The centrepiece of the Budget

The centrepiece of the Budget is sweeping changes to the capital gains tax (CGT) rules and to negative gearing with respect to residential properties.

The headline changes are as follows:

Capital gains tax discount

• From 1 July 2027, there will be a return to the pre-1999 CPI-based indexation of capital gains for assets held by individuals, trusts and partnerships, plus a new 30% minimum tax on real capital gains accruing after this date. It is not stated whether companies will be entitled to indexation as was the case pre-1999. Capital gains accruing prior to 1 July 2027 will continue to be eligible for the 50% CGT discount. Taxpayers will have the choice of obtaining valuations as of 1 July 2027, or to use a specified apportionment formula that estimates the asset’s value based on its average return over the holding period (supported by ATO estimation tools). This is subject to an exception for new residential properties.
• Investors in new residential properties will be able to choose either a) the 50% CGT discount, or b) the cost base indexation which is subject to a new 30% minimum tax on disposal of those properties. Subsequent purchasers of these dwellings will not be able to access the 50% CGT discount and will only be eligible for indexation (subject to the 30% minimum tax) on a subsequent disposal. For these purposes, "new residential properties" are residential properties which genuinely add to supply. This will include dwellings constructed on vacant land, or dwellings built where existing properties are demolished and replaced with a greater number of dwellings. Knock-down rebuilds or substantial renovations that do not increase supply will not be eligible. A new build cannot have been previously sold, unless first owned by the builder and not occupied for more than 12 months.
• Pre-CGT assets will come into the CGT net from 1 July 2027, with any capital gains accruing prior to this date being exempt from tax.
• Importantly, complying superannuation funds (including self-managed superannuation funds) appear to have retained access to the existing 33.33% CGT discount.

Negative gearing on residential property

• From 1 July 2027, losses from established residential properties will be deductible only against rental income or capital gains from residential properties (noting that this does not appear to be a property-by-property test).
• Excess losses from the taxpayer’s residential properties will be carried forward and able to be offset against residential property income in future years. The change applies to established residential properties acquired from 12 May 2026.
• The negative gearing changes do not apply to residential properties acquired prior to 12 May 2026 (including contracts entered into but not yet settled). Such residential properties remain subject to the existing negative gearing rules until disposed of.
• Residential properties held in widely held trusts and by superannuation funds will be excluded from the negative gearing changes. It is unclear at this stage how a "widely held trust" will be defined, but the Budget Fact Sheet has referred to "widely held trusts" being most managed investment trusts (MIT) which could suggest that the MIT definition of a "widely held trust" applies. Targeted exemptions for build-to-rent developments and private investors supporting government housing programs are also proposed.
• The negative gearing changes will not apply to any other asset class (e.g. equities) - the current rules will also continue to apply to all other asset classes.

Implications for taxpayers

The changes to the CGT and negative gearing on residential properties are likely to influence investor behaviour, asset allocations and impact asset prices. A number of key observations are set out below.

• Utilisation of companies and superannuation funds expected to increase: The removal of the 50% CGT discount means that assets are more likely to be held in companies to defer top-up tax or in complying superannuation funds (subject to the relevant caps), as complying funds remain eligible for the 33.33% CGT discount and continue to offer a lower tax environment, particularly in pension phase.
• High growth exits face almost doubling of CGT: As the CGT amendments apply to all asset classes, we expect the effect will be that significant gains derived over a short time horizon will be subject to a material increase in taxation, bringing the marginal rate on such gains from a maximum of 23.5% to closer to 47%. This will particularly impact venture capital and start-ups and impact the ability to tax-effectively remunerate risk-taking and entrepreneurship through the issue of equity in start-ups. This may make existing ESIC and ESVCLP structures more attractive (and the Government has announced increases to the relevant caps under the venture capital regimes), but these regimes all have their issues which have not been completely addressed by the Budget reforms. The Budget Fact Sheet states that the Government will consult on the interaction of the CGT reforms and incentives for investment in early-stage and start-up businesses given the unique characteristics of the tech and start-up sector.
• Change in share portfolio and investor behaviour from combined changes to CGT and negative gearing: The 50% CGT discount currently incentivises a focus on long-term holding and growth-focused strategies. As capital gains become less tax-advantaged, we expect to see a pivot towards high-yield assets, such as 'dividend stocks', as income becomes relatively more attractive, particularly when fully franked. The removal of negative gearing for established residential properties and retention for equities may create incentives for leveraging equity portfolios.
• Impact on buybacks, returns and other capital management strategies (s 45B): The removal of the 50% CGT discount for Australian resident investors means that there is a reduced incentive to pursue capital returns in substitution for dividends. Buybacks may become more selective, where the shares in listed vehicles are held by companies, low tax rate individuals or superannuation funds (that retain access to the CGT discount). However, where there are foreign investors in the mix, there remain strong tax incentives to substitute non-taxable capital gains for dividends, particularly where there are insufficient franking credits to shelter any dividend withholding tax otherwise payable. The one key exception is for TAP assets (eg mining and REITs), where foreign investors will be taxed on the capital gain. In such cases, there is expected to be a preference for franked dividends, which is aligned with domestic investors.
• Minimum CGT rate: The 30% minimum tax applies to net capital gains, meaning capital losses can still be offset before the minimum tax applies. However, the minimum rate creates a new floor that eliminates the benefit of the tax-free threshold for capital gains income, meaning that assets cannot be retained and subsequently disposed of after 1 July 2027 when the taxpayer has a reduced marginal rate, such as after the taxpayer retires.

Discretionary trusts taxation 

The Government announced a new 30% minimum tax on discretionary trusts effective from 1 July 2028, intended to improve the fairness of the tax system and help fund new tax cuts for workers.

The measure responds to the significant growth in the use of discretionary trusts to 'income split', with the Budget Papers noting that over the last 20 years the number of discretionary trusts in Australia has more than doubled.

Under the proposal, from 1 July 2028, trustees of discretionary trusts will be required to pay tax at a minimum rate of 30% on the taxable income of the trust. Beneficiaries, other than corporate beneficiaries, will also receive non-refundable tax credits for the tax paid by the trustee.

Beneficiaries will continue to include their trust income in their tax returns and trustees will be required to calculate, report and pay the minimum tax, as well as to notify beneficiaries of their entitlements and associated tax credits. The steps that the trustee is required to take to collect the minimum tax will be subject to consultation.

In the Budget Fact Sheet relating to this measure (a new publication introduced this Budget) it is noted that to ensure the use of refundable franking credits does not undermine the minimum tax:

• trustees that receive franked dividends will be required to use their franking credits to pay the minimum tax; and
• corporate beneficiaries will not receive non-refundable credits for tax payable by the trustee, to avoid them converting these to refundable franking credits to avoid the minimum tax.

The stated purpose of the introduction of the minimum tax is to reduce the incentive for discretionary trusts to distribute to corporate beneficiaries. One clear implication is that existing distributions taxed at 25% in base rate entities will no longer be entitled to the lower rate.

Additionally, because corporate beneficiaries will not receive non-refundable credits for the trustee’s minimum tax, distributions to them by a discretionary trust could ultimately attract effective double taxation, absent further design. Further detail will be required to understand the practical application of this measure, including its interaction with franking credits, section 100A of the Income Tax Assessment Act 1936 (Cth), the existing Division 6 present entitlement and beneficiary assessment regime and the treatment of any subsequent distribution by the corporate beneficiary to its shareholders.

The existing strategies in many family groups of utilising a 'bucket company' to cap tax rates and to invest the proceeds and defer top-up taxation will no longer be as tax effective from 1 July 2028.

Exemptions to the trustee minimum tax

The Government has indicated that the minimum tax will not apply to a range of entities, including fixed trusts, widely held trusts, superannuation funds and deceased estates. While these entities would generally not be expected to be discretionary trusts, the distinction between fixed and non-fixed trusts is a technically complex area of tax law and is the subject of ATO administrative safe harbour treatment in PCG 2016/16 Fixed entitlements and fixed trusts. Existing tax integrity rules adopt a strict approach to whether beneficiaries have fixed entitlements in a trust and further guidance will be required on how these carve outs will operate in practice.

Certain categories of income will also be excluded from the measure, including primary production income, amounts subject to non-resident withholding tax and income from assets of discretionary testamentary trusts that existed at the time of announcement.

Restructuring rollover

To assist affected taxpayers, the Government will provide expanded rollover relief for three years from 1 July 2027. The proposed rollover relief should assist taxpayers restructuring out of discretionary trusts into other entity types, such as a company or a fixed trust. At present, there are rollovers to assist a discretionary trust in disposing of its assets to a company; however, there is no rollover relief to facilitate a transition from a discretionary to fixed trust.

Taxpayers will need to separately consider whether any stamp duty relief is available.

The measure is likely to be particularly relevant for private groups, family-owned businesses and investment holding structures that currently use discretionary trusts for succession planning, asset protection and income distribution flexibility.

Pillar Two – side-by-side package implementation 

Australia has been an active participant in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) project, including the development of the Pillar Two global minimum tax framework.

The Global Anti-Base Erosion (GloBE) rules that form the core of Pillar Two were implemented in Australia in December 2024 and apply to multinational enterprises (MNEs) with an annual global revenue of EUR 750 million (approximately A$1.2 billion), to ensure that they pay a minimum level of tax in the jurisdictions in which they operate.

Given its international reach, a globally coordinated approach is required to ensure the effective operation of the global and domestic minimum tax rules, requiring each participating member to implement their domestic rules in a form that can operate in conjunction with the rules of other jurisdictions.

The 'side‑by‑side' package, agreed by the OECD/G20 Inclusive Framework in January 2026, was developed to address emerging practical and political challenges in the global rollout of Pillar Two, most notably the risk of inconsistent outcomes and double taxation where major jurisdictions had not adopted the GloBE rules.

In particular, the package responds to concerns that applying the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR) to groups headquartered in jurisdictions with existing minimum tax regimes (such as the Corporate Alternative Minimum Tax in the United States of America) could lead to overlapping taxation and significant compliance complexity. The IIR applies to fiscal years beginning on or after 1 January 2024, and the UTPR applies to fiscal years beginning on or after 1 January 2025.

At a practical level, the side‑by‑side package introduces a framework of safe harbours that allow qualifying jurisdictions’ domestic tax systems to operate 'in parallel' with the Pillar Two rules. Where adopted into domestic law, these rules can effectively switch off top-up tax under the IIR and UTPR for eligible MNEs, while still preserving the application of domestic minimum taxes (such as a Qualified Domestic Minimum Top-Up Tax) and core reporting obligations. In essence, it is expected that the new safe harbour will deem an MNE to have a nil IIR or UTPR position where the ultimate parent entity is headquartered in a jurisdiction with a 'Qualified SbS Regime' for the relevant fiscal year.

As at the date of the Budget, the United States of America is the only 'Qualified SbS Regime' for the purposes of the side-by-side package.

This approach is intended to reduce compliance burdens, minimise double taxation risk, and support continued broad participation in the global minimum tax framework while maintaining the overall 15% minimum tax outcome.

The Government will amend Australia's global and domestic minimum tax legislation introduced in 2024 to implement the side-by-side package agreed by the OECD/G20 Inclusive Framework on 5 January 2026. These amendments ensure Australia's rules remain consistent with those of other implementing jurisdictions and apply from 1 January 2026.

However, MNEs should note that the safe harbours and carve-outs implemented under the side-by-side package do not remove all Australian Pillar Two filing obligations.

FRCGT transitional arrangements 

The Government will provide a time-limited, targeted concession in the strengthened foreign resident CGT regime for foreign investors disposing of certain renewable energy infrastructure assets. The concession applies from the first day of the next quarter after Royal Assent until 30 June 2030. While the Government has not specified what the targeted concession will be, we expect this to be a 50% CGT discount, which was announced by the Government in draft legislation on 10 April 2026. See our insights on this draft legislation: CGT changes for foreign investments in Australian land and resources.

This measure represents a pragmatic acknowledgement that the broadened scope of the 2024/25 Budget foreign resident CGT reforms, particularly the expanded concept of assets with a 'close economic connection to Australian land', would otherwise capture renewable energy assets and potentially deter foreign investment in the energy transition.

As we canvassed in our Federal Budget 2024/25 Highlights, the concept of 'close economic connection to Australian land' raised significant questions about the capture of renewable energy assets. This transitional arrangement addresses those concerns, at least until 30 June 2030. The time-limited nature of the concession signals the Government's intent to eventually subject renewable energy infrastructure assets to the same foreign resident CGT treatment as other Australian real property interests. Foreign investors with renewable energy infrastructure holdings should therefore treat this window as transitional and factor in a potential future CGT exposure once the concession period lapses.

Separately, and more controversially, the Government will ensure that the concept of “real property” in Australia for the purposes of the regime is determined by Commonwealth legislation rather than state and territory laws, with effect from 12 December 2006 (when the regime was introduced). The retrospective reach to 2006 is striking, and we expect this aspect of the measure will draw close attention from foreign investors who have previously taken positions based on state law characterisations of land interests, including statutory severance of assets, which the new draft legislation is seeking to overrule.

The precise scope of "certain renewable energy infrastructure assets" eligible for the concession will only become clear once the legislation or explanatory materials are released.

Strengthening the foreign investment framework 

The Government has committed $47.5 million over four years from 2026–27, and $3.9 million per year ongoing, for Treasury and the ATO to strengthen and streamline the foreign investment framework. Key elements include introducing a new performance target from 1 January 2027 to decide all low‑risk applications within 30 days, removing ineffective conditions on existing approvals, and reforming foreign investment laws and the Register of Foreign Ownership of Australian Assets. This measure builds on Treasury’s discussion paper released on 31 October 2025 and consultation process, which sought public feedback on options to further streamline and strengthen the framework. This is a substantive and welcome step toward more predictable foreign investment review, particularly for low-risk applications that have been subject to longer-than-necessary review periods.

Reforming the R&D incentives 

While not foreshadowed in any great detail, the Government has announced significant reform of the R&D Tax Incentive (R&D Incentive), forming the first stage of its response to the Ambitious Australia: Strategic Examination of Research and Development Final Report.

From 1 July 2028, the following changes will apply:

• Core R&D offset rates will increase by 4.5 percentage points. That is, the rate of the refundable tax offset will now be the company's tax rate plus 23% (up from 18.5%) and for the non-refundable tax offset, the rate will increase to 13% (from 8.5%) or 21% (from 16.5%) depending on the business's R&D intensity threshold (an effective increase of 25 – 50% in the offset for core expenditure).
• The intensity threshold to qualify for the R&D Incentive (ie a business's eligible R&D expenditure as a proportion of its total expenditure) will be reduced from 2% to 1.5%, enabling more businesses to qualify for the higher offset.
• Supporting R&D expenditure will no longer be eligible for the R&D Incentive, meaning that various data collection, management and administrative costs tied to core R&D activities will no longer be subject to the concession.
• The turnover threshold for the refundable tax offset (which is at a higher rate) will increase from $20 million to $50 million. This should materially increase the number of businesses that can benefit from the more concessional refundable tax offset for a longer period.
• The refundable tax offset will be limited to businesses that have been incorporated for less than 10 years.
• The maximum expenditure threshold will increase from $150 million to $200 million, allowing businesses to benefit from the expanded R&D Incentive as they grow further, which should make Australia more competitive globally for large-scale innovation.
• The minimum expenditure threshold will increase from $20,000 to $50,000 (with a requirement for claims below this amount to be undertaken with a registered Research Service Provider or Cooperative Research Centre).

This reform package is more ambitious than anticipated. However, the removal of supporting expenditure from the R&D Incentive is a significant change, as it is likely to reduce the quantum of eligible expenditure for many businesses. Companies with a high proportion of supporting (as opposed to core) R&D activities may find themselves worse off overall, even with the increased rates of the tax offsets.

On the other hand, genuinely R&D-intensive businesses with substantial core expenditure will benefit from both the increased rates and the reduced intensity threshold. The increase in the turnover threshold for the refundable offset to $50 million is a welcome recognition that many growing Australian firms outgrow the current $20 million threshold within a few years.

The changes should be welcome for businesses with significant core R&D spend and should mean that many businesses will be able to justify greater R&D budgets in Australia, rather than looking offshore.

Expanding venture capital incentives 

As another part of the Government's first stage of its response to the Ambitious Australia: Strategic Examination of Research and Development Final Report, the venture capital tax concession framework will be expanded from 1 July 2027.

These changes are aimed at supporting growth in Australian early-stage businesses by relaxing some of the limitations on investments that applied to both venture capital limited partnerships (VCLPs) and early-stage venture capital partnerships (ESVCLPs).

The changes are as follows:

• The VCLP investee cap on asset size (ie the value of assets that can be held by an investee business) will be increased from $250 million to $480 million, meaning that larger businesses can now qualify for VCLP investment.
• The ESVCLP investee cap on asset size will be increased from $50 million to $80 million. This should enable later-stage businesses to be eligible for ESVCLP investment.
• The ESVCLP tax incentive cap on asset size (ie the value that the assets of a business can grow to before the ESVCLP tax concessions switch off) of the investee business will increase from $250 million to $420 million. Accordingly, ESVCLP investors will be able to benefit from significant tax concessions for longer.
• The maximum fund size of an ESVCLP will be increased from $200 million to $270 million, which will allow funds to raise and invest additional capital.

Notably, it appears that the expanded venture capital benefits announced in the Budget come at a cost, with the eligible venture capital investor (EVCI) program being closed to new applicants from Budget night.

The EVCI program enabled certain foreign investors (eg certain foreign pension funds) to invest directly in Australian companies and receive similar tax concessions as investing in a VCLP. This means that new investors will need to use existing registered VCLPs and ESVCLPs to access venture capital tax benefits going forward, rather than relying on the EVCI program, effectively consolidating investor activity into the ESVCLP and VCLP regime.

The expansion of benefits will apply to new and existing funds and to new investments made by those funds, including follow-on investments in businesses in which they have already invested.

Loss carry back 

The Government proposes to reintroduce in a similar form a loss carry back mechanism that was last available as a temporary COVID-era measure (broadly between 2020 and 2023).

For income years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion (reduced from $5 billion under the former temporary rules) will be able to carry back a tax loss and offset it against tax paid up to two years earlier.

The former loss carry back mechanism also applied to corporate limited partnerships and public trading trusts (given these types of entities are taxed as companies). It is not yet clear whether the new rules will also apply to these types of entities given the Budget refers to this measure as being available only to companies.

Similar to the former rules, the carry back is limited to revenue losses (not capital losses) and capped by the company's franking account balance.

While the Budget is silent on this, the former provisions included specific integrity rules relating to schemes in connection with the disposal of membership interests in the loss company to facilitate access to the loss carry back. Similar provisions may also be included alongside these measures. The permanent reintroduction provides cash flow support when businesses need it most.

Loss refundability for start-ups 

For income years commencing on or after 1 July 2028, start-up companies with aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to convert that loss into a refundable tax offset.

The offset is limited to the value of fringe benefits tax (FBT) and withholding tax on wages paid to Australian employees in the loss year. By linking refundability directly to PAYG and FBT paid on Australian employees, the measure creates a clear tax incentive to hire locally, rather than relying heavily on founders, contractors or offshore support teams.

This offset is distinct from and could potentially operate in tandem (in the second year of operations) with, the reintroduced loss carry-back regime.

It is targeted specifically at early-stage, loss-making start-ups and is a novel measure designed to provide immediate cash flow support by converting what would otherwise be carry forward losses into near-term cash refunds. This improves cash flow at a point where starts-ups usually face high cash burn, limited access to debt funding and reluctance to dilute founders excessively through equity raises. This measure complements the existing Early Stage Innovation Company (ESIC) rules, which may provide concessionary tax treatment for investors investing in early-stage innovation companies.

As the offset is limited to losses incurred in a company’s first two years of operation, a key issue will be determining when the company is taken to commence operating for these purposes. The Budget papers are silent on this.

$20,000 instant asset write-off 

After many years of one-year extensions, the $20,000 instant asset write-off is finally being made permanent. From 1 July 2026, small businesses with an aggregated annual turnover of less than $10 million will continue to be entitled to immediately write off the full cost of eligible assets costing less than $20,000.

Assets valued at $20,000 or more can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter. The 5-year lock-out provisions that prevent re-entry into the simplified depreciation regime after opting out will continue to be suspended until 30 June 2027.

The permanence of the measure provides the certainty that small businesses have been calling for and will allow for more confident investment planning.

EV – FBT exemption phase out 

Since 1 July 2022, under the Australian Government's Electric Car Discount regime, eligible low and zero-emission electric vehicles (EVs) below the fuel-efficient luxury car tax threshold (LCT) (currently $91,837 and indexed annually) have been exempt from fringe benefits tax (FBT). This has made EVs an attractive salary packaging item, allowing employees to make lease payments as well as pay for electricity and other running costs from pre-tax income. It has also benefitted those employers operating vehicle fleets to provide to their employees. The tax concession has been popular and is expected to cost $1.35 billion in the current financial year alone (well above an initial forecast of $90 million). This has been amplified by material increases to petrol and diesel prices since the start of the Iran conflict.

The Government has announced a phased reduction of the FBT exemption. The proposed changes are forecast to result in net savings for the Government of $1.7 billion over 5 years from 2025/26.

The changes mean that from 1 April 2029, a permanent 25% FBT discount will be available for EVs up to the fuel-efficient LCT, equating to a 15% statutory formula rate. There are complex transitional rules being proposed which, in the case of an EV acquired under a novated lease, would apply for the duration of the lease, noting that no draft legislation has yet been released:

• Until 31 March 2027: EVs under the LCT threshold retain the full exemption;
• 1 April 2027 – 31 March 2029: EVs valued at $75,000 or less retain the full FBT exemption and EVs valued at $75,001 to the LCT threshold receive a 25% discount (so a 15% statutory rate); and
• From 1 April 2029: All EVs under the LCT threshold receive a 25% discount (so a 15% statutory rate).

As can be seen, existing eligible EVs will retain the FBT discount rate that was in place when the 'arrangement' resulting in the provision of the EV 'commenced'. For example, this should mean that an EV provided under a novated lease arrangement entered into before the Budget will be exempt from FBT for the duration of the lease. Further, there is a window of opportunity to lock in the 100% FBT exemption for EVs provided between 13 May 2026 and 31 March 2027 and which cost more than $75,000 but less than the LCT.

There is likely to be accelerated EV demand as a result of the proposed phased reduction in the exemption. It may be the case that there is a preference to enter longer term 5-year leases so that the grandfathered FBT exemptions can be used for as long as possible. Employers who maintain an EV fleet may also face increased compliance complexities, potentially having to track different rates across different vehicles.

Another associated tax measure to monitor is the proposed national Road User Charge for EVs to replace declining fuel excise revenue due to greater EV adoption.

Payday super 

This year's Federal Budget did not include any key superannuation announcements. The 2023/24 Budget announced the Payday Super regime. The Treasury Laws Amendment (Payday Superannuation) Act 2025 (Cth) and Treasury Laws Amendment (Payday Superannuation) Regulations 2026 (Cth) have received Royal Assent, and the Payday Super regime will commence on 1 July 2026.

The key features of the regime include:

• Superannuation contributions must be deposited into an employee's superannuation accounts within 7 days of their payday.
• The superannuation guarantee obligation is calculated by reference to an employee's 'qualifying earnings' for each pay cycle, which, broadly, includes their ordinary time earnings, as well as certain other payments such as salary sacrificed superannuation, commissions and certain other amounts.
• The maximum contributions base becomes an annual (rather than quarterly) threshold.
• The quarterly superannuation guarantee statement is abolished and replaced by an optional voluntary disclosure statement.
• The existing administration component of the superannuation guarantee charge is replaced by an administrative uplift amount, which may be reduced (potentially to nil) depending on the employer's compliance history and whether a voluntary disclosure is lodged.

The Commissioner of Taxation has also released Practical Compliance Guideline PCG 2026/1 Payday Super – first year ATO compliance approach which sets out the ATO's compliance approach for the first year of Payday Super operation.

Division 296 'Better Targeted Super Concessions' 

As announced in the 2023/24 Budget, the Government confirmed that it would reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million. Although this year's Budget contained no further announcements in relation to this measure, the enacting legislation for this concession recently received Royal Assent and will apply from 1 July 2026.

From 1 July 2026, Division 296 of the Income Tax Assessment Act 1997 (Cth) will impose an additional 15% tax on earnings attributable to the proportion of an individual's total superannuation balance that exceeds $3 million, bringing the headline rate to 30% (up from 15%). Individuals with balances over $10 million will be subject to a further 10% tax on the corresponding proportion of earnings, bringing the headline rate to 40%. Both thresholds will be indexed incrementally in line with inflation.

Under earlier proposals, Division 296 earnings were to be calculated by reference to movements in the total superannuation balance, which would have exposed unrealised gains to taxation. However, the enacted legislation confirms that Division 296 will instead apply by reference to the relevant superannuation fund's taxable income (subject to statutory adjustments), rather than by reference to balance fluctuations alone.

Changes to tax residency 

This Budget does not include any further announcements in relation to the long-awaited (and desired) changes to the corporate tax residency tests. The withdrawal of former Taxation Ruling TR 2004/15, and release of TR 2018/5 in light of the High Court’s decision in Bywater Investments Ltd & Ors v Commissioner of Taxation [2016] HCA 45, resulted in a significant change in the application of the corporate tax residency tests, and in particular, the central management and control test for residency. These reforms have been repeatedly earmarked for introduction since the 2020/21 Budget and continues to leave many corporate taxpayers subject to costly compliance and governance practices amid ongoing uncertainty.

Similarly, this Budget does not include any further announcements in relation to the individual tax residency rules, which the Government first announced in the 2021/22 Budget. This measure was to introduce a primary 'bright line' test, which would have resulted in a person being an Australian tax resident where they are physically present in Australia for 183 days or more in any income year, with a secondary test depending on a combination of physical presence and measurable, objective criteria.

Subsequent to that, in 2023, Treasury released a consultation paper seeking input on a new framework for determining individual tax residency. Nothing further was announced and it remains unclear whether the Government will proceed with reform of these rules.

Reforms to Division 7A

The Government has not announced any proposed changes to Division 7A of Income Tax Assessment Act 1936 (Cth). The rules in Division 7A have received a great deal of focus in recent times, following the Full Federal Court’s decision in Commissioner of Taxation v Bendel [2025] FCAFC 15 that an unpaid present entitlement to a corporate beneficiary is not a loan, and the ATO’s interim decision to maintain its long-held position pending the High Court’s decision, which is yet to be handed down at the date of publication. The proposed amendments to the taxation of discretionary trusts may, however, have reduced the urgency for these reforms going forward.

Clarifying the rules for captive MITs

The Government had previously announced that it would amend the income tax laws to make clear that trusts ultimately owned by a single widely‑held investor (eg a foreign pension fund) are able to access the managed investment trust (MIT) concessions. This Budget does not include any further announcements in relation to this measure.

Deferral of withholding measure for clean building MITs

This Budget does not include any further announcements in relation to extending the 10% concessional MIT withholding tax rate for fund payments made by a clean building MIT to MITs holding data centres and warehouses where construction commences after 7:30 PM (AEST) on 9 May 2023. This measure was first announced in the 2023/24 Budget. In the 2025/26 Budget, the Government announced that it would defer the start date of this measure, so that it starts on the first 1 January, 1 April, 1 July or 1 October after the relevant legislation receives Royal Assent.

Petroleum Resource Rent Tax (PRRT) reform

This Budget does not include any further announcements in relation to the broader PRRT reform agenda. While the 2023/24 Budget introduced targeted changes, including the PRRT deductions cap and reforms to the gas transfer pricing regime, a number of recommendations were left for further consultation, and no subsequent comprehensive reform package has been released. In the lead‑up to the 2026/27 Budget, there was public commentary and debate remerged regarding broader increases to gas taxation, including proposals for a 25% tax on gas exports and potential changes to PRRT, but the Government did not proceed with these reforms.

Aidan Kleynhans, Brian Kim, Cynthia Vasanthanathan, Daniel Kornberg, Helly Soni, James Den, Jason Hawe, Jenny Chen, Lian Park, Lucy Greenwood, Matthew Moran, Oliver Conroy, Shyam Srinivasan, Wendy Lim, Adrian Varrasso, Elissa Romanin, Robert Yunan, Hamish Wallace and Tim Lynch