Key takeaways
- CGT and negative gearing reforms are now law and apply from 1 July 2027, while a 30% minimum tax on discretionary trusts is expected to come in on 1 July 2028.
- How these changes affect you depends on your business structure, what assets you own and your plans around selling, transferring or restructuring your business.
- Reviewing your structure, strengthening your records and building a professional advisory team can help you avoid rushed decisions.
The Federal Budget always gives small and medium business owners plenty to think about. But the 2026 edition introduced some of the most significant changes to Australia's tax system since the GST was introduced in 1998.
So, what's actually changed for small business? When do the changes apply? And what can you do now to prepare?
What tax changes have been announced in the Federal Budget?
The Federal Budget 2026 introduced three major tax changes that could affect small and medium business owners: updates to capital gains tax (CGT), new limits on negative gearing and a new minimum tax on discretionary trust distributions. Most of these changes take effect from 1 July 2027, with transitional rules in place for existing arrangements.
Capital gains tax changes
From 1 July 2027, the current 50% CGT discount for individuals, trusts and partnerships is being replaced with an inflation-indexation approach (so the original cost base of the asset is adjusted in line with inflation), alongside a 30% minimum tax on gains.
Gains made before this date will generally be grandfathered under transitional rules, meaning the 50% CGT discount will apply to any gains built up before 1 July 2027.
Why it matters for business owners: Many businesses hold assets they intend to sell eventually, whether that's property, equipment or the business itself.
- If you're planning a sale or succession down the track, the way that gain is taxed could change.
- Business structures may need a closer look, since CGT outcomes can vary depending on how assets are owned.
- Getting good records in place now will matter more than ever.
Negative gearing changes
Negative gearing lets investors offset a rental property's losses against their other income, like salary or wages.
From 1 July 2027, this will no longer apply to established residential properties purchased after 7:30pm on 12 May 2026. Losses on these properties can only be offset against rental income or future capital gains, not other income.
Properties purchased before Budget night are generally grandfathered under current rules, as are new-build residential properties, regardless of purchase date.
Why it matters for business owners: Negative gearing is usually seen as a personal tax issue, but plenty of business owners are also property investors.
- Some business owners hold investment property personally.
- Others hold property through a trust connected to their business.
- If property is part of your long-term wealth strategy, it's worth understanding how these changes could affect your plans.
Discretionary trust distribution changes
A discretionary trust lets trustees distribute pre-tax income to beneficiaries, who are often on lower marginal tax rates and thus reduce the overall tax paid.
From 1 July 2028, trustees will pay a minimum tax of 30% on the trust's taxable income before it flows through to beneficiaries. Beneficiaries who receive a distribution will get a non-refundable tax credit for the tax already paid by the trustee, but if their own marginal rate is below 30% they won't benefit from the lower rate the way they can today.
Unlike negative gearing, no grandfathering applies. However, the government has proposed rollover relief for three years from 1 July 2027, intended to let businesses restructure out of discretionary trusts into a company or fixed trust without an immediate income tax or CGT bill.
Why it matters for business owners: Discretionary trusts – such as family trusts, investment trusts and trading trusts – are a common structure for Australian SMEs.
- Distribution strategies that have worked for years may need to be reviewed.
- Trust arrangements could face more scrutiny and less flexibility than before.
Five things small businesses should do now
The changes to CGT and negative gearing are already law, while the exact scope of the discretionary trust measure is still being finalised. Here are five practical steps you can take to help prepare you and your business.
1. Conduct a business structure review
Sit down with a qualified accountant and solicitor to review how your business is structured, including your company structure, any family trusts or partnerships, and how assets are owned across the group.
With CGT, negative gearing and trust distribution rules all changing, the structure that made sense a few years ago might not be the most effective one going forward. A structural review helps you understand how these changes could affect your specific business and whether any adjustments are worth considering.
2. Strengthen your asset and valuation records
Make sure your asset registers, property records and valuations are accurate, complete and up to date. This includes retaining historical purchase documentation for any assets you still hold.
Under the new CGT rules, gains on assets you already own will need to be split between the pre- and post-1 July 2027 periods, with the earlier portion still eligible for the 50% discount. Getting this split right relies on having clear records of what you paid, when you paid it and (ideally) what the asset was worth at key points along the way.
What to keep on file:
- Asset purchase records and contracts
- Property valuations, especially around 1 July 2027
- Records of capital improvements or costs added to the asset's base value
- Historical tax returns and financial statements
3. Review trust arrangements early
If your business operates through a discretionary trust, start reviewing your trust deed, current beneficiaries and historical distribution patterns now.
Understanding how your trust currently distributes income – and to who – will help you see where the impact is likely to land once the rules are settled. Talk to a trust specialist and tax lawyer to get a full picture of the likely effects.
The rollover relief allowing businesses to restructure out of discretionary trusts opens from 1 July 2027, so understanding your position early gives you more options if a restructure turns out to be worthwhile.
4. Revisit your succession and exit plans
If you're planning to sell, retire or transfer assets to family members in the coming years, the timing and structure of that transaction could affect how much of the gain falls under the old rules versus the new ones.
The good news is the government has confirmed that small business CGT concessions will remain available, subject to meeting the eligibility requirements.
Talk to your accountant or tax adviser and consider bringing in a succession planning specialist. Some of the questions worth asking:
- If I sell my business in the next few years, how might these changes affect what I take away from the sale?
- If I'm planning to retire within the next ten years, what should I be doing now to prepare?
- If I want to transfer assets or ownership to family members, how could that be affected?
5. Build a professional advisory team
Put an annual review in place with a mix of professional advisors, including an accountant, tax adviser, lawyer and financial adviser.
A regular check-in means you can adjust your approach as the effects and implications of the changes become clearer, rather than making rushed decisions when the changes are about to come into effect.
Common questions business owners are asking
Will the tax changes affect every small business?
No. The impact depends on your business structure, what assets you own and your future plans, such as whether you're planning to sell, transfer assets or wind up a trust. Some businesses will see very little change, while others, particularly those with property holdings or trust structures, may need to plan more carefully. It's worth discussing your specific circumstances with your accountant or adviser to understand what's relevant to you.
Should I change my business structure now?
Not without getting professional advice first. While it's worth reviewing your structure in light of these changes, restructuring is a significant decision with its own costs and tax consequences. What works for one business won't necessarily work for another, so it's best to speak with a qualified accountant and lawyer before making any changes.
Should I be concerned if I operate through a family trust?
Not necessarily, but it's worth understanding how the changes could apply to you. While the discretionary trust tax measure is still being finalised, if your business distributes income through a family trust it's a good idea to start talking to your accountant or tax adviser now so you understand your options once the rules are settled.
Do small business CGT concessions still apply?
Yes, the government has confirmed that existing small business CGT concessions will remain available, subject to meeting the usual eligibility requirements. This is separate from the broader CGT discount changes, so it's worth checking with your accountant whether your business still qualifies. For more information on what’s included and who’s eligible, refer to the ATO’s small business CGT concessions page.
What records should I keep?
Good record keeping will matter more than ever under the new rules, particularly for CGT splits and any future trust or structure reviews. Businesses should retain:
- Asset purchase records and contracts
- Trust documentation, including deeds and distribution records
- Property records and valuations
- Records of capital improvements or costs added to an asset's value
- Financial statements
- Historical tax returns
If you're not sure what you need to keep or for how long, your accountant can help you set up a system that covers you.
Getting ready for what’s ahead
The Federal Budget's tax changes touch a lot of the big decisions that small business owners need to make, from how you structure your business, to how you plan for succession and keep your records.
While some measures are locked in and others are still being finalised, the businesses that do well during the transition will be the ones that bring together a team of trusted advisers and start preparing early.
Helpful government resources:
- Tax reform – Boosting home ownership – Reforming negative gearing and capital gains tax | Australian Taxation Office
- Capital Gains Tax and Discretionary Trusts Reform: Small business explainer | Treasury.gov.au
Federal Budget 2026 business owners checklist
This checklist is intended as a guide to help you prepare for the tax changes in the 2026 Federal Budget. Work through it with your accountant, tax adviser or lawyer to understand what's relevant to your business.
Key dates
- 12 May 2026: Cut-off for negative gearing on established residential properties
- 1 July 2027: CGT and negative gearing changes take effect
- 1 July 2027: Rollover relief window opens for restructuring out of discretionary trusts (open for 3 years)
- 1 July 2028: Discretionary trust minimum tax measure takes effect
Business structure
- Review your company structure, trusts and partnerships
- Review how assets are owned across your business group
- Discuss your structure with a qualified accountant and solicitor
Asset and valuation records
- Update your asset register
- Gather historical purchase documentation
- Obtain or update valuations
- Keep records of capital improvements or costs added to asset values
Trust arrangements
- Review your trust deed
- Identify current beneficiaries
- Review historical distribution patterns
- Discuss options with a trust specialist or tax adviser
Succession and exit plans
- Consider your timeline for selling, retiring or transferring the business
- Check your eligibility for small business CGT concessions
- Discuss succession or exit plans with your adviser
Advisory team
- Ensure you have an accountant, tax adviser, lawyer and financial adviser in place
- Schedule an annual tax planning review
- Conduct an audit of your investment and financial planning strategy