
THE WORK TEST: Claiming a tax deduction for super contributions after 67
May 7, 2026On 12 May 2026, the Federal Government delivered its fifth
Budget. It was one of the most dramatic and significant budgets in decades.
Among other things, it announced that negative gearing would be abolished for
property purchased after 1 July 2027 (albeit grandfathering pre-Budget
arrangements).
It also announced that the CGT discount will not be
available from 1 July 2027 (except in respect of qualifying “new builds”). It
also proposed a minimum 30% tax on trusts (with certain exceptions). There are
also several other significant changes.
We have put together a summary of these key changes and how
they may affect taxpayers – especially small to medium businesses. So, it is
important to come and speak to us. However, the proposed measures may be
subject to changes before their implementation.
CGT discount replaced
BUDGET MEASURE: From 1 July 2027, the 50% CGT
discount is replaced with cost base indexation plus a 30% minimum tax on real
gains. Applies to all CGT assets, including pre-1985 assets, with gains accrued
before 1 July 2027 grandfathered. Investors in eligible new builds can elect
either system, and income support recipients are exempt from the 30% minimum
tax.
How it works in practice
IN A NUTSHELL: if you buy and sell an asset after 30
June 2027, the new rules apply (i.e. indexation and minimum 30% tax rate); if
you buy and sell an asset before 1 July 2027, the existing 50% discount applies
and there is no minimum tax rate; and if you buy an asset before 1 July 2027
but sell it after that date, then you will get the discount up to the asset’s
market value on 1 July 2027 and thereafter you will only get indexation plus a
minimum 30% tax rate on any gain from that date. Importantly, the new rules
apply to all assets (e.g., shares) and not just real property.
However, for “new builds” (as defined), they will be
entitled to choose either the 50% discount or indexation and the minimum
30% tax rate. But it is not
clear if this only applies to new builds after 1 July 2027.
One bit of tax planning you may consider: if you intend to
sell an asset to use a low tax rate, it may be best to try to do this by 1 July
2027 - before the minimum 30% rate kicks in.
Also note that if you own a pre-CGT asset (i.e., one
acquired before 20 September 1985), it will no longer be excluded from CGT but
will be subject to CGT after 1 July 2027 - but with a cost base equal to its
market value at that date.
But the devil will be in the legislative detail, and after a
year of consultations and submissions.
Negative gearing limited to new builds
BUDGET MEASURE: From 1 July 2027, losses on
established residential property acquired after 7:30 pm AEST 12 May 2026 can
only be deducted against rental or residential property capital gains income.
Properties held (or under contract) before that time are grandfathered.
Our analysis
This aligns the Australian tax system with other
jurisdictions and, together with the CGT indexation changes, should have some
impact on the demand side for residential housing. But importantly, note the
“grandfathering” of negative gearing arrangements already in place. (How far it
shifts the affordability dial for young people trying to get a foothold in the
housing market remains to be seen – especially in the light of ongoing supply
problems.)
30% minimum tax on discretionary trusts
BUDGET MEASURE: From 1 July 2028, a 30% minimum tax
will be applied to the taxable income of discretionary trusts, payable by the
trustee, with exemptions for unit and widely-held trusts, complying super
funds, special disability trusts, deceased estates, and charitable trusts.
Primary production income, certain vulnerable minor income, and income from
existing testamentary trust assets are also excluded. Three-year rollover
relief from 1 July 2027 will be provided to assist restructuring.
What to watch
Presumably, this new trustee tax only applies to income to
which beneficiaries are made presently (or specifically) entitled to during the
particular tax year, and the current 47% tax rate will continue to apply to
income to which no beneficiary is presently entitled - otherwise trusts might
still be a useful accumulation vehicle.
In other words, it is in effect a 30% minimum tax on trust distributions. Also note, despite the carve out for deceased estate trusts, etc., this does not include testamentary discretionary trusts (as opposed to testamentary fixed trusts) - which will be subject to the 30% minimum tax rate.
But, again, the devil will be in the legislative detail –
and after a year of consultations and submissions.
$20,000 instant asset write-off made permanent
BUDGET MEASURE: The $20,000 instant asset write-off
will be permanently extended for small businesses with aggregated turnover
under $10 million. It will apply to eligible assets first used or installed,
ready for use from 1 July 2026.
Our analysis
Three years of annual extensions made permanence almost
inevitable, but the real win is ending the late-legislation cliffhanger that
had become a genuine planning headache. The threshold itself is unchanged and
won’t be indexed, meaning its real value continues to erode. The Opposition
proposed lifting it to $50,000 in the Budget reply. Worth noting the per-asset
basis still applies, so multiple sub-$20,000 purchases can each be written off,
and the measure pairs usefully with the reintroduced loss carry-back rules.
Loss carry-back reinstated
BUDGET MEASURE: Companies with global turnover under
$1 billion can carry losses back two years, from 1 July 2026. Separately, loss
refundability for start-ups (turnover under $10 million, first two years of
operation) applies from 1 July 2028.
Key Features and what’s new
This is a permanent measure, unlike the temporary loss
carry-back rules that applied during the COVID years. Treasury estimates it
will reduce receipts by $2.3 billion over five years and benefit around 85,000
companies.
Key features to note:
•
Revenue losses only (capital losses don’t
qualify)
•
Available only to companies — not trusts,
partnerships, or sole traders
•
Delivered as a refundable tax offset, not a
deduction
•
Capped by the company’s franking account balance
at year-end
•
Losses can be carried back against tax paid in
the prior two income years
The start-up loss refundability measure is new and shouldn’t
be confused with carry-back. Because new companies typically have no prior tax
to recover, the refund is instead capped at the FBT and PAYG withholding paid
on Australian employee wages in the loss year, effectively rewarding
early-stage hiring. It applies for the first two years of operation only and
starts from 1 July 2028, so there’s a long lead time before it bites.
$1,000 instant tax deduction
BUDGET MEASURE: From the 2026–27 income year,
individuals can claim a flat $1,000 for
work-related expenses without itemising (charitable
donations and professional memberships are still claimable on top).
Practical implications
This is a welcome simplification and replaces the
long-standing $300 substantiation threshold, which had been left unchanged for
many years and fallen well behind inflation. Treasury expects 6.2 million
workers (around 42% of taxpayers) to benefit, with an average saving of about
$205. Keep in mind it’s a deduction, not a refund, so the cash benefit depends
on your marginal tax rate. This translates into roughly $160 at the bottom rate
to $450 at the top (excluding Medicare levy).
More deductions are always welcome, especially where they
don’t have to be substantiated. But it’s still worth keeping written evidence
of work-related expenses for at least one year to confirm which option suits.
The $1,000 threshold is easy to exceed. Keep in mind the ATO’s fixed-rate WFH
method alone (70c per hour) reaches it at around 27 hours per week of
home-based work. This is before adding car use, tools, self-education, or
professional subscriptions. Charitable donations and union/ professional fees
remain separately claimable on top, so they don’t need to be weighed against
the $1,000 instant tax deduction choice.
Working Australians Tax Offset
BUDGET MEASURE: A new $250 permanent tax offset for
income from work, from the 2027–28 income year, lifting the effective tax-free
threshold to $19,985 (or $24,985 with LITO).
Key points
The impact of this measure is to effectively increase the
tax-free threshold for work income by $19,985, or up to $24,985 when combined
with the Low Income Tax Offset. The Treasurer has called it the largest
permanent increase in the effective tax-free threshold since 2012–13.
A FEW POINTS WORTH NOTING:
•
It’s automatic, meaning no claim is required on
the return.
•
Limited to work income (wages, salaries, and
sole trader business income). Investment income, trust distributions, and
company dividends don’t qualify. This is consistent with the budget’s broader
shift in tax weight from labour toward capital, paired with the negative
gearing and CGT reforms.
•
It’s a non-refundable offset, so it reduces tax
payable but doesn’t generate a cash refund of its own. 97% of the 13 million
eligible workers are expected to receive the full $250, and the remaining 3%
are very low earners whose tax bill is already below that.
•
The first cash impact lands when 2027–28 returns
are lodged from mid-2028.
Worth being precise with clients: the WATO stacks with the
legislated rate cuts (16% → 15% from July 2026, then 14% from July 2027), the
$1,000 instant tax deduction, and the existing LITO. The government’s “five tax
cuts” headline figure combines all of these — the WATO alone is a modest $250.
Superannuation – no changes
No super changes were announced in this Budget. Keep in mind
that from 1 July, already legislated changes such as the Division 296 tax on
balances above $3m and Payday Super start. So “no new changes” doesn’t mean
that nothing changes on 1 July.
Superannuation funds (including SMSFs) are explicitly
excluded from both the new CGT regime and the negative gearing restrictions on
residential property. This widens an already meaningful gap:
•
SMSFs retain the one-third (33.3%) CGT discount
on assets held over 12 months. Combined with the 15% accumulation-phase rate,
that’s an effective CGT rate of around 10% on long-held assets and 0% in the pension
phase. Keep in mind the new Division 296 tax on higher super balances can
change this. Outside super, the new regime delivers a minimum 30% on real gains
for individuals and most trusts.
•
SMSFs can continue to fully deduct losses on
both new and established residential property against other fund income. This
is a structural advantage now unavailable to individuals buying established
property after Budget night.

