Australia: Australian Federal Budget 2026-2027

In brief

As part of the 2026–27 Federal Budget, the Australian Government has proposed significant changes to the capital gains tax (CGT) regime. These changes will affect the taxation of equity awards, particularly where shares are held for at least 12 months after the employee share scheme (ESS) deferred taxing point.

In particular:

• The removal of the 50% CGT discount and introduction of indexation may materially alter outcomes for employees holding equity awards beyond the employee share scheme (ESS) deferred taxing point
• Start-up concession options may lose a key tax benefit where options or resulting shares are disposed of after 1 July 2027
• Where equity awards are held through discretionary trusts, not only may the CGT discount be unavailable, but the trust may also be subject to a 30% minimum tax.
    

Key takeaways

• CGT changes effective from 1 July 2027
  • The 50% CGT discount for assets held by an individual or trust for at least 12 months will be removed
  • Gains on start-up concession shares and options will no longer qualify for the discount
  • The discount will be replaced with a cost base indexation model
  • A minimum effective tax rate of 30% will apply to net capital gains.
• Discretionary trusts
  • A 30% minimum tax on discretionary trust taxable income will apply from 1 July 2028
  • Transitional rollover relief is proposed.
• Individual tax rates
  • Previously legislated cuts to marginal tax rates will proceed.
      

In more detail

Removal of the CGT discount and reintroduction of indexation

The Budget proposes to remove the 50% CGT discount and replace it with an indexation regime, alongside a minimum 30% tax rate on real capital gains, with effect from 1 July 2027.

Key aspects include:

• The 50% CGT discount for individuals and trusts in respect of assets held for at least 12 months will be abolished and replaced with an inflation-based cost base indexation model.
• For assets held across the transition to the new rules, gains will be apportioned (pre and post 1 July 2027). The 50% discount will be available for the pre 1 July 2027 portion and indexation will be applicable for the post 1 July 2027 portion.
• For ESS interests, the discount will no longer be available where shares are held for at least 12 months following the ESS deferred taxing point.
• Start-up concession shares and options will no longer benefit from the CGT discount on gains accruing post-acquisition. As a result, the primary advantage of the start-up concession will be limited to a deferral of taxing point (i.e., taxation on disposal rather than exercise), rather than a concessional tax rate outcome.
• A 30% minimum tax rate will apply to capital gains post 1 July 2027 (with no tax arising until the gain is realised). This measure may affect taxpayers already subject to an effective tax rate of 30% or higher if they have capital gains that qualified for the CGT discount for the pre 1 July 2027 portion.
    

Minimum tax on discretionary trust taxable income

The Government has also announced the introduction of a 30% minimum tax on discretionary trust taxable income from 1 July 2028.  This may be relevant to employees who have nominated a discretionary trust to hold their equity awards.

This represents a significant departure from the current treatment of discretionary trusts as flow-through vehicles, under which Australian beneficiaries are generally taxed on trust income at their marginal rates.

Key implications include:

• The measure is intended to address income-splitting arrangements involving beneficiaries on lower marginal tax rates
• Trustees will pay tax at a minimum rate of 30%, with non-corporate beneficiaries receiving non-refundable tax credits for tax paid at the trustee level
• Corporate beneficiaries will not be entitled to such credits, which may reduce or eliminate the utility of “bucket company” structures
• Certain classes of trusts and categories of income are expected to be excluded (details pending).

Transitional rollover relief will be available for a three-year period from 1 July 2027 to facilitate restructuring away from discretionary trust arrangements (e.g., into companies or fixed trusts).

Previously legislated income tax cuts

The Government also took the opportunity to reaffirm previously legislated tax cuts, which lowered the tax rate for the lowest taxable income band between AUD 18,201 and AUD 45,000 from 16% to 15%, effective from 1 July 2026, with a further drop to 14%, effective from 1 July 2027.

For taxpayers with a taxable income above AUD 45,000, the changes will result in a tax cut of AUD 268 from 1 July 2026, and AUD 536 from 1 July 2027 as compared to the 2025 to 2026 tax rates.

Below is a table comparing the changes to income tax for financial years ending in 2026, 2027 and 2028: