Changes to the taxation of trust distributions

From 1 July 2028, trustees of discretionary trusts will be required to pay a minimum tax of 30% on the taxable income of the trust. Beneficiaries other than corporate beneficiaries will receive non-refundable credits for the tax paid by the trustee. Corporate beneficiaries will not receive the credit meaning that they will be double taxed (a total of 55% or 60% tax). This disincentive will affectively stop effected trusts from distributing to companies from the 2029 financial year onwards. 

Fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates, and charitable trusts are not subject to the measure. A number of exclusions apply to certain types of income, including primary production income. 

Income from assets already in testamentary trusts is excluded from the measure but income from assets transferred to testamentary trusts from 12 May 2026 are not. This may impact estate planning considerations for many people. 

The practical effect is a significant increase in the tax cost of distributing trust income to beneficiaries who pay tax at a combined rate below 30%. Where a beneficiary's actual tax liability is less than the credit received, the excess is not refunded. The breakeven point falls at approximately $131,600 of taxable income. 

The Budget confirms expanded rollover relief for three years from 1 July 2027 to support businesses and individuals wishing to restructure out of discretionary trusts into another entity type before the minimum tax takes effect. 

We will be looking at this opportunity to restructure if applicable once the legislation is released.

Individual tax rate changes

The legislated individual tax rates for the next two financial years will be as outlined below: 

Medicare levy low-income threshold changes

The Medicare levy low-income thresholds have been increased by 2.9% from 1 July 2025 to provide relief for low-income individuals and families. The threshold for singles increases to $28,011, and the family threshold increases to $47,238.

Cut to the private health insurance rebate for seniors

The Federal Government has announced its intention to reduce the higher rebate for Private Health Insurance for people 65 and over from 1 April 2027.

Under this proposal, the rebate would be standardised across all age groups. 

If implemented, this change could significantly increase out-of-pocket premium costs for older Australians. 

Instant asset write-off

The $20,000 instant asset write-off has been confirmed as a permanent feature of the tax system for small businesses with annual turnover of less than $10 million, from 1 July 2026. 

The write-off applies on a per-asset basis, allowing eligible businesses to immediately deduct the full cost of assets under the threshold in the year they are first used or installed.

Loss carry-back for companies

From 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid in either of the two previous financial years. 

If your company paid tax in 2024–25 or 2025–26 and subsequently incurs a loss in 2026–27 or later, a cash refund may be available. The carry-back applies to revenue losses only and is limited by your company's franking account balance.

Loss refundability for start-up companies

From 1 July 2028, small start-up companies with annual turnover under $10 million that incur a tax loss in their first two years of operation will be able to convert that loss into a refundable tax offset, capped at the value of FBT and withholding tax on wages paid to Australian employees. 

It is unclear how this will impact on franking account balances once the companies become profitable. 

R&D tax incentive

From 1 July 2028, the R&D Tax Incentive available to companies is being reformed. The offset rates for core R&D expenditure increase by 4.5 percentage points.

The intensity threshold drops from 2% to 1.5% and the turnover threshold for the refundable offset rises from $20 million to $50 million. However, supporting R&D expenditure will no longer be eligible. The minimum expenditure threshold increases from $20,000 to $50,000.

Superannuation

The superannuation sector has escaped major changes in the budget announcements. The changes to negative gearing and CGT do not apply to superannuation funds.  However, there several changes in superannuation that have already been legislated. 

From 1 July 2026, if your total superannuation balance across all funds exceeds $3 million, the earnings attributable to the portion above that threshold will be subject to an additional 15% tax, effectively doubling the tax rate on those earnings from 15% to 30%. This legislation received Royal Assent on 13 March 2026 and is now law. The tax is calculated on the fund's adjusted taxable income. An earlier proposal to include unrealised gains was removed before the legislation passed. 

The transfer balance cap (the maximum amount you can hold in a tax-free retirement phase pension) increases from $2.0 million to $2.1 million from 1 July 2026. The concessional contributions cap for 2027 is $32,500 and the non-concessional contribution cap is $130,000. 

From 1 July 2026, employers are required to pay superannuation contributions at the same time as wages, rather than quarterly. Payroll systems will need to be updated before the changeover date, and contributions must reach the employee's fund within seven business days of each pay date.

Foreign purchases of established dwellings ban extended

The temporary ban on foreign purchases of established residential dwellings has been extended to 30 June 2029. Existing exemptions, including for permanent residents and New Zealand citizens continue to apply. For most clients, this will have no direct impact.

Disclaimer: Unless otherwise noted, the measures set out above are announcements only. There is no guarantee that they will be legislated. We will keep you up to date with key developments in this space.