How the Federal Budget announcements will impact private enterprise

In an effort to address intergenerational inequity, the key changes announced were a paring back of the concessional taxation of capital gains, altering negative gearing treatment to address housing unaffordability, and a minimum 30 per cent tax on the income of discretionary trusts. There were also some surprises, such as including pre-September 1985 assets into the CGT regime. 
 
We highlighted these changes in our Federal Budget insights, and have set out a selection of the announcements relevant to small and medium-sized businesses and investors below.

Small business tax

Instant asset write-off

The $20,000 instant asset write-off for businesses with group-wide turnover below $10m will be made permanent. 

Following several years of uncertainty – during which the measure was extended on a year-by-year basis, often at short notice – this provides much-needed certainty for small and medium-sized businesses. 

However, it is important to note that the full deduction for a depreciating asset applies only when its cost, excluding any GST credit, is less than $20,000.

Loss carry back

From 1 July 2026, companies with aggregated annual global turnover of less than $1b will be able to carry back tax losses and offset them against tax paid up to two years earlier. This measure will apply to revenue losses only, and will be limited by a company’s franking account balance. 

Negative gearing

Over the past decades, a key concern with negative gearing has been its interaction with the 50 per cent discount on Capital Gains Tax. Used together, these mechanisms have incentivised overinvestment in established residential property, rather than new housing. As this does not add to housing supply, the resulting increase in investor demand is widely seen as having contributed to upward pressure on house prices.

From 1 July 2027, the ability to deduct losses from a negatively geared rental property against other income in the same year will be limited to only newly built homes and apartments.  

All existing properties will be grandfathered and thus are unaffected by the change, along with newly built properties acquired after 12 May 2026. Established investment properties acquired from this time will be subject to this change, but it will take effect only from 1 July 2027.  

Post-1 July 2027, negative gearing losses on established residential properties acquired after 12 May 2026 will be deductible against only rental income or capital gains from other residential properties. This effectively pools the treatment together for all an owner’s residential properties, rather than on an individual property basis. Excess losses will be carried forward and deductible against residential property income in future years.

The intent of this change is to incentivise property investors to direct investment towards newly built homes, which increases overall housing supply, and will likely help moderate rising pressure on housing prices.  

Alternatively, some residential property investors may continue to favour established properties, or instead choose to allocate capital to other asset classes, such as in shares or commercial property, which are unaffected by these changes. To the extent that this reduces investors from the demand pool for existing houses, it may also contribute to easing price pressures in the residential market.  

Capital gains tax

Another highly anticipated change, from 1 July 2027, the 50 per cent discount on capital gains derived by individuals, trusts and partners will be replaced with cost base indexation for assets held more than 12 months. There is no grandfathering, as this applies to all assets – including pre-September 1985 assets. The changes will not apply to superannuation funds. 

For assets acquired before 1 July 2027, held for more than 12 months, and disposed on or after that date, the capital gain is split into pre- and post-1 July 2027 components. This requires determining an asset’s market value on 1 July 2027.  

That market value, less original cost, is the pre-1 July 2027 component. That is reduced by the 50 per cent discount (or, for a pre-September 1985 asset, is exempt). The market value on 1 July 2027 becomes the cost that is indexed. Sale price less this indexed cost is the post-1 July 2027 component and is fully taxed (including for pre-September 1985 assets).  

There is no averaging calculation for the post-1 July 2027 component like there was up until 1999. Further, the post-1 July 2027 component is subject to a minimum 30 per cent tax.

The market value on 1 July 2027 can be ascertained either by, in the case of property for example, obtaining an independent valuation, or using a compliance cost-saving measure that will be provided. 

For newly built residential properties, either the existing 50 per cent discount or indexation and the minimum 30 per cent may be used, whichever produces the lower tax impost.

Negative gearing and CGT combination

The combination of these changes could be viewed as shifting the tax burden towards assets and wealth, which many regard as under-taxed. However, there is limited commensurate easing of the tax burden on income from labour, let alone income more generally. Additionally, these changes may add complexity and dampen the impact of desired changes in investor behaviour.

Trusts

Individual beneficiaries

From 1 July 2028, discretionary trusts will pay a 30 per cent tax on the trust’s taxable income. Beneficiaries assessed on the trust’s income, other than corporate beneficiaries, will receive a non-refundable credit for this tax. Accordingly, if a beneficiary’s marginal tax rate (including Medicare Levy) is higher than 30 per cent, they will pay the balance. Thus, the ultimate outcome is essentially the same as it is currently. However, if a beneficiary’s marginal tax rate is lower than 30 per cent, the minimum 30 per cent stands. Additionally, $45,000 is the income threshold which crosses from the current 16-cent rate to the 30-cent rate, before adding the 2 per cent Medicare levy.

Corporate beneficiaries

With these changes, corporate beneficiaries will not receive a credit for the 30 per cent tax paid by the trust. Although certain details remain unknown at this stage, this nonetheless means ultimately a double-tax on trust income appointed to a corporate beneficiary.

This means that from 1 July 2028, the use of corporate beneficiaries essentially will become unviable, albeit subject to further detail in the legislation. 

Roll-over relief from CGT is available when transferring a business or assets from a discretionary trust to a company, and these measures will be expanded. However, such restructures are less common in Queensland, Western Australia and Northern Territory due to those jurisdictions still imposing stamp duty on the transfer of a business.  

This cost of around 4-5 per cent of the business’s value often renders these restructures commercially unviable. The proposed change from 1 July 2028 places Queensland, Western Australia and Northern Territory businesses that operate through a trust in a particularly challenging position. There is an expectation that these State and Territory governments will recognise these constraints and consider the introduction of a stamp duty roll-over.

R&D Tax Incentive

The Government announced a suite of reforms to the Research and Development Tax Incentive (RDTI), to apply from 1 July 2028. Notably, eligibility will be narrowed so that only expenditure on core R&D activities qualifies, with supporting activities removed. At the same time, R&D tax offset rates will increase for all entities, and the cap on eligible R&D expenditure will rise from $150m to $200m.

For small and medium‑sized businesses, the reforms present a mixed outcome. While the turnover threshold for access to the refundable R&D tax offset will increase from $20m to $50m, refundability will be limited to businesses in their first 10 years of operation. More established SMEs will continue to access the incentive on a non‑refundable basis, potentially reducing the immediate cash‑flow benefit of R&D claims. In addition, the minimum annual R&D spend required to access the incentive will increase from $20,000 to $50,000.

We’re here to help

Although we await the final detail in the legislation, is it clear that change is coming. Now more than ever, strategic business and tax planning is crucial in assessing whether your business or investment structure continues to be fit for purpose. In many cases, businesses may need to seriously consider changing to a newly sustainable structure.  

If you have concerns or want to pre-emptively discuss your business or investment structure, reach out to your trusted Grant Thornton advisor.

_{The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Grant Thornton Australia. Professional advice should be obtained on your specific situation or circumstances by contacting your Grant Thornton Australia advisor.}

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