The May 2026 budget — what is actually on the table?

The May 2026 federal budget proposes a series of tax changes that could affect individuals, property investors, small business owners, discretionary trusts and employers.

Several of the larger measures are proposed changes. They should be taken seriously, but they should not be treated as settled law until legislation is passed and final guidance is available.

The proposals attracting the most attention relate to negative gearing, capital gains tax and discretionary trusts. If legislated as announced, the rules could change how some investment losses are claimed, how capital gains are taxed, and how income distributed through discretionary trusts is treated.

There are also measures aimed at individuals, including a proposed instant deduction of up to $1,000 for work-related expenses and a proposed $250 Working Australians Tax Offset. These are simpler, more practical measures, but the details still matter, especially around eligibility, timing and interaction with normal deduction claims.

For employers, Payday Super is a more immediate operational issue. From 1 July 2026, employers will need to align superannuation guarantee payments with employee pay cycles rather than the traditional quarterly payment rhythm. This is not just a tax issue. It affects payroll systems, cash flow timing, super clearing processes and internal administration.

What does this mean for you?

If you are a PAYG individual with straightforward tax affairs, the most relevant items may be the proposed instant deduction, the proposed tax offset, and your normal EOFY tax return preparation.

If you own an investment property, hold shares, operate through a trust, or have built wealth through long-held assets, the proposed CGT and negative gearing changes are more material. This does not mean you need to act immediately, but it does mean your structure and future plans may need review.

If you run a business and employ staff, Payday Super should be on your radar now. It is a systems and cash flow change, not something to leave until the first pay run after 1 July.

Our approach is to monitor the final rules, avoid unnecessary panic, and contact affected clients individually where a personal review is needed. Broad tax updates are useful, but the real value is in applying the rules to your situation.

If you are unsure whether these proposals affect you, book a 15-minute consultation call here and we will point you in the right direction.

Proposed changes to negative gearing: what property investors should watch

The May 2026 federal budget proposes changes to negative gearing for residential property investments. The proposal is that, from 1 July 2027, negative gearing deductions would be limited for residential property investments, with different treatment expected for new builds compared with established dwellings.

Negative gearing currently allows eligible investment losses to be offset against other income, such as salary and wages. Under the proposed model, the ability to claim those losses against non-property income would be restricted for some future residential property investments.

The ATO has stated that the measure is not yet law. That distinction matters. Until legislation is finalised, investors should avoid rushing into purchase, sale or refinance decisions based only on headlines.

If you own one investment property, the practical issue is whether your current property would be protected under transitional rules, and how future purchases may be treated. For many single-property investors, the main action is not to panic, but to understand your current cash flow, loan structure and likely holding period.

If you own multiple investment properties, the issue is broader. You may need to consider how future acquisitions are structured, whether properties are positively or negatively geared, and whether the portfolio still supports your long-term wealth strategy if deductions are treated differently.

For business owners using property as part of a broader wealth-building plan, the interaction with CGT, trusts, companies and superannuation may become more important. That does not automatically mean restructuring. It means modelling the alternatives before making decisions.

What should you do now?

Monitor the final rules. Keep records up to date. If you were already planning to buy, sell or restructure investment property, it may be worth reviewing the decision through a tax and cash flow lens before committing.

If you own investment property and want to understand your current structure, book a 15-minute consultation call here.

Proposed CGT changes: why this may matter for investors and business owners

Capital gains tax is one of the most important areas to watch from the May 2026 budget.

The budget proposes replacing the current 50% CGT discount for individuals, trusts and partnerships with a different system involving inflation-based indexation and a minimum 30% tax rate on capital gains. The ATO has stated that the measure is not yet law.

Under current rules, many individuals and trusts can access a 50% CGT discount where an eligible asset has been held for at least 12 months. If the proposed change is legislated as announced, that broad discount would be replaced for most cases by an indexation-style approach, where inflation is taken into account in calculating the taxable gain.

The important practical difference is that indexation is not the same as a flat 50% discount. A flat discount reduces the taxable gain by a set percentage. Indexation adjusts the cost base for inflation, which may produce a very different tax outcome depending on how long the asset has been held, how much it has grown, and the inflation rate over the holding period.

The proposal also refers to indexation applying to gains, not losses. This detail matters because it may affect how taxpayers think about timing, asset selection and future disposal decisions.

For many clients, the most sensitive area will be long-held assets. This may include investment properties, share portfolios, units in trusts, business interests, or other assets that have grown significantly over time. If the rules are legislated with transitional arrangements, valuations before the new rules apply may become relevant for some clients. We are not recommending that every client rush out and obtain a valuation now. Once final rules are clearer, we will contact affected clients individually.

There have also been recently announced concessions for small business and innovative businesses, including proposed changes to soften the impact for some business owners and start-up stakeholders. This is important and should not be buried in the fine print. If you are a small business owner, founder, or investor in a growth business, the concessions may significantly affect how the broader CGT proposal applies to you.

For individual investors, the takeaway is simple: do not assume the old 50% discount will always apply in the same way to future gains if the proposal becomes law. For business owners, the issue is more strategic. CGT interacts with business structure, succession planning, sale timing, small business concessions and trust distributions.

What should you do now?

Do not make rushed decisions. Keep asset records clean, especially purchase dates, purchase costs, improvement costs and ownership details. If you are already considering selling a major asset, restructuring a business, admitting investors, or transferring ownership, get advice before acting.

If you are planning to sell a major asset or restructure a business, book a 15-minute EOFY consultation call here before making the decision.

Proposed discretionary trust changes: what family trust clients should understand

Discretionary trusts, often called family trusts, are commonly used by small business owners, investors and families for flexibility, asset protection and tax planning. They are not automatically “tax avoidance” structures. Used properly, they are a legitimate and common part of Australian business and family wealth planning.

The May 2026 budget proposes a minimum 30% tax rate for discretionary trusts from 1 July 2028, with some exceptions and transitional support.  The proposal is not something to ignore, but it also should not be treated as a reason to immediately unwind a trust.

Under current arrangements, trust income is generally distributed to beneficiaries and taxed in their hands, subject to the trust deed, tax law and anti-avoidance rules. If legislated as announced, the proposed trust-level tax may reduce the benefit of distributing income to lower-tax beneficiaries in some circumstances.

A common strategy for some business owners is the use of a “bucket company”. In simple terms, this is a company that receives trust distributions and pays tax at the company tax rate, with the funds often retained for business or investment purposes. The proposed trust changes could affect how attractive this strategy remains, depending on the final rules and interaction with company tax, Division 7A and retained earnings.

Alternative structures may become more attractive for some clients. Companies may provide clearer tax treatment for retained business profits. SMSFs may remain useful for long-term wealth creation where appropriate and where the trustee responsibilities are understood. However, these are not simple swaps. Each structure has different legal, tax, asset protection, cash flow and compliance consequences.

For business owners trading through a discretionary trust, the right question is not “Should I close the trust?” The better question is: “Does my current structure still suit my income, asset protection, succession and wealth-building goals if the proposed rules become law?”

What should you do now?

Monitor the final rules. Make sure your trust deed, beneficiary details, distribution minutes and company arrangements are properly maintained. We will review affected business and trust clients as clearer guidance becomes available.

If you trade through a discretionary trust and have any questions, book a 15-minute consultation call here.

Two small wins for individuals: proposed instant deduction and tax offset

Not every budget measure is complex. Two proposed items are aimed at making tax time a little easier for many individual taxpayers.

The first is a proposed instant tax deduction of up to $1,000 for work-related expenses from the 2026–27 income year. The purpose is to simplify claims for many workers, especially those with relatively straightforward work-related expenses.

The second is a proposed $250 Working Australians Tax Offset. This is intended to provide targeted tax relief for eligible workers, subject to final eligibility rules and timing.

If you are a PAYG employee with basic work-related expenses, these measures may make tax time simpler. However, “simpler” does not mean records no longer matter. Until final ATO guidance is available, you should continue keeping receipts, invoices and records for work-related expenses as usual.

If you usually claim more than $1,000 in genuine work-related deductions, the proposed instant deduction may not be the best outcome for you compared with claiming actual deductible expenses. The final rules should clarify how taxpayers choose between the simplified deduction and ordinary substantiation rules.

If you are a business owner, contractor or sole trader, do not assume these measures apply to you in the same way as a salary and wage employee. Your deductions and business expenses may still need to be assessed under the normal tax rules.

What should you do now?

Keep your records. Do not stop using your normal receipt capture process. When the rules are final, we will apply the method that gives the correct outcome based on your circumstances.

When you send us your tax information this year, include your usual work-related expense records as normal.

Payday Super: employers need to prepare their payroll systems.

Payday Super is one of the more practical changes employers need to prepare for.

From 1 July 2026, employers will need to pay superannuation guarantee contributions at the same time they pay employee wages, rather than relying on the current quarterly payment cycle. This is a major timing change for employers, especially businesses that have been using quarterly super payments as part of their cash flow rhythm.

The change affects employers with staff. If you are a PAYG employee, this should generally mean your super is paid more frequently. If you run a business and employ staff, it affects your payroll process, super clearing house arrangements, accounting records and cash flow planning.

The biggest issue is not simply knowing the rule. It is whether your payroll system, bank processes and internal routines are ready. Employers should review payroll software settings, employee super fund details, onboarding processes, clearing house timing, and whether pay runs are being processed accurately.

Cash flow also matters. Moving from quarterly super payments to payday-aligned payments means less room to “catch up later”. Businesses with tight working capital may need to update their cash flow forecast so super is funded each pay cycle.

If you use Xero, MYOB, QuickBooks or another payroll system, make sure your file is clean before the change. Old employee records, missing stapled fund details, incorrect ordinary time earnings settings and manual payroll workarounds can all create risk.

What should you do now?

Employers should review payroll setup before the first Payday Super pay run. Check employee details, pay categories, super settings and payment workflows. This is also a good time to clean up payroll processes generally, rather than only changing one due date.

If you employ staff, ask us about a payroll system review before your first Payday Super pay run.

SMSF property borrowing: a proposed change worth monitoring

Recent reporting indicates that the broader tax reform deal includes a proposed change affecting self-managed super funds that borrow to invest in residential property. The reported change relates to limited recourse borrowing arrangements, commonly known as LRBAs.

In plain English, an LRBA is a borrowing structure that allows an SMSF to borrow money to acquire a specific asset, such as residential property, where the lender’s recourse is generally limited to the asset acquired under the arrangement. This means the loan is structured differently from ordinary personal or business borrowing, because the SMSF’s other assets are generally protected from the lender’s claim if the arrangement defaults.

Based on recent reporting, the proposed change may restrict or remove the ability for SMSFs to use LRBAs for certain residential property purchases in future. At this stage, this should be treated as a reported and proposed change, subject to legislation and final detail. It should not be treated as already passed law.

If you already have an SMSF with property debt, the key question is whether existing arrangements would be protected by transitional rules if the proposal is legislated as announced. Until the legislation is available, it is too early to assume how current SMSF property loans would be treated.

If you are considering using an SMSF to buy property, this proposal may affect how attractive that strategy looks compared with other wealth creation structures. That does not mean an SMSF is unsuitable, and it does not mean property is automatically the wrong investment. It simply means the structure needs to be considered carefully, especially where borrowing is part of the plan.

For business owners and higher-income clients, this may also sit alongside other structure questions, including companies, trusts, personal ownership and superannuation more broadly. The right structure depends on purpose, risk, cash flow, retirement goals and compliance responsibilities.

What to do now

Monitor the development. Avoid rushing into an SMSF structure or property loan based on headlines alone. We will contact affected clients individually once legislation and transitional rules are clearer.

Book a 15-minute consultation call here if you have an SMSF property loan or are considering one.