What has become law from the May Budget 

The first round of legislation from the May Budget became law on 26 June 2026. Here is what is in it and what it could mean for you. 

Capital gains tax is changing from 1 July 2027 

If you sell an asset such as an investment property, shares or your business, the way your capital gain is taxed is changing. 

Right now, if you have held the asset for more than 12 months, you only pay tax on half of the gain. This is the 50% CGT discount that most investors and business owners are familiar with. 

From 1 July 2027, that discount is being scrapped and replaced with two new rules: 

• Indexation: Instead of getting a 50% discount, your cost base will be adjusted for inflation. You will only pay tax on the gain above inflation. 

• A minimum tax rate of 30%: Any capital gain will be taxed at a minimum rate of 30%, even if your marginal tax rate is lower (with some exceptions). 

The combined effect is that some taxpayers will end up paying more tax on capital gains than they do today, while others may pay less depending on how long they hold the asset and how much it grows above inflation. 

An option for new residential properties 

If you invest in an eligible new residential dwelling, you will have a choice. You can either stick with the existing 50% CGT discount or use the new indexation and 30% minimum tax arrangements, whichever gives you the better outcome. Investors in affordable housing will have a similar choice, with the existing CGT discount of up to 60% being fully retained. 

What this means for assets you already own 

If you already own assets, the changes apply prospectively from 1 July 2027. Any capital gain that accrued up to 30 June 2027 will still be eligible for the 50% CGT discount when you eventually sell. Only the gain that accrues from 1 July 2027 onwards will be subject to the new indexation and 30% minimum tax rules. 

This split treatment means establishing a market value as at 30 June 2027 will be critical to working out how much of your gain is taxed under the old rules versus the new ones. This applies to all CGT assets, not just property. Shares, business assets, units in trusts and other investments are all caught. 

The Government has indicated there will be two methods available to work out this value: 

• Obtaining a formal valuation of the asset as at 30 June 2027 

• Using a prescribed apportionment formula that estimates the value based on the holding period and growth rate of the asset (the ATO will release tools to help with this) 

You will not need to decide which method to use until you actually sell the asset. 

However, for many taxpayers the ATO apportionment tool may not produce a fair or appropriate result. It is likely to work reasonably well for assets with observable market prices, such as listed shares, but for property, businesses and other complex assets, a formula based on a growth rate is unlikely to reflect the real value of the asset at 30 June 2027. 

This is where planning ahead matters. The Commissioner generally accepts valuations from a registered or qualified valuer. Real estate agent appraisals and rough estimates are not viewed as reliable evidence and are likely to be challenged.  

For business owners, a proper business valuation will be far more useful down the track than back of the envelope figures or a formula that does not reflect what your business is actually worth. We offer business valuation services and can prepare one for you leading up to 30 June 2027. 

Without proper valuation evidence, it will be difficult to substantiate how much of the gain accrued before 1 July 2027 and you could end up paying more tax than necessary. 

What is not affected 

Some important things remain unchanged: 

• The main residence exemption on your home is not affected 

• The four small business CGT concessions remain in place, with the 50% active asset reduction becoming more accessible (see below) 

• Super funds, including SMSFs, are not affected and keep their existing CGT treatment 

• Companies are not affected since they never had access to the 50% discount in the first place 

• Recipients of government income support payments such as (but not limited to) Age Pension, JobSeeker, Disability Support Pension, Parenting Payment and Youth Allowance in the same financial year they realise a capital gain will be exempt from the 30% minimum tax 

• Where you have made a deductible charitable donation, the gain subject to the 30% minimum tax can be reduced 

Good news for small business owners selling their business 

If you sell your business or a business asset, the small business CGT concessions can significantly reduce or even eliminate the tax on your capital gain. The most commonly used of these is the 50% active asset reduction, which reduces your taxable gain by half on top of other CGT relief. 

Currently, you can only access this concession if your business has aggregated turnover of less than $2 million or if you meet the $6 million maximum net asset value test. However, many businesses miss out as they aren’t able to satisfy either test.  

From 1 July 2027, the turnover threshold for the 50% active asset reduction is being lifted from $2 million to $10 million. According to the Government, this will mean around 2.7 million small businesses (around 98% of active businesses) will be eligible. The $6 million maximum net asset value test stays the same. Importantly, this change only applies to the 50% active asset reduction. The other small business CGT concessions (the 15-year exemption, retirement exemption and small business rollover) continue to use the existing $2 million turnover threshold or $6 million maximum net asset value test. 

Personal tax relief for workers 

From 1 July 2026, a $1,000 standard deduction for work-related expenses is being introduced. You can claim this without needing to keep receipts or itemise your expenses. If you have genuine work-related expenses above $1,000, you can still claim the higher amount in the usual way and provide the substantiation. This is intended to simplify tax time for most workers. 

From 1 July 2027, a new Working Australians Tax Offset of $250 per year will apply. This is a permanent non-refundable offset for all Australian workers earning above the tax-free threshold.  

Negative gearing changes for property investors 

If you are considering a residential investment property, please note the proposed changes to negative gearing. These changes apply to residential properties where the contract was entered into after 7:30 PM (AEST) on 12 May 2026.  

• Grandfathering: Properties held before this time are fully grandfathered and continue under existing rules.  

• New Builds: Eligible ‘new build’ properties (those genuinely adding to housing supply) remain exempt from these restrictions and retain full negative gearing benefits.  

• Affected Properties: For ‘established’ (non-new-build) residential properties purchased after the cutoff, any rental losses incurred from the 2027–28 income year onwards can no longer be offset against your salary or other non-property income. Instead, these losses will be ‘quarantined’ and can only be deducted against your residential rental income or capital gains derived from the sale of residential property. Please note that these quarantined losses can be carried forward to offset future residential property income. 

Key takeaway 

These changes are now law. If you are considering selling a business, an investment property, or shares, the timing of that sale could materially change your tax outcome. The same applies if you are looking at buying a residential investment property. Speak to your accountant before you commit so you understand where you stand.