Hood Sweeney Commentary: Federal Budget 2026-27
A Structural Reset for Investors and Business Owners
The 2026–27 Federal Budget is one of the most consequential in decades for investors, family enterprises and private business owners. While it contains a wide range of measures, three reforms stand out for their scale, reach and long‑term implications:
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the 30% minimum tax on discretionary trusts,
the removal of the 50% CGT discount; and
the restriction of negative gearing for established residential property.
These changes represent a fundamental shift in how Australia taxes wealth, investment and intergenerational assets. They will affect individuals and businesses across South Australia, particularly those who have built wealth through property, family trusts, long‑held assets, or private enterprise structures.
This analysis focuses on the reforms that will have the greatest impact on the majority of Hood Sweeney clients. We are not attempting to cover every measure in the Budget; instead, we are concentrating on the structural changes that will reshape investment behaviour, business planning and succession strategies for years to come.
It is important to acknowledge that these reforms will negatively affect some sectors and many individuals, particularly those in the 30–50 age bracket who are building wealth, investing in property, or moving into business ownership. The Budget materially changes the economics of property investment and significantly increases the tax burden on many long‑held assets.
At the same time, the Budget contains critical exclusions that soften the impact for certain groups and these exclusions must be understood clearly before any decisions are made.
Finally, while the reforms are significant, none of them are law yet, and no immediate action is required. Hood Sweeney will work through the implications with each client individually, including valuations, restructuring opportunities and timing strategies.
The 30% Minimum Tax on Discretionary Trusts
A Structural Change With Critical Exclusions
The introduction of a 30% minimum tax on discretionary trusts from 1 July 2028 is one of the most far‑reaching tax changes in recent memory. It effectively ends the long‑standing flexibility of distributing income across family members to achieve a lower overall tax outcome.
However, and this is essential, the measure is not universal. The Government has carved out several important exclusions that will significantly reduce the impact for many South Australian families and businesses.
Key Exclusions
The 30% minimum tax does NOT apply to:
Fixed and widely held trusts
Complying superannuation funds
Special disability trusts
Deceased estates
Charitable trusts
And importantly, certain types of income are excluded, including:
Primary production income
Income relating to vulnerable minors
Income already subject to non‑resident withholding tax
Income from assets of existing testamentary trusts
For South Australia, with its high concentration of family businesses, farms, vineyards and intergenerational enterprises, these exclusions are significant.
Primary production income being excluded is particularly important for regional and agribusiness clients.
What This Means in Practice
For many clients, the trust structure will remain viable but not in its current form. For others, the economics of a discretionary trust will change materially, and alternative structures (such as companies or fixed trusts) may become more appropriate.
The Government has provided three years of rollover relief from 1 July 2027 to support restructuring. Hood Sweeney will work with clients to assess whether restructuring is beneficial, necessary, or unnecessary.
Capital Gains Tax Reform
The End of the 50% Discount and the Introduction of Indexation
From 1 July 2027, the 50% CGT discount, a cornerstone of Australia’s investment landscape since 1999, will be replaced with cost‑base indexation and a minimum 30% tax on net capital gains.
This is a profound shift. It affects:
Individuals
Trusts
Partnerships
Pre‑1985 assets (if sold after 1 July 2027)
Long‑held investment properties
Commercial property
Business assets
Practice ownership and succession
Farms and vineyards
Intergenerational wealth transfer
Critical Exclusions
The 30% minimum CGT tax does NOT apply to:
Superannuation funds
Income‑support recipients (including Age Pensioners)
And importantly:
Small business CGT concessions remain unchanged
The main residence exemption remains unchanged
Investors in new residential properties can choose
the old 50% discount, or
the new indexation method
What This Means for Investors
The removal of the 50% discount will increase the tax payable on many asset sales, particularly for those aged 30–50 who are building wealth and moving into business ownership or property investment.
It also increases the value of property development businesses, as new builds retain access to the 50% discount.
Timing Matters But There Is No Need to Rush
If you hold an asset today, the 12‑month rule still applies. Gains made before 1 July 2027 retain the 50% discount. There is no need to sell assets prematurely.
Hood Sweeney will work with clients on:
Valuations
Timing strategies
Restructuring options
Succession planning
Intergenerational transfers
Negative Gearing Reform
A Targeted Restriction With Important Clarifications
From 1 July 2027, negative gearing will be restricted for established residential properties purchased after 12 May 2026.
Losses will only be deductible against residential property income, and excess losses will be carried forward not lost.
What Is NOT Affected
This is critical: The Budget does not restrict negative gearing for:
Shares
Managed funds
Commercial property
Business investments
This distinction has been widely misunderstood.
Exclusions
Negative gearing remains available for:
New builds
Properties acquired before 12 May 2026
Widely held trusts
Superannuation funds
Build‑to‑rent developments
Private investors supporting government housing programs
Impact on South Australians
This reform will significantly affect:
‘Mum and dad’ investors
Younger families building wealth
Regional rental markets
Investors holding multiple established properties
It also materially increases the value of new builds, which will benefit developers and property groups.
R&D Tax Incentive Reform
A Significant Shift for Innovative and Growing Businesses
The Budget introduces major reforms to the Research & Development Tax Incentive (R&DTI), with changes commencing from 1 July 2028. These reforms are positioned as a simplification of the program, but in practice they represent a substantial tightening of eligibility and a shift in how innovation‑driven businesses will plan and invest.
Key Changes
Higher offset rates for core R&D activities, increasing the benefit by approximately 25–50% depending on the company’s circumstances.
Reduction of the intensity threshold from 2% to 1.5%, allowing more companies to access premium rates.
Removal of supporting R&D expenditure, meaning only expenditure directly tied to core R&D activities will qualify.
Refundability limited to companies under 10 years old, significantly reducing cash‑flow support for more established innovators.
Turnover threshold for the highest offset increased from $20m to $50m.
Minimum expenditure threshold increased from $20,000 to $50,000.
What This Means for Businesses
These reforms will have mixed impacts:
Companies conducting genuine, high‑intensity R&D may benefit from higher offset rates.
Businesses with broader innovation programs, including software development, process improvement, and applied research, may find that significant portions of their expenditure no longer qualify.
The removal of supporting R&D expenditure moves Australia out of alignment with OECD norms and may reduce the attractiveness of Australia as a location for certain types of innovation.
Start‑ups under 10 years old will continue to benefit from refundable offsets, but older SMEs may lose access to critical cash‑flow support.
For South Australian businesses in advanced manufacturing, defence supply chains, agtech, medtech and digital innovation, these changes will require careful planning to ensure R&D programs remain commercially viable and tax‑effective.
Other High‑Impact Measures
Electric Vehicles (EVs)
The FBT exemption for EVs under $75,000 remains until 2029, after which a 25% discount applies. This remains attractive for salary packaging and fleet buyers.
Loss Carry‑Back for Companies
Permanently reinstated for businesses under $1bn turnover. This will assist companies experiencing cyclical downturns or investing heavily in growth.
Permanent $20,000 Instant Asset Write‑Off
From 1 July 2026, the Government will permanently extend the $20,000 instant asset write‑off for small businesses with turnover under $10 million. This allows eligible businesses to immediately deduct the full cost of assets valued under $20,000, rather than depreciating them over time.
For many South Australian businesses, particularly those in trades, agriculture, professional services and transport, this provides a practical and ongoing incentive to reinvest in productive assets.
What Happens Next
These reforms are not yet law, and no immediate action is required. There is time and Hood Sweeney will guide clients through the implications.
Over the coming months, we will:
Review our client base
Identify who is affected by each reform
Contact clients individually where valuations may be required, restructuring opportunities exist, timing strategies could reduce tax, or succession plans need updating
This is a significant Budget, but it is manageable with the right planning.
If you would like to understand how these changes may affect you please get in touch with your Hood Sweeney adviser or contact us here.