By Colin Lewis, Head of Strategic Advice, Fitzpatricks Advice Partners
June 2026
On 18 June, the Prime Minister Anthony Albanese announced changes to the government’s budget measures on capital gains tax and discretionary trusts.
The media (and opposition) immediately jumped on this saying the government had backed down and backflipped on its capital gains tax (CGT) reforms.
But had the government really backflipped or was this just a beat up by the press?
1. Capital gains tax reforms
In the Federal Budget, the Treasurer announced that from 1 July 2027 the government will replace the 50 per cent CGT discount for individuals, trusts and partnerships with cost base inflation indexation and introduce a 30 per cent minimum tax rate on capital gains.
This only apply to gains accruing from 1 July 2027.
Investors buying new builds can choose either the 50 per cent CGT discount or inflation indexation and the minimum tax when they sell the property.
New builds are residential properties which genuinely add to supply, including dwellings constructed on vacant land, and existing properties which are demolished and replaced with a greater number of dwellings. Knock-down rebuilds or substantial renovations that don’t increase supply are not eligible.
None of this is changing.
Small business
If you’re a small business owner and sell your business, or business asset, which results in a capital gain, that gain may be reduced, even eliminated, if you can apply the small business CGT concessions.
There are four concessions which remain unchanged.
The first and most generous is the 15-year exemption where the entire capital gain on disposal of a business asset owned for at least 15 years is disregarded, but you must be permanently incapacitated or aged 55 or more and retiring.
If you don’t qualify for this concession, there’s the 50 per cent active asset reduction.
Then there’s the retirement exemption – a reduction up to a lifetime limit of $500,000 (unindexed) in the assessable capital gain. If you’re under age 55, the amount must be contributed to super.
Finally, there’s the rollover relief where the capital gain is deferred when a replacement asset is acquired within the required timeframe.
But first, before any of this, you must satisfy the basic conditions.
Basic conditions
Generally, to qualify, either your aggregated turnover is less than $2 million (you’re a small business entity), or the net asset value of your business and related entities does not exceed $6 million (this excludes personal use assets).
The asset must be an active asset – one used or held ready for use in your business or a related business (including goodwill) – and has been for at least half its ownership or 7.5 years if owned for more than 15 years.
Further conditions apply where the asset being sold is a share in a company or an interest in a trust.
So, what’s changing?
The aggregated turnover threshold under these basic eligibility conditions to qualify as a small business entity is increasing from $2 million to $10 million – making it easier to qualify.
More businesses will qualify for the small business CGT concessions.
In the Federal Budget, the Treasurer said the government will consult on how the CGT reforms interact with existing incentives for investing in early-stage and start-up businesses.
The Prime Minister announced it will introduce new innovative tax concessions for start-up businesses.
Neither of these changes – more like tweaks – could be called a backdown or backflip on its CGT reforms.
2. Discretionary trust reforms
In the Federal Budget, the Treasurer also announced that from 1 July 2028 the government will introduce a 30 per cent minimum tax on discretionary trusts.
This tax will be paid by trustees. Beneficiaries still declare trust income in their tax returns and, except for corporate beneficiaries, receive non‑refundable credits for the tax paid by the trustee.
The minimum tax does not apply to fixed or widely held trusts, super funds, special disability trusts, deceased estates or charitable trusts.
Primary production income, some income relating to vulnerable minors, amounts subject to non‑resident withholding tax, and income of testamentary trusts existing at budget night is also excluded.
So, only income from discretionary testamentary trusts established and in place as at budget night was going to be exempt. Discretionary testamentary trusts established after budget night were going to be caught.
This had massive implications for the estate planning of thousands of people who had written into their will the establishment of a testamentary trust(s) on their death.
So, what’s changing?
Income from all discretionary testamentary trusts will be exempt from the minimum tax, provided they are established for genuine testamentary purposes – great news.
Once the press (and opposition) started calling this out as a new “death tax”, it was inevitable that the government would soften its stance on discretionary testamentary trusts established after budget night.
What else has happened since budget night?
Commenting in the Australian Financial Review (AFR) on the government’s negative gearing reforms, I said “it’s surprising the government didn’t curtail LRBAs along with all the other changes.”
Well, it’s happening.
On 23 June, the government agreed to the Green’s demands to remove the ability for self-managed super funds (SMSFs) to borrow for residential property as a condition of their support in the senate to push through the budget. The Greens have particularly been opposed to limited recourse borrowing arrangements.
The change will not be retrospective and won’t affect existing contracts or those entered into before the measure becomes law.
The ban on SMSFs borrowing to buy residential property takes effect 45 days after the budget bill receives royal assent and the budget bill passed the Senate on Thursday, 25 June.
I cautioned in the AFR “be wary of the property spruikers who will come out of the woodwork on the back of this budget”.
Prohibiting SMSFs from borrowing will hopefully stop this happening.
