The 2026-27 Federal Budget had little impact from an SMSF perspective with the main changes impacting CGT, negative gearing and distributions from discretionary trusts. However, for trustees of SMSFs and their advisers the main issues are to ensure that the fund is ready for the changes that will take place from 1 July 2026 with the introduction of Payday Super and Division 296.

The main issue with Payday Super is to ensure the SMSF is able to receive employer contributions by 1 July 2026. Confirm that the funds electronic service address (ESA) provider can support the updated SuperStream standards which will allow the client’s SMSF to keep receiving contributions on time.

The issues with Division 296 are not at urgent as the introduction Payday Super as the assessments will be made after the fund has lodged its 2026-27 annual return. However, in the interim it should be ensured that the fund’s trust deed allows payment of the tax and the valuation of fund assets and income will be accurate for purposes of the legislation.

Here is a summary of the main Budget announcements.

Changes to Capital Gains Tax Arrangements

The current 50% discount for CGT assets held for longer than 12 months will be replaced from 1 July 2027 with cost base indexation and the minimum tax of 30% on the capital gain. The change will apply to all CGT assets including pre-1985 CGT assets. The new rules will apply to individuals, trusts and partnerships and they will not apply to superannuation funds including SMSFs. This means the 1/3rd CGT discount will continue for super fund assets held for longer than 12 months.

Assets that are already owned and are realised after 1 July 2027 will have a time based apportionment which will calculate part of the taxable capital gain assessed under the 50% discount rule and part under the new indexation rule.

There are transitional arrangements that continue to allow the 50% discount to capital gains that are realised before 1 July 2027. In a similar way, realised capital gains on pre-1985 assets that occur before 1 July 2027 will continue to remain free of CGT.

Where a person acquires a new built eligible residential property they can choose either the 50% discount method or the indexation method when the property is eventually sold.

Income support payment recipients, including Age Pension recipients, will be exempt from the minimum 30% tax. It is assumed that the ordinary income tax rates will apply to the taxable capital gains in these cases.

Example – asset acquired before 12 May 2026 (budget night)

Elizabeth and Patrick purchased a property in 27 July 2022 for $500,000 and they intend to sell it in 17 December 2029. The property has been negatively geared and the losses continue to be fully grandfathered.

Assume that the property is sold on 17 December 2029 for $1.1 million. The pre 1 July 2027 period from 27 July 2022 is 1800 days (2/3rds) and the post 1 July 2027 to 17 December 2029 is 900 days (1/3) inclusive.

The taxable capital gain on a time apportionment basis is:

$1.1 million – $500,000 = $600,000

Pre 1 July 2027 capital gain = $600,000 x 2/3 x 50% = $200,000

Post 1 July 2027 capital gain = $180,000 (after reduction for indexed cost base) x 1/3 = $60,000

Negative Gearing

Negative gearing on residential property will change from 1 July 2027. Losses from established residential properties will only be deductible against the rental income or the capital gains from residential properties. Losses will be carried forward and can be offset against residential property income in future years. This will also apply to shares and other geared investments.

However, residential property acquired before 12 May 2026 is fully grandfathered and losses can be claimed as they always have been. Any new built eligible residential property that is negatively geared are exempt from the change and losses can be claimed against other income in the year they are incurred.

Superannuation funds, including SMSFs, are exempt from the negative gearing changes and therefore there will be no changes to the current arrangements for limited recourse borrowing arrangements.

Minimum Tax on Discretionary Trusts

From 1 July 2028 trustees of discretionary trusts will be liable for a minimum tax of 30% and beneficiaries other than corporate beneficiaries will receive a non-refundable credit for the tax paid by the trustee.

Any discretionary trust distributions received by SMSFs are treated as non-arm’s length income and are taxed in the fund at 45%.