The 2026/27 Federal Budget, handed down on 13 May, is arguably the most consequential in years – not simply for its scale, but for the structural changes it makes to how investment income, capital gains, and business structures are taxed. Layered on top of a challenging macro environment shaped by rising inflation and the global oil shock from the Middle East conflict, this Budget will require careful review by any business owner or CFO with assets, a borrowing strategy, or a trust structure in play.
We have worked through the key measures and set out what we think matters most for Australian business operators. As always, the detail matters, and we encourage you to read on with your accountant and your finance broker in mind.
The Economic Backdrop: Slower Growth, Stickier Inflation
Understanding the Budget requires understanding the environment in which it was written. The Iran war has delivered a sharp oil price shock, pushing Australian inflation higher than the Reserve Bank would like. Treasury is forecasting inflation to peak at 5.0% by the end of June 2026 – above the RBA’s target band of 2 to 3 per cent. Meanwhile, economic growth is projected to slow from 2.25% in the current year to just 1.75% in 2026-27 (FY27 Budget). Real wages are expected to fall by 1.75% in the current financial year, with a modest recovery of around 1% forecast for each of the following two years.
What this means in practice is that the economy is softening at precisely the moment the government is stepping on the fiscal accelerator. Total federal government spending in 2026-27 is forecast at $829.6 billion – around 5.5% higher than this year and well above the pace of economic growth. With fiscal policy doing little to ease price pressures, the responsibility falls squarely back on the RBA. Expert commentary has flagged a real possibility that the cash rate could climb toward 5% before the year is out – and for businesses carrying variable-rate debt, that is a planning consideration deserving attention now.
The Big Tax Changes – and What They Mean for You
Capital Gains Tax: A New Framework from July 2027
The most talked-about change in this Budget is the abolition of the 50% CGT discount for individuals, trusts, and partnerships. From 1 July 2027, that discount is replaced with a cost-base indexation model and a minimum 30% tax rate on capital gains. In plain terms, only real (inflation-adjusted) gains will be taxed – but the floor rate of 30% applies regardless.
Whether you end up better or worse off depends largely on how long you have held the asset and how strongly it has grown relative to inflation. As a rough guide, if an asset’s cumulative growth is more than double the cumulative rate of inflation over the holding period, the new model will likely produce a higher tax bill. For business owners holding commercial property, shares, or other appreciating assets, modelling this now is time well spent.
One important nuance: investors purchasing newly built dwellings can still elect to apply the old 50% discount instead of the indexation model. Pre-1985 assets, which have historically been exempt from CGT, will now be subject to gains arising from 1 July 2027 onwards.
Negative Gearing Restricted to New Builds
From the same date – 1 July 2027 – the ability to negatively gear residential property is being restricted to new dwellings only. Any investment property held before 7:30pm on 12 May 2026 is grandfathered under the existing rules, so if you already own residential investment property, your current holdings are protected.
For anyone looking to grow a residential property portfolio going forward, the economics have shifted. Combined with the CGT changes, the two reforms tilt the incentive structure firmly toward new construction – which is the government’s stated intention. One important secondary effect: in a rental market where demand already exceeds supply, any squeeze on landlord returns is likely to be passed on through higher rents. This is worth monitoring closely.
Discretionary Trusts: A Critical Change for SME Owners
The change that will arguably affect the greatest number of our clients is the introduction of a 30% minimum tax rate on discretionary trust income distributions, taking effect from 1 July 2028. This measure targets the income-splitting arrangements used by hundreds of thousands of Australian small and medium enterprise owners and family businesses. The government estimates this will raise close to $5 billion annually when fully operational – a number that signals both how widely trusts are used and how significantly the change will bite.
If your current structure distributes trust income to beneficiaries in lower tax brackets to reduce the overall family or business tax burden, that approach will become far less effective from mid-2028. Exemptions exist for some farming enterprises, superannuation funds, special disability trusts, deceased estates, and charitable trusts – but for most business operators using a standard discretionary trust, the clock is ticking.
We strongly encourage anyone with a trust structure to be having this conversation with their accountant now, not in 2028. The lead time is an opportunity to restructure sensibly rather than reactively.
Good News for Small Business: Permanent $20k Write-Off
Not every measure in this Budget is a headwind. The most welcome outcome for small business operators is the decision to make the $20,000 instant asset write-off permanent for businesses with annual turnover below $10 million. Previously a temporary measure that was set to expire at the end of this financial year, its permanence now removes the stop-start uncertainty that has frustrated planning decisions for years.
For businesses in trade, hospitality, health, professional services, and logistics – the sectors where asset purchases are a constant operational reality – this is a genuine planning tool. If you have been sitting on equipment or vehicle purchases while waiting to see whether the write-off would survive, the uncertainty is now resolved.
Additionally, a new $1,000 instant tax deduction will be available from 2026-27 for all individual taxpayers, and the Working Australians Tax Offset of up to $250 commences from 2027-28. Income tax rates will also fall slightly for those earning between $18,201 and $45,000, dropping from 16% to 15% from July 2026 and to 14% the year after. While modest individually, these changes collectively increase the disposable income of employees and sole traders – which has flow-on effects for consumer spending and the broader SME economy.
Electric Vehicles and Fringe Benefits Tax
One area that will affect businesses with salary packaging arrangements or vehicle fleets is the partial wind-back of the EV fringe benefits tax exemption. From 1 April 2027, electric vehicles valued above $75,000 will lose their full FBT exemption and instead receive a permanent 25% FBT discount. EVs priced at $75,000 or below will retain the full exemption, provided they are obtained before 1 April 2029.
The Fiscal Position: Deficits, Debt, and What It Means for Borrowing
The federal government’s fiscal trajectory shows sustained deficits ahead. The underlying (operating) budget deficit for 2026-27 is projected at $31.5 billion, with the headline deficit – once off-budget investments are included – sitting at $64 billion. The government must issue bonds to fund both the off-budget investments and the underlying operating shortfall. Over the next four years, total deficits are projected at $265 billion, which will push gross government debt toward $1.3 trillion and net debt to approximately 23% of GDP (FY27 Budget).
While Australia’s government debt remains comparatively low by global standards, the persistent deficit position keeps upward pressure on bond yields over the medium term – and bond yields, in turn, influence the cost of capital across the economy, including business lending rates. For commercial borrowers, the broader message is that rates are unlikely to fall as sharply or as quickly as some had hoped.
What This Means for Your Borrowing Strategy
Bringing it all together, the picture that emerges is one of a higher-for-longer rate environment underpinned by sticky inflation, growing government debt, and a central bank that has been handed the inflation-fighting task largely on its own. For business borrowers, that has concrete implications.
If you are carrying variable-rate debt – whether on property, equipment, or working capital facilities – now is a good time to review your exposure to further rate increases. Options exist across both bank and non-bank lenders to fix portions of your debt, restructure facilities, or access products that offer more predictable repayment profiles. Non-bank lenders in particular have remained competitive on rate and have continued to offer flexibility on deal structure where traditional lenders have pulled back.
Equally, with significant tax changes taking effect over the next two to three years – affecting trust distributions, CGT treatment, and the investment case for existing residential property – it pays to ensure your financing structure is aligned with how your tax affairs are likely to be arranged in the future. A change to your trust structure, for example, can have direct implications for how lenders assess your borrowing capacity. Getting ahead of these changes is where we can genuinely add value.
Reach out to the team at Broker.com.au for a no-obligation chat about your business finance needs. There is no pressure, just an honest conversation about your options.
Disclaimer: The content in this article is general information only and does not constitute personal financial, tax, or credit advice. Individual circumstances vary and we recommend consulting a qualified accountant, financial adviser, or credit adviser before acting on any of the information contained here. Broker.com.au is a commercial finance and mortgage broking firm and does not provide tax advice.
