The Treasurer’s 2026–27 Federal Budget delivers a significant overhaul of Australia’s tax system, fundamentally reshaping how middle market businesses invest, structure and grow.
While the measures will be phased in over the coming years, the scale and complexity of the changes mean businesses and investors face a critical period of assessment and potentially, change in response to the new regime. Long-standing assumptions underpinning structuring, wealth creation and investment strategies can no longer be relied upon.
A reset of the investment landscape
At the centre of the Budget is a suite of revisions that overturn decades of tax policy settings.
Capital gains tax (CGT) rules are being fundamentally reworked, with the longstanding 50% discount to be removed and replaced with indexation alongside a new minimum tax on realised gains.
Negative gearing concessions are also set to be significantly curtailed, in the future only being available for new build properties.
Discretionary trusts – a cornerstone of many middle market structures – will face a materially different tax treatment.
Together, these changes signal a decisive shift in how businesses investment decisions are made and how wealth is accumulated in Australia.
Discretionary trusts under pressure
One of the most far-reaching measures is the introduction of a 30% minimum tax on discretionary trust income from 1 July 2028, with no corresponding credit for corporate beneficiaries.
For many structures, this could result in a total effective tax rate exceeding 50%, a substantial increase on current outcomes.
With more than 840,000 discretionary trusts potentially impacted, the measure represents a structural shift in how private businesses and family groups are organised and taxed.
Capital gains changes reshape long-term planning
The removal of the 50% CGT discount from 1 July 2027 marks the end of a regime that has been in place for nearly three decades.
Future gains will instead be subject to indexation of the cost base and a 30% minimum tax, while assets historically exempt from CGT — specifically pre-1985 holdings — will be brought into the system for taxing of future capital growth.
These changes will have significant implications for asset ownership structures, succession planning and long-term investment strategies.
Increased complexity and compliance burden
Beyond the headline measures, the Budget introduces a notable increase in compliance requirements.
Businesses will need to undertake valuations or apportionment calculations for CGT assets ahead of the new regime, while research and development claims will need to be reassessed under revised eligibility rules.
The cumulative effect is a more complex tax environment, requiring careful modelling and planning across structures, operations and strategic priorities.
Limited offsets amid structural change
While the Budget includes some measures aimed at supporting innovation and investment, these are relatively narrow in scope.
Changes to the R&D Tax Incentive – including lifting the SME threshold to $50 million – may enable more middle market businesses to access concessional rates.
Similarly, adjustments to venture capital settings may expand eligibility for some businesses seeking investment.
However, these benefits are unlikely to offset the broader structural changes affecting the majority of middle market organisations.
Implications for the middle market
The overall direction of the Budget signals a more complex business and investment environment.
Businesses may need to prioritise restructuring over growth, as they assess the impact of the new rules on their existing arrangements.
At the same time, investor behaviour is likely to shift, with income-generating assets becoming more attractive relative to capital growth-focused investments.
In the near term, this may lead to delayed decision-making and reduced investment activity as the market adjusts to the new framework.
What businesses should do now
With staggered implementation dates but significant lead-time requirements, early assessment and possible action will be critical.
Businesses and investors should:
- Review existing structures, particularly the use of discretionary trusts
- Model the impact of proposed tax changes on future outcomes
- Assess the costs and implications of potential restructuring
- Consider the flow-on effects for succession and estate planning
The next 18–24 months will be a pivotal period, as organisations work through the practical implications of the changes and position themselves for the new environment.
A defining moment for tax policy
The 2026–27 Budget represents a clear break from past tax settings, with wide-ranging implications for how businesses operate and grow.
For the middle market, the message is clear: this is not a moment for passive observation, but for active reassessment and strategic response.
