Federal Tax Reform Update – July 2026

What Is Now Law, What Is Still Proposed and What It Means for You.

Following the 2026 Federal Budget, the Government has moved quickly to implement its tax reform agenda. A number of significant measures have now passed Parliament and received Royal Assent, while other Budget announcements remain proposals and are yet to be legislated.

Below is a summary of the key reforms and where they currently stand.

Measures that are now law

Capital Gains Tax reforms

Significant reforms to the Capital Gains Tax regime have now been enacted.

From 1 July 2027, the current 50% CGT discount will be replaced with an inflation-based discount for gains accruing from that date. A minimum 30% tax rate on capital gains will also apply.

Importantly, the new rules only apply to gains accruing from 1 July 2027. Assets held before 1 July 2027 will be grandfathered up to this date. Investors in eligible new residential property will be able to choose between the existing 50% CGT discount and the new inflation-based arrangements.

Asset owners will need to obtain asset valuations as at 1 July 2027 or rely on a yet to be released valuation method to be issued by the government.

The government intends to introduce a ‘tranche 2’ bill to deal with interactions this new legislation has with other areas of the tax law (e.g. what happens on death, restructuring entities etc…) which are not currently dealt with in the existing law.

Expansion of the Small Business CGT Concessions

The Government has announced that it will increase the aggregated turnover threshold for access to the 50% active asset reduction from $2 million to $10 million from 1 July 2027.

This would significantly expand eligibility for one of the four existing Small Business CGT concessions and align the turnover threshold with a number of other small business tax concessions.

This only applies for the 50% active asset discount concession. The three remaining small business CGT concessions retain the $2m turnover test.

Negative gearing changes

Changes to negative gearing for residential property have also been enacted.

From 1 July 2027, negative gearing will generally be limited to newly constructed residential property. The definition of ‘new residential’ property has not yet been released but is expected to exclude a new property which merely replaces an existing property.

Existing residential investment properties held before Budget night, being 7:30pm AEST on 12 May 2026, will be grandfathered.

Investors who acquire established residential property after that time will generally not be able to offset rental losses against salary, wages or other non-residential income. Those losses may instead be carried forward and applied against residential property income, including future capital gains from residential property.

SMSF Limited Recourse Borrowing Arrangements

New restrictions on SMSF Limited Recourse Borrowing Arrangements have also been enacted.

SMSFs will no longer be able to enter into new LRBAs to acquire residential property. The prohibition commences 45 days after Royal Assent.

Existing arrangements are grandfathered, and the rules do not affect SMSF borrowings for business real property.

This is a significant change for SMSF trustees considering residential property investment.

$1,000 standard deduction for work related expenses

For the 2027 income tax year, taxpayers will be able to claim a $1000 standard deduction for work related expenses.

Eligible taxpayers will be able to choose from claiming the $1000 standard deduction or claiming their actual deductible work related expenses where these costs exceed $1000 (subject to the usual substantiation requirements).

Budget measures that are not yet legislated

Permanent $20,000 Instant Asset Write-Off (currently a bill before Parliament, at the time of writing this has not yet been legislated)

The Government has announced that the $20,000 instant asset write-off for eligible small businesses will become permanent from 1 July 2026.

If legislated, small businesses with aggregated turnover below $10 million will continue to be able to immediately deduct eligible depreciating assets costing less than $20,000.

The threshold applies on a per asset basis.

Permanent Loss Carry- Back for Companies (currently in a Bill before Parliament, at the time of writing this has not yet been legislated)

This measure will apply for income years commencing on or after 1 July 2026.

Eligible companies with an aggregated annual global turnover of less than $1 billion can carry back revenue tax losses.

Losses can be offset against tax paid in the previous two income years.

The benefit will be provided as a refundable tax offset. The offset is limited by the Company’s franking account and prior income tax paid.

Start-up entities to be eligible for the CGT discount

The government has announced that certain eligible start-up entities and employee share participants will retain access to the capital gain tax discount.

This is currently in consultation.

Research & Development Tax Incentive

The Government has announced changes to the Research & Development Tax Incentive from 1 July 2028.

The announced changes include increased support for core experimental R&D, changes to refundable offsets for younger businesses, an increased expenditure cap and changes to minimum expenditure requirements.

These measures have not yet been legislated.

Businesses undertaking R&D should continue to apply the current rules until legislation is enacted.

Taxation of Discretionary Trusts

The Government has announced a minimum 30% tax on discretionary trusts from 1 July 2028, with some exceptions.

The Government has also announced three years of rollover relief from 1 July 2027 to assist small businesses and others that may wish to restructure.

These measures have not yet been legislated but a consultation paper has recently been released.
Given the potential impact on family groups and small businesses operating through discretionary trusts, this will be an important area to monitor.

Looking Ahead

Although the CGT, negative gearing and SMSF residential LRBA reforms are now law, most of the key changes do not commence until 1 July 2027 or later.

This provides time for individuals, investors, trustees and business owners to review existing structures and future plans.

We expect further legislation to be introduced over the coming months and will continue to keep clients informed as the remaining Budget measures progress.

If you have any questions as to how this budget impacts you and your family, please contact your local Bentleys advisor. We are here to help you get where you want to be.

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Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.