The 2026 Federal Budget delivered a number of announcements consistent with the Government’s wealth redistribution narrative. This included proposed changes to Capital Gains Tax (CGT), negative gearing, and the laws relating to the taxation of discretionary trusts. These Budget measures will potentially impact how you structure your medical business and your investments, how much you can borrow from a financing perspective, and your long-term wealth creation.

The Pilot team have prepared a summary of the key tax announcements and other measures that will potentially impact the medical community.

Major Tax Reform

R.I.P. Discretionary Trusts

The Labor Government has launched a full-scale attack on discretionary trusts in this Budget to “improve the fairness of the tax system and help fund new tax cuts for workers”, whilst raising $4.5 billion over the forward estimates. Make no mistake about it, this is a raid on the perceived wealthier members of our society, but its impact will be far greater than the Government is saying, especially for small business owners.

From 1 July 2028, trustees will pay a minimum tax of 30% on the taxable income of discretionary trusts. Beneficiaries (apart from corporate beneficiaries) will then receive non-refundable credits for the tax payable by the trustee of the trust. The Budget papers lack detail, so we will need to wait to find out the specifics of this.

This is a massive change that will impact the more than 800,000 discretionary trusts in Australia, including those utilised by medical business owners and other medical professionals.

No longer will the income of the trust be able to be distributed to business owners with it being taxable in accordance with the marginal tax rates – instead they are subject to a minimum tax rate of 30%.

These changes will not apply to the following trusts:

• Fixed and widely held trusts (including fixed testamentary trusts);
• Complying superannuation funds;
• Special disability trusts;
• Deceased estates; and
• Charitable trusts.

Whilst the Government has dished out an almighty headache for trustees and beneficiaries, it has announced that there will be expanded CGT rollover relief available for 3 years from 1 July 2027 to support small businesses and others wishing to restructure out of discretionary trusts to companies or fixed trusts. The specifics of this are not yet available.

We anticipate that this announcement effectively will result in the decreased use of trusts as a structuring option from Budget night. Welcome to the age of the company.

Capital Gains Tax: The 50% discount phased out and minimum tax introduced

One of the most significant measures announced in this year’s Federal Budget is a major overhaul of the CGT system. At the centre of this reform is the removal of the long-standing 50% CGT discount and introduction of a 30% minimum tax on capital gains for individuals, partnerships and trusts.

Overall, this is a structural shift in the tax system rather than a temporary adjustment. It will have a meaningful impact on long-term investment planning and should be factored into future strategy discussions.

Revival of indexation

Under the “new” rules, the Howard Government’s 50% discount will be replaced from 1 July 2027 with an inflation indexation model, similar to the system in place prior to 1999 (introduced by the Keating Government in 1985 when CGT was born). Rather than applying a flat discount, capital gains will now be adjusted to account for inflation over the ownership period.

As an example, on 1 July 2033, Taylor sells her shares in ABC Pty Ltd for $7,000. The shares were originally purchased on 1 July 2027 for $5,000. Indexation applies to uplift the cost base to $5,798 (2.5% annual inflation), resulting in a net capital gain of $1,202.

For long-term investors, the outcome may be more balanced than it initially appears. In higher inflation environments, indexation can deliver comparable, and at times more favourable, results than the previous discount system.

Where the asset performs in line with inflation (2.5% rate of return), a tax saving will arise under indexation as it effectively uplifts the cost base to the sale price – indicating the real return to the investor was not better or worse than simple inflation throughout ownership.

High-growth assets (particularly held for long-term) will most certainly wish for the days of the discount. For shorter-term investors, the change is also likely to be less forgiving.

Minimum tax rate

As well as indexation, capital gains will also be subject to a minimum tax rate. Broadly, capital gains realised from 1 July 2027 will now be subject to a minimum 30% tax rate (excluding Medicare levy). Thus, if the indexed capital gain is not otherwise taxed at 30%, a top-up tax will be required to be paid by the taxpayer.

This will have a significant impact on taxpayers managing their tax affairs with the view to deferring capital gains to years where marginal tax rates are low – largely removing the benefits of such tax planning strategies.

Pre-CGT assets targeted too

Perhaps one of the most shocking revelations is the announcement that pre-CGT assets will also be included in the changes. That is, pre-CGT assets will be brought into the CGT net – transitionally of course.

Transitional period

Importantly, the changes apply on a partially grandfathered basis – gains accrued up to the date of implementation will still be eligible for the existing 50% discount, while gains moving forward will be taxed under the new indexed approach.

What does this look like? Assets sold prior to 1 July 2027 will be grandfathered under the current regime, and no changes will apply. Assets purchased after 1 July 2027 will be fully within the new system – indexation will apply (for assets held more than 12 months) and taxpayers will need to consider the 30% minimum tax rate thereon.

The transitional period then applies for assets purchased prior to 1 July 2027 but sold afterwards. Broadly, the eventual realised gains will need to be apportioned for gains before and after that date (let’s call it pre- and post-indexation for simplicity).

So how do taxpayers mark that line on 1 July 2027? Whilst valuations (of course!) can be key here, the Government has also alluded to an alternative “specified apportionment formula” (and it appears the taxpayer will have a choice as to which method to adopt). “The ATO will provide tools to estimate this value for taxpayers” says the Government fact sheet on this – watch this space.

And what about pre-CGT assets? Yes, these transitional arrangements will apply to assets purchased before 20 September 1985. Broadly, gains up until 1 July 2027 will continue to be exempt, and then post-indexation gains will be brought back into the CGT tax net same as for all other assets.

From a compliance perspective, record-keeping and tracking requirements will certainly increase. This adds an extra layer of complexity and potentially risk, especially for long-held investments.

What assets are impacted?

These changes will broadly apply to all eligible CGT assets, including properties and shares.
However, taxpayers who buy new residential properties will be able to choose either the 50% discount, or indexation and the minimum tax rate, on the eventual sale.

Who will this apply to?

The proposal will apply to individuals, partnerships and trusts who have held the relevant assets for at least 12 months. It is currently understood that no changes will apply to superannuation funds and companies, who will retain their 33 1/3% and 0% discounts respectively, and no indexation or minimum taxes will apply. There are also carve-outs for the 30% minimum tax rate for recipients of means-tested income support payments (e.g. the Age Pension or JobSeeker). No such similar carve-outs appear to apply to the move to indexation.

There have been no mentions (yet) of touching the main residence exemption.

Negative Gearing: Curtailed, not scrapped

The Budget has also introduced changes to negative gearing on residential property, although the measures stop short of abolishing it altogether. The Government has adopted a more targeted approach, designed to direct investment towards new builds.

From 1 July 2027, losses from established residential properties will only be deductible against rental income or capital gains resulting from the sale of residential properties. Any excess rental losses will be carried forward and will be able to be offset against residential property income in future years. These changes will apply to established residential properties acquired from 7:30pm (AEST) on 12 May 2026. However, eligible new builds will not be subject to these restrictions. All existing investments (as at Budget night) have been fully grandfathered meaning owners can continue to access negative gearing benefits under the existing rules until the property is disposed of.

Widely held trusts and superannuation funds have been specifically excluded from the new rules, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs.

Personal Taxation

Personal Tax Changes: Modest and familiar

The Federal Budget has targeted Australian tax resident workers with trivial tax relief measures including the $250 Working Australians Tax Offset (WATO), pitched as cost-of-living relief for all working taxpayers. The permanent, annual offset will apply from 1 July 2027 and cover income from employment and sole trader business income.

Additionally, for the second year in a row, the Government has announced that the Medicare Levy exemption thresholds will be increased retrospectively from 1 July 2025.

Delivering on an election promise, the Budget confirms a $1,000 standard deduction for work-related expenses. Eligible individuals can claim the deduction without incurring or substantiating expenses, provided they derive “assessable labour income” (including income subject to PAYG withholding, even if no tax is withheld). Taxpayers with work related expenses above $1,000 can still claim deductions under the usual rules. Other deductions, such as charitable donations and union or professional fees, remain claimable on top of the standard deduction.

Business Taxation

Loss carry-back rules

The Treasurer has confirmed the return of a loss carry-back scheme. From 1 July 2026, companies with an aggregated global annual turnover below $1 billion may carry back current year losses to apply against tax paid up to two years earlier. The loss carry back will apply to revenue losses and will be limited by a company’s franking account balance, providing many with access to significant refunds on past taxes paid, a welcome boost to cash flow for businesses.

Deduction Certainty for Small and Medium Businesses

Instant Asset Write-Off (IAWO)

Under the IAWO, small business entities (SBEs) with an aggregated turnover of less than $10 million can claim an immediate deduction for the business use portion of new depreciating assets acquired and improvements to existing assets.

From 1 July 2026, the $20,000 threshold from recent years will be made permanent in the legislation. SBEs that have previously opted out of the simplified depreciation regime will be allowed to re-enter by 30 June 2027 and access the IAWO rules. This will allow SBEs to better understand their tax position and plan new asset purchases with certainty.

Pay As You Go (PAYG) instalments

Another change of note is the “modernisation” of the Pay As You Go (PAYG) instalment system. From 1 July 2027, small and medium businesses can opt in to reporting and paying their PAYG instalments monthly using an ATO-approved calculation method within accounting software. For businesses with a history of non-compliance, the new monthly reporting and payment frequency will be mandated by the ATO.

Research & Development Tax Incentive (R&DTI) gets a makeover

In a move aimed squarely at lifting productivity and courting business support, the Government has proposed an overhaul of the Research and Development Tax Incentive (R&DTI). With the rules last updated in July 2021, this is a relatively low-friction reform area for the Government.

Refundable loss tax offset

Start-up companies will be able to benefit from the loss refundability measure. From 1 July 2028, start-up companies with an aggregated annual turnover below $10 million will gain access to a limited refundable loss tax offset in their first two years of operation. The offset will be limited to the value of the PAYG withholding and fringe benefits tax paid in respect of Australian employees in the loss year. This measure may drive change, with founders moving to pay themselves a wage to benefit from the offset.

Electric Vehicles: Incentives trimmed, not eliminated

The Federal Budget has revisited the tax treatment of electric vehicles (EVs), with the Government opting to scale back, rather than remove, the existing incentives.

The previously generous fringe benefits tax (FBT) exemption for EVs has been tightened, with a phased reduction now applying for eligible EVs above certain value thresholds. This effectively narrows the benefit for higher-end EVs. The changes are as follows for the FBT years ending:

• 31 March 2028 and 2029:
• Full discount for EVs costing $75,000 or less to continue.
• EVs costing more than $75,000 but less than the luxury car tax threshold will receive a 25% discount on their payable FBT.
• 31 March 2030 onwards – all EVs below the luxury car tax threshold will receive a 25% discount on payable FBT.

Transitional arrangements have been included for clients who already have EV novated leases.

These changes mean that while EVs remain tax-effective, the advantage is no longer as pronounced, especially for high income earners.

International Taxation

Another Budget, more changes for Foreign Residents

With a continual eye on boosting Australia’s housing supply, the Government is proposing an extension of their ‘temporary’ ban on foreign persons (including temporary residents and foreign-owned companies) from purchasing established residential dwellings to 30 June 2029.

Superannuation

New Super Tax Rules (Division 296 starts 1 July 2026)

As first announced in the 2023-2024 Federal Budget, the changes to tax on superannuation earnings, aka ‘Division 296 tax’ have now been legislated. This was another measure introduced with an eye on intergenerational wealth equity. Broadly, the changes increase the effective tax rate on superannuation balances above $3 million and $10 million by 15% and a further 10% respectively. These changes will take effect from 1 July 2026. However, affected individuals with self-managed superannuation funds (SMSFs) in particular will need to consider the impact of these changes on their investment strategies and liquidity within the fund, as well as the potential impact of elections to reset the cost bases of assets held by SMSFs at 30 June 2026.

Other Medical-related Measures

• Major investment in child health: $2 billion over five years for the Thriving Kids program, including $126.1 million for three-year-old health checks and expanded assessments
• $119.3 million to extend the Practice Incentives Program (PIP) Quality Improvement Incentive to 2028
• $1.8 billion+ to make Medicare Urgent Care Clinics (UCCs) permanent
• $598.3 million to further develop and enhance My Health Record
• $79+ million to states and territories for national digital health reforms
• $5.9 billion for new and amended PBS listings, including COVID-19 treatments
• Expansion of the National Immunisation Program to cover RSV vaccines for Adults aged 75+ and Aboriginal and Torres Strait Islander people aged 60+
• $1.7 billion over five years for NDIS reforms, including payments system upgrades
• $200,000 funding to establish a Ministerial Expert Panel on Women’s Health

Contact Pilot

To discuss how the Federal Budget might impact you, contact Angela Stavropoulos, Kristy Baxter or your Pilot advisor via email to taxmed@pilotpartners.com.au or call us on (07) 3023 1300.