Federal Budget Issues - Boating Industry Association

Federal Budget Issues

BIA member Jeff Pfaff of Tax Navigate has considered the recent Federal Budget and offers the following advice: In the Labor government’s first budget since their May 2025 election victory, Treasurer Jim Chalmers made announcements including sweeping changes including to capital gains tax (CGT) and negative gearing deductions, and the introduction of a 30 per cent tax on discretionary trust distributions. The federal budget forecasts a deficit of $31.5 billion for the 2026-27 year. Our key tax-related takeaways from the announced changes in the federal budget are summarised below:

Negative Gearing

From 1 July 2027, the Government will limit negative gearing deductions such that tax losses made in relation to established residential properties cannot be deducted against a taxpayer’s other assessable income. Instead, excess tax losses made in a year will be carried forward for deduction against rental income and capital gains from residential properties in future years.
The announced changes noted above will not apply to properties acquired (for CGT purposes) before 7:30pm on 12 May 2026.
The changes also will not apply to new builds, commercial and industrial properties, properties in widely held trusts and super funds, or investments in other CGT assets such as shares. In addition, there will be targeted exemptions for build-to-rent developments and private investors supporting government housing programs.

Capital Gains Tax

From 1 July 2027, the 50 per cent CGT discount will be replaced by cost base indexation for assets held for at least 12 months, with a 30 per cent minimum tax applicable on all net capital gains.

More info <run the entire copy here in a ghost page>

Income support payment recipients (such as Age Pension recipients) will be exempt from the minimum tax.
The announced changes will apply to all CGT assets (i.e. not just residential property) held by individuals, trusts and partnerships and this includes pre-1985 CGT assets.
Investors in new residential properties will be able to choose to apply either the 50 per cent CGT discount method or the cost base indexation method with the minimum 30 per cent tax.
For post 1985 (post-CGT) assets other than new residential properties:
the 50 per cent discount method will apply to the portion of the gain accruing before 1 July 2027, and
The new indexation method and 30 per cent minimum tax will apply to the portion of the gain accruing from 1 July 2027.
For pre 1985 (pre-CGT) assets:
Gains attributable to the period before 1 July 2027 will remain exempt from CGT;
The new indexation method and 30 per cent minimum tax will apply to the portion of the gain accruing from 1 July 2027.
The method for apportioning gains before and after 1 July 2027 may be based on time or market value at 1 July 2027, but further detail on this is not yet available.
The changes above do not affect:
Main residences, capital gains on these remain CGT exempt,
Non-residents – capital gains on assets that are not taxable Australian property remain CGT exempt;
Small business CGT concessions – these are unchanged, and
Taxation of capital gains made directly by super funds – these remain eligible for the 33.33 per cent CGT discount and no 30 per cent minimum tax rate applies. However, note that capital gains made by trusts (e.g., MITs) into which super funds invest are impacted by the proposed changes and it is unclear if super funds can apply a discount to such gains.

Discretionary Trusts

From 1 July 2028, trustees will pay a 30 per cent minimum tax on the net (taxable) income of discretionary trusts.
Beneficiaries (other than corporate beneficiaries) will receive non-refundable credits for the tax paid by the trustee.
The announced changes above are subject to the following carve-outs:
They do not apply to fixed or widely held trusts, super funds, special disability trusts, deceased trusts, charitable trusts and fixed testamentary trusts.
They do not apply to primary production income, certain income relating to vulnerable minors, amounts to which non-resident withholding tax applies, and income from existing assets of discretionary testamentary trusts.
They do not apply to non-taxable distributions from discretionary trusts.
For small businesses and others that want to restructure out of discretionary trusts into another type of entity (such as a company or fixed trust), roll-over relief from federal taxes will be provided for three years from 1 July 2027.
Given beneficiaries of a discretionary trust will receive a non-refundable credit, any franking credits attached to dividends received by a discretionary trust will not be able to be distributed to investors as a refundable credit.
Further, it is common for discretionary trusts (including family trusts) to distribute income to a corporate beneficiary (often referred to as a “bucket company”). As worded, these announced changes would mean a $100 distribution to a bucket company would be taxed at 51 per cent (i.e. 30 per cent would be taxed in the trust and 30 per cent of the remainder – equating to 21 per cent – would be taxed in the bucket company). Finally, if the remaining $49 of the distribution is paid out as a fully franked dividend by the bucket company to a shareholder on the top marginal tax rate, the shareholder would pay an additional $11.90 of tax. This brings the total tax on the $100 distribution to $62.90 (compared to 47 per cent if there is no discretionary trust)!

Foreign Resident CGT Regime

As announced before the budget, current exposure draft legislation aims to confirm that the foreign resident CGT regime extends to taxing gains made by foreign residents on such things as licence arrangements for data centres, renewable energy assets, substations, rights relating to gas pipelines, mining plant and equipment and water entitlements. This is on the basis that such investments fit within the definitions of ‘real property’ and Taxable Australian Real Property.
The budget announced that the concept of ‘real property’ will be determined by Commonwealth legislation rather than state/territory laws, with effect from 12 December 2006 when the regime was introduced.
In addition, there is a targeted concession from foreign resident CGT for foreign investors disposing of certain renewable energy infrastructure assets from the quarter after Royal Assent until 30 June 2030.
Consultation remains ongoing despite the budget announcement being consistent with the exposure draft legislation.

Personal Tax

Every working Australian taxpayer will be entitled to a $250 tax offset from the 2027-28 income year. For working Australians (including sole traders), this will effectively increase the tax free threshold from $18,200 to $19,985.
The low-income thresholds not subject to the Medicare levy will be increased by 2.9 per cent from 1 July 2025.
Individuals will be able to claim an instant deduction for work-related expenses up to $1,000 without substantiation from 1 July 2026. This is in addition to deductions for charitable donations, union and professional association membership fees and other non-work-related deductions.
There will be a phased reduction of the FBT exemption currently available for battery electric vehicles (EVs) as follows:
For EVs acquired as a fringe benefit after budget night until 31 March 2027, the current full FBT exemption will apply to eligible EVs.
From 1 April 2027 to 31 March 2029, the full FBT exemption will only apply to EVs valued up to $75,000 and a 25 per cent discount will apply to the FBT for EVs costing greater than $75,000 and up to the fuel efficient vehicles luxury car tax threshold (currently $91,387).
From 1 April 2029, the 25 per cent discount will apply to the FBT for EVs costing up to the fuel efficient vehicles luxury car tax threshold.

Notably, all eligible EVs will retain the FBT discount rate that was in place when the arrangement commenced (i.e. there is no change to arrangements which commenced before 7:30pm on 12 May 2026)

Other Announcements Other notable measures announced were as follows:

Loss Carry Back: 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 up to two years earlier.
Start Ups – Loss Refunds: From 1 July 2028, start-up companies with aggregated annual turnover of less than $10 million will be able to utilise a tax loss made in their first two years of operation to generate a refundable tax offset.
Instant Asset Write-off: From 1 July 2026, the government will permanently make available the $20,000 instant asset write-off for small businesses with turnover up to $10 million.
R&D: Changes were announced to the R&D Tax Incentive to make it “simpler” and “better targeted”, but nevertheless the changes are forecast to reduce the overall tax benefit available to claimants from investing in R&D.
Venture Capital (VC): Thresholds enabling access to VC tax incentives will be expanded so that they are more widely available.

NOTE: These announcements are significant. We recommend caution before taking responsive action because these announcements are not yet law and are likely to be refined and/or changed before being passed by both houses of Parliament. Always consult with you Tax professional, as all circumstances are different.

– Jeff Pfaff