Federal Budget tax changes: wins and losses for small business
The 2026-27 Federal Budget has delivered major tax reform, but for SMEs, proposed changes to capital gains tax (CGT) and discretionary trusts are raising questions about the impact on investment and growth.
Treasurer Jim Chalmers said the reforms would make the tax system “fairer and stronger for workers, businesses, first home buyers and future generations”.
The Australian Chamber of Commerce and Industry (ACCI) has warned about the ramifications on businesses.
“The business community is going to be the collateral damage in the government’s attempt to target investment in established property,” said ACCI Acting Chief Executive Officer David Alexander.
“When you reduce the incentive to do business in Australia, there will be less business activity in this country.”
ACCI has urged the Government to reconsider the reforms.
“The CGT measures are aimed at investment in established housing, but the multi-billion-dollar tax impact is also going to hit investment in other businesses across the board,” Alexander said.
“Business start-ups, for example, are a critical part of future innovation and productivity, but the increase in tax on capital gains on these businesses will drive investment away to more favourable destinations.
“In a similar way, the Government’s new multi-billion-dollar tax on trusts is not intended to harm small and medium businesses, but the implementation of it will certainly have that impact.”
Accounting and taxation firm Optima Partners Director Phil Carulli said the changes would be a significant burden on businesses.
“They will also add significant complexity to the way taxes are calculated, adding compliance costs to all businesses,” he said.
The reforms still require parliamentary approval.
READ MORE: Budget explained – tax, property and business changes
Discretionary trusts
Many businesses operate with a trust structure. Profits distributed by a trust to beneficiaries will be subject to a minimum tax rate of 30%, rather than the current model which taxes beneficiaries at the individual marginal tax rates.
“The changes suggest a trust distribution to a company currently attracts a tax of 25% or 30%, but the proposed measures would add an additional 30% tax, meaning the effective tax rate would be 55-60%,” Carulli said.
Carulli said the changes were “punitive, with very vague detail on how they will work in practice”.
“Surely this is a mistake in the Budget papers, but time will tell,” he said.
Restructure costs a ‘double whammy’
With the proposed changes increasing the tax burden on businesses that utilise discretionary trusts, some may be incentivised to consider alternative company structures.
The Budget announced three-year rollover relief (from July 1, 2027) from CGT which would allow businesses to restructure their discretionary trusts into a company. However, such restructures may result in additional taxes including stamp duty depending on the jurisdiction.
“Paying stamp duty on top of being effectively forced into a higher tax structure would be a double whammy for small and medium businesses, when no whammy at all is justified,” Alexander said.
“Restructuring from trusts to a corporate structure would also entail considerable costs through accounting and financial advice.”
Capital gains tax
From July 1, 2027, the existing CGT discount of 50%, which allows eligible individuals and trusts to halve the taxable capital gain on assets held for over 12 months, will be replaced with an inflation index approach that taxes real gains over an asset’s holding period.
The Government also proposed a minimum effective 30% tax rate on net capital gains, alongside the replacement of the 50% CGT discount.
The changes would apply to all capital assets – including shares in a business or the sale of business assets, property – and to individuals, trusts and partnerships.
Changes welcomed by business
The instant asset write-off will be made permanent for businesses with turnover less than $10 million, with the level of expenditure to remain at $20,000.
Businesses with less than $1 billion turnover will be able to carry back a tax loss and offset it against tax paid up to two years earlier as long as:
- Shareholders haven’t drawn the previous profits as dividends, and
- Loss refundability for startups allows a company to convert a loss to a refundable tax offset rather than carrying that loss forward
How businesses can prepare for the changes
Carulli said tax advisors could not provide clarity until these changes were legislated.
“There is a proposal in the Budget that will allow businesses that utilise trust structures to restructure their affairs without capital gains tax consequence, but the WA Government generally doesn’t allow this to occur without transfer duty being applied,” he said.
“This could be very costly for businesses and they will likely require valuations of their businesses to effect these restructures.”
Businesses are advised to ensure they understand their current structure and how the proposed changes would impact them – so you can then be ready take action to restructure once the changes take effect.
For more information on how Optima Partners’ services can help your business, contact the Optima Partners team at [email protected] or
08 6267 2200.
