Federal Budget 2026-27 changes – Loss Carry Back

Permanent Loss Carry-Back for Companies from 1 July 2026

The 2026-27 Federal Budget introduced a significant change for companies that experience a temporary downturn or make investments that result in a tax loss.

The loss carry-back rules have now been permanently reintroduced from the 2026-27 financial year, allowing eligible companies to use current-year tax losses to obtain a refund of tax paid in either of the pervious two income years. 

What is loss carry-back?

Normally, when a company makes a tax loss, that loss is carried forward and can potentially be used to reduce taxable income in a future year.

Loss carry-back works in the opposite direction.

Under the new rules, an eligible company that makes a tax loss can choose to carry some or all of that loss back against tax paid in one or both of the previous two income years.

Rather than amending the company’s earlier tax returns, the company receives a refundable tax offset in its current year tax return.

When does it apply?

The new rules apply to income years commencing on or after 1 July 2026.  

This means companies with a standard 30 June year-end can first access the new rules when preparing their 2027 company tax return.

Importantly, unlike the temporary loss carry-back rules introduced during COVID-19, the new measure has been introduced on an ongoing basis rather than being limited to particular financial years.

How far can losses be carried back?

A tax loss can be carried back against the company’s income tax liability for either or both of the two immediately preceding income years.

For an income year to qualify, the company must have had an income tax liability in that year.

How much can be refunded?

The loss carry-back benefit is provided as a refundable tax offset.

The refund cannot exceed the tax paid in the previous year and the company’s franking account balance at the end of the loss year.

This means if the company has already paid a franked dividend to shareholders (and therefore has passed on the tax credit), it cannot then receive a refund of the tax paid.

Why is this important for business?

This measure can provide significant cash-flow benefits for businesses whose profitability fluctuates from year to year.

Instead of waiting until the company returns to profitability before receiving any benefit from its tax losses, the loss carry-back provisions can potentially convert those losses into an immediately cash refund of tax previously planned.

Planning opportunities

The reintroduction of permanent loss carry-back makes year-end tax planning increasingly important for companies.

Where a company has paid significant tax during the previous two years but expects its current year taxable income to fall substantially, consideration should be given to whether legitimate expenditure or planned investment should occur before year-end.

The availability of the loss carry-back offset may affect decisions around timing of:

  •  asset purchases
  • repairs and maintenance
  • employee bonuses
  • deductible business expenditure; and
  • other significant investments.

However, the company’s franking account position will also need to be considered, as paying franked dividends can reduce the amount of loss carry-back refund ultimately available.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Federal Budget 2026-27 changes – Negative Gearing

Negative Gearing Changes from 1 July 2027 - What Property Investors Need to Know

Significant changes to the taxation of residential investment properties were announced as part of the 2026-27 Federal Budget and have how been legislated.

The Treasury Laws Amendment (Tax Reform No 1) Act 2026 received Royal Assent on 26 June 2026.  The changes to negative gearing will apply from the 2027-28 financial year, commencing 1 July 2027.

The changes are designed to restrict the ability to negatively gear established residential properties while continuing to provide the existing tax treatment for new housing. 

What is changing?

Currently, if the deductible expenses associated with a rental property (interest, rates, insurance, repairs, depreciation etc) exceed the rental income received, the resulting rental loss can generally be deducted against an investor’s other assessable income.

This commonly allows an investor to offset a rental property loss against salary and wages, business income or other investment income.

From 1 July 2027, this treatment will change for certain residential properties.

For affected properties, where the rental property deductions exceed rental property income, the excess loss will no longer be available to reduce unrelated income such as salary and wages.

Instead, the loss will be quarantined for use against residential property income and certain residential property capital gains.  Any amount that cannot be used will generally be carried forward for use in a future income year.

Existing investment properties grandfathered

Importantly, the changes do not apply to residential properties already held before the Budget announcement.

Properties acquired before 7:30pm AEST on 12 May 2026 will continue to receive the existing negative gearing treatment.

This means investors who owned an investment property before that time can continue to offset qualifying rental losses from that property against their other assessable income, including salary and wages, after 1 July 2027.

For properties purchased under a contract, the legislation treats the property as acquired when the contract was entered into.  Accordingly, a contract entered into before 12 May 2026 may qualify for grandfathering even where settlement occurred later.

New residential properties will continue to qualify

The Government has preserved negative gearing for new residential dwellings.  

Where a property satisfies the requirements to be treated as a new residential dwelling, investors will continue to be able to deduct eligible rental losses against their other income.

The policy objective is to encourage investors to direct capital towards the construction of additional housing rather than competing with owner-occupiers for existing properties.

What happens if you buy an established property now?

The 12 May 2026 cut-off date is important.

An established residential property acquired after 12 May 2026 will generally become subject to the new rules from 1 July 2027.

This creates a transition period.  For example, an investor who purchased an established residential investment property in June 2026 may be able to apply the existing negative gearing rules during the 2026-26 financial year.

From 1 July 2027, however, excess deductions for the property will be subject to the new quarantining rules.

Losses are not necessarily lost

The new rules do not simply eliminate deductions associated with an affected residential property.

Rental expenses will continue to be deductible up to the amount of relevant residential property income.

Where deductions exceed that income, the excess is quarantined rather than being permanently denied.  The quarantined amount may be used against other residential property income, capital gains associated with residential property or future residential property income.

Unused amounts can generally continue to be carried forward.

Can losses from one property offset income from another?

The legislation operates across residential property income, rather than simply quarantining losses property-by-property.

This means income from one residential investment property may potentially absorb losses arising from another affected residential property.

The legislation also contains rules allowing income from grandfathered or otherwise exempt residential properties to reduce a quarantined residential property loss in certain circumstances.

The practical operation of these rules will therefore become particularly important for investors who own multiple properties acquired at different times.

What should property investors do?

There is no immediate need for existing property investors to restructure simply because of these changes.

However, anyone considering purchasing a residential investment property should take the new rules into account when modelling the investment.

In particular, the tax benefit previously associated with purchasing a negatively geared established property may be significantly reduced from 1 July 2027.

What does this mean for you?

These changes represent a significant shift in the tax treatment of residential property investment in Australia.

Existing investors are largely protected, but the tax consequences of purchasing an existing investment property after 12 May 2026 have changed substantially.

If you are considering purchasing, selling or restructuring a residential property investment, we recommend obtaining advice before proceeding so the negative gearing and CGT implications can be considered together.

If you would like to discuss the tax implications of the budget proposals, please call us on (07) 56656469.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Federal Budget 2026-27 changes – CGT

On 12 May 2026, Federal Treasurer Jim Chalmers announced sweeping changes to the Australian tax landscape.  We provided a summary of those announcements in an article published immediately after the budget.  However, we will now also publish separate articles for the each of the changes to keep you updated on the status of each. 

Capital Gains Tax Changes from 1 July 2027

The 2026-27 Federal Budget announced some of the most significant changes to Australia Capital Gains Tax (CGT) system in decades.

These changes have now been legislated.

The Treasury Laws Amendment (Tax Reform No.1) Act 2026 received Royal Assent on 26 June 2026, with the key CGT reforms taking effect from 1 July 2027.

The changes will affect individuals, trusts and partnerships holding assets such as investment properties, shares, business interests and other CGT assets.

The 50% CGT discount is being replaced

Under the current rules, individuals and trusts can generally reduce a capital gain by 50% where a CGT asset has been held for at least 12 months.

For CGT events occurring on or after 1 July 2027, this general 50% CGT discount will be removed and replaced with a system of cost base indexation.

Rather than simply reducing the taxable capital gain by 50%, the cost base of an asset will be adjusted for inflation.  CGT will then broadly be calculated as the increase in the value of the asset above inflation.

For example, if an investment was acquired for $500,000 and its indexed cost base at the time of sale is $600,000, a sale for $800,000 will result in an indexed gain of $200,000.

This is fundamentally different from the existing CGT discount system and could produce significantly different tax outcomes depending on how much an asset increases in value and the rate of inflation during the ownership period.

Indexation will generally be available to Australian resident individuals and trusts where the relevant eligibility requirements are met.

Assets already owned at 30 June 2027

Importantly, the new rules do not simply apply the indexation system to an asset’s original purchase price.  

Transitional provisions apply to assets held at 30 June 2027.

Broadly, for assets held at 30 June 2027, you can apply the capital gains tax discount up to 30 June 2027 and then indexation after that date.  The calculation will be based on the market value of the asset as at 1 July 2027.  As such, valuations as at 1 July 2027 will become important for many taxpayers.

The transitional provisions are continuing to be developed by Treasury.  

For taxpayers with property portfolios, shares in private companies or business interests, it will be important to identify assets that may require valuation as at 1 July 2027.

It is important to note that the valuation needs to be as at 1 July 2027 – not before.  While you can obtain a retrospective valuation, you cannot get a prospective valuation.  It may be straightforward to obtain a property valuation retrospectively (even several years after 1 July 2027).  However, it may be more difficult to obtain a retrospective business valuation as records and comparative are harder to come by as more time passes.

A new 30% minimum tax on capital gains

Another significant change is the introduction of a 30% minimum tax on capital gains made by Australian resident individuals from 1 July 2027.

This is particularly significant for taxpayers who may previously have planned to realise a large capital gain in a year in which they had little other taxable income – for example, after retirement.

Under the new system, having a low marginal rate will not mean that the capital gain is taxed at that lower rate.

Certain taxpayers receiving specified income-support payments are excluded from the minimum tax.

Pre-CGT assets will no longer remain permanently exempt

Assets acquired before 20 September 1985 have historically been referred to as “pre-CGT assets” and have generally remained outside the CGT system.

That treatment will end from 1 July 2027.

Capital growth accruing before 1 July 2027 will continue to be tax-free, but growth arising after that date can become subject to CGT.

This will be particularly relevant for long-standing family businesses, farms, commercial properties and shares in private companies that have been held since before the introduction of CGT.

Again, establishing appropriate values around 30 June 2027 may become extremely important.

Special treatment for new residential property

The Government has retained more favourable CGT treatment for certain new residential dwellings.  Eligible investors may be able to choose between the existing 50% CGT discount or cost base indexation.  This means that the removal of the 50% discount does not necessarily apply to every residential property acquired or sold after 1 July 2027.

Small business CGT concessions remain

The existing small business CGT concessions have been broadly retained.

These include the: 

  • 15 Year Exemption
  • 50% active asset reduction
  • Retirement exemption; and
  • Small business rollover.

There has also been an important expansion to the 50% active asset reduction.

From the 2027-28 income year, the aggregated turnover threshold relevant to accessing this particular concession increases from $2 million to $10 million.

This could increase the number of business owners able to access the 50% active asset reduction when selling active business assets.

Importantly, the increased $10 million threshold applies specifically to the 50% active asset reduction.  It does not increase the existing turnover threshold for all the other small business CGT concessions.

What should taxpayers be doing now?

The new rules do not commence until 1 July 2027, so there is time to prepare.

However, for taxpayers holding significant assets, the period between now and 30 June 2027 should be used to review existing structures and investments.

In particular, consideration should be given to:

  •  assets currently eligible for the 50% CGT discount;
  • investment and commercial properties;
  • shares and units in private companies and trusts;
  • pre-CGT assets acquired before 20 September 1985;
  • businesses that may be sold or transferred in coming years;
  • succession planning arrangements;
  • existing capital losses; and
  • the availability of the CGT small business concessions.

The changes do not necessarily mean that assets should be sold before 1 July 2027.  The appropriate outcome will depend heavily on the individual asset, its cost base, current market value, expected future growth and the taxpayer’s circumstances.

However, the tax consequences of selling an asset before and after 1 July 2027 may now be very different.

Planning before 30 June 2027 will be important

These reforms represent a major change to the way Australian individuals and trusts are taxed on investment and business assets.

Although the new rules commence from 1 July 2027, the decisions and valuations made before that date could affect tax outcomes for many years afterwards.

Over the coming months, we will be reviewing the potential impact of the new CGT rules for affected clients, particularly those with substantial investment assets, business interests and long-held or pre-CGT assets.

If you are considering selling, restructuring or transferring a significant asset or business over the next few years, we recommend obtaining advice well before 30 June 2027 rather than waiting until a transaction is underway.

If you would like to discuss the tax implications of the budget proposals, please call us on (07) 56656469.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Federal Budget 2026-27 changes – Trusts

On 12 May 2026, Federal Treasurer Jim Chalmers announced sweeping changes to the Australian tax landscape.  We provided a summary of those announcements in an article published immediately after the budget.  However, we will now also publish separate articles for the each of the proposed changes to keep you updated on the status of each proposal. 

Discretionary Trusts - 30% minimum tax

The 2026-27 Federal Budget included one of the most significant proposed changes to the taxation of discretionary trusts in many years.

Under the proposal, discretionary trusts will become subject to a minimum tax rate of 30% from 1 July 2028.

While discretionary trusts will continue to be available for legitimate purposes such as asset protection, succession planning and operating family businesses, the proposed rules could significantly reduce one of their traditional tax benefits – the ability to distribute income to beneficiaries on different marginal rates.

How will the proposed 30% minimum tax work?

Under the current system, a discretionary trust generally does not pay tax itself where its income is distributed to beneficiaries.  Instead, the beneficiaries include their share of the trust’s income in their own tax returns and pay tax at their applicable tax rates.

Under the proposed new rules, the trustee will be required to pay tax at a minimum rate of 30% on the taxable income of the discretionary trust.

Individual beneficiaries will still include their trust distributions in their own tax returns.  However, they will generally receive a non-refundable tax credit for the tax already paid by the trustee.

In practical terms, this means that distributing income to a beneficiary whose marginal rate is below 30% may no longer provide the same tax benefit that it does under the current rules.

For example, if trust income is distributed to an adult beneficiary who would otherwise pay tax at a rate below 30%, the trustee-level tax would effectively increase the overall tax payable on that income to a minimum of 30%.

Where the beneficiary’s tax rate is higher than 30%, the credit for tax paid by the trustee would generally reduce the beneficiary’s additional tax liability.

What about distributions to companies?

This is potentially one of the most significant areas of concern with the proposal.

The Government has indicated that corporate beneficiaries will not receive a credit for the 30% tax paid by the trustee.

This will have significant implications for the common practice of distributing trust income to a private company (or “bucket company”).

The precise treatment of corporate beneficiaries is one of the issues being considered as part of the Treasury consultation process.

As such, businesses and family groups currently using corporate beneficiaries will need to pay particular attention to the final legislation.

Which trusts will be affected?

The proposed minimum tax is primarily directed at discretionary trusts, commonly referred to as family trusts.

The Government has indicated that a number of trusts and types of income will be excluded, including:

  •  fixed trusts
  • widely held trusts
  • complying superannuation funds
  • special disability trusts
  • deceased estates
  • charitable trusts
  • testamentary trusts established for genuine testamentary purposes
  • primary production income
  • certain income relating to vulnerable minors; and
  • amounts subject to non-resident withholding tax.
The precise definition of a discretionary trust and the operation of some of these exclusions are still being developed.
 

Opportunity to restructure

Recognising that the changes could make discretionary trusts less attractive for some businesses and investment structures, the Government has also proposed expanded rollover relief for three years from 1 July 2027.

The intention is to allow eligible businesses and other taxpayers to restructure from a discretionary trust into an alternative structure, such as a company or a fixed trust, with relief from some of the immediate tax consequences, including capital gains tax.

Importantly, this does not necessarily mean that every discretionary trust should be restructured.

Trusts can provide substantial non-tax benefits, including asset protection, succession planning and flexibility in ownership of family businesses and investments.  There may also be other tax and commercial costs with restructuring including potential transfer/stamp duty and other state taxes.  

The final details of the rollover provisions are also still subject to consultation.

What should you do now?

At this stage, we do not recommend making significant changes to existing trust structures solely because of the Budget announcement.

The Government’s proposal is significant, but the detailed legislation for the 30% discretionary trust tax has not yet been released and a number of important issues remain unresolved.

Once the final legislation is available, existing structures will need to be reviewed individually.  For some taxpayers, continuing to operate through a discretionary trust may remain appropriate.  For others, the proposed three-year restructuring window may provide an opportunity to consider whether a company, fixed trust or another structure is more suitable.

With the proposed restructuring concessions commencing from 1 July 2027 and the minimum trust tax proposed to commence from 1 July 2028, there should be time to carefully assess the options rather than making premature changes.

We will continue to monitor the legislation as it develops and will contact affected clients once there is sufficient certainty to properly assess the impact on their individual circumstances.

If you would like to discuss the tax implications of the budget proposals, please call us on (07) 56656469.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.