au.
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This article provides general information only and does not constitute personal tax, legal or financial advice. It is based on the announced 2026–27 Federal Budget measures, which remain subject to consultation and may change. Before acting on any of the information in this article, you should consider its appropriateness having regard to your own objectives and circumstances and seek personal advice from appropriately qualified advisors.
