News Updates
As it Happens
Our previous post includes a line-by-line summary of the Federal Budget (‘Federal Budget Wrap’). This post includes an excellent, easy to understand commentary (a verdict of sorts) from AMP’s Dr Shane Oliver.
Rick Maggi CFP, Westmount Financial, Financial Advisor (Perth)
The 2026/27 Federal Budget includes some of the most significant reforms over the last two decades, with very broad implications for clients. Whilst the key changes have occurred in the areas where they were expected, the nature and scale of the reforms have been substantial.
In this year’s Federal Budget Wrap we have focused our attention on these key tax changes and other key reforms that are most relevant to our clients. While these changes are not yet law, the government is expected to introduce enabling legislation as quickly as possible.
CAPITAL GAINS TAX ARRANGEMENTS
From 1 July 2027, the 50 per cent CGT discount will be replaced by cost base indexation for assets held for more than 12 months, with a 30 per cent minimum tax on net capital gains. These changes will apply to all CGT assets, including pre-1985 CGT assets, held by individuals, trusts and partnerships.
Transitional arrangements will limit the impact on existing investments by ensuring the changes only apply to gains arising on or after 1 July 2027. The 50 per cent CGT discount will continue to apply to gains arising before 1 July 2027. Capital gains on pre-1985 assets arising before 1 July 2027 will remain exempt from CGT.
Establishing the value of assets at 1 July 2027 will be a critical exercise.
To maintain incentives for new housing supply, investors in new residential properties will be able to choose either the 50 per cent CGT discount, or cost base indexation and the minimum tax. Income support payment recipients, including Age Pension recipients, will be exempt from the minimum tax rate.
NEGATIVE GEARING
The Government will limit negative gearing for residential property to new builds. From 1 July 2027, losses from established residential properties acquired from 7:30PM (AEST) on 12 May 2026 will only be deductible against rental income or the capital gains from residential properties. Excess losses will be carried forward and able to be offset against residential property income in future years.
These changes will apply to established residential properties acquired from 7:30PM (AEST) on 12 May 2026. Properties acquired before this (including contracts entered into but not yet settled) will be exempt from the changes until disposed of.
Eligible new builds will be exempt from the changes, ensuring the benefits of negative gearing are directed to investment that increases the housing stock. Properties in widely held trusts and superannuation funds will also be exempt, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs.
TAXATION ON DISCRETIONARY TRUSTS
The Government will introduce a 30 per cent minimum tax on discretionary trusts.
From 1 July 2028, trustees will pay a minimum tax of 30 per cent on the taxable income of discretionary trusts. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee, which can be used to offset current year income tax liabilities. The tax will be paid by the trustee as it is the trustee that controls distributions. Beneficiaries will still need to declare the income in their tax returns.
The introduction of a minimum tax on discretionary trusts will reduce incentives for complex tax structuring and protect the integrity of the tax base.
To support adjustment, expanded rollover relief will apply for three years from 1 July 2027 to assist small businesses and other taxpayers to restructure out of discretionary trusts into companies or fixed trusts. This will provide relief from income tax consequences, including capital gains tax, for those who choose to restructure.
From 1 January 2027, the Australian Small Business and Family Enterprise Ombudsman will be available to assist small business understand the options available to them and where they can get further advice. Specific arrangements will be put in place by the Australian Securities and Investments Commission (ASIC) to support small businesses that wish to incorporate and access benefits such as the 25 per cent small business tax rate.
The minimum tax rate will not apply to other types of trusts such as fixed and widely held trusts (including fixed testamentary trusts), complying superannuation funds, special disability trusts, deceased estates and charitable trusts. Some types of income such as primary production income of farms, certain income relating to vulnerable minors, amounts to which non-resident withholding tax applies, and income from assets of discretionary testamentary trusts existing at announcement will also be excluded.
The Government will provide expanded rollover relief for three years from 1 July 2027 to support small businesses and others that wish to restructure out of discretionary trusts into another entity type, such as a company or a fixed trust.
$1,000 INSTANT TAX DEDUCTION
The Government will introduce an instant tax deduction of up to $1,000 from the 2026–27 income tax year. Australian tax residents who earn income from work will be eligible for the instant tax deduction and will not need to itemise and claim work-related expenses if claiming less than $1,000.
Individuals who incur work-related expenses greater than the instant tax deduction can continue to claim their deductions in the usual way. Charitable donations, union and professional association membership fees and other non-work-related deductions can still be itemised separately and claimed on top of the instant tax deduction.
WORKING AUSTRALIANS TAX OFFSET (WATO)
The Government will introduce a $250 Working Australians Tax Offset from the 2027–28 income tax year. This will be a permanent annual tax offset for Australians for their income derived from work, such as wages and salaries and the business income of sole traders, from 1 July 2027.
The WATO will increase the effective tax-free threshold for income derived from work by nearly $1,800 to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset).
MEDICARE LEVY LOW-INCOME THRESHOLDS
The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners by 2.9 per cent from 1 July 2025, continuing to exempt low-income individuals and families from paying the Medicare levy.
• The threshold for singles will be increased from $27,222 to $28,011.
• The family threshold will be increased from $45,907 to $47,238.
• For single seniors and pensioners, the threshold will be increased from $43,020 to $44,268.
• The family threshold for seniors and pensioners will be increased from $59,886 to $61,623.
• The family income thresholds will increase by $4,338 for each dependent child or student, up from $4,216.
INSTANT ASSET WRITE-OFF
From 1 July 2026, the Government will permanently extend the $20,000 instant asset write-off for small businesses with turnover up to $10 million. Assets valued at $20,000 or more can continue to be placed into the small business simplified depreciation pool. The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years after opting out will continue to be suspended until 30 June 2027.
LOSS REFUNDABILITY FOR BUSINESSES AND START-UPS
The Government will provide tax relief to businesses and start-ups by reforming the treatment of tax losses.
For tax years commencing on or after 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. Loss carry back will apply to revenue losses only and will be limited by a company’s franking account balance.
The Government will also introduce loss refundability for small start-up companies. For tax years commencing on or after 1 July 2028, start-up companies with aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to utilise the loss to generate a refundable tax offset. The offset will be limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year.
RESIDENTIAL AGED CARE
The Government will provide $606.5 million over four years from 2026–27 (and an additional $3.0 billion from 2030–31 to 2035–36) to respond to the Residential Aged Care Accommodation Pricing Review. Funding includes:
• $348.4 million over four years from 2026–27 (and an additional $2.7 billion from 2030–31 to 2035–36) to introduce capital subsidies for residential aged care providers, including: $30.00 per supported resident per day upon commencement of newly constructed homes, payable for up to 25 years.
• $15.00 per supported resident per day upon commencement of significantly expanded homes, payable for up to 15 years.
• $224.3 million over four years from 2026–27 (and an additional $317.5 million from 2030–31 to 2035–36) for dementia care supports, including the expansion of the Hospital to Aged Care Dementia Support program from 11 to 20 locations nationally and up to 20 additional Specialist Dementia Care Program units.
• $33.8 million over four years from 2026–27 to allow greater flexibility in how room prices are set.
The Government has also provisioned $1.1 billion to be held in the Contingency Reserve for future spending to increase the Accommodation Supplement and introduce an additional payment for high supported resident ratios, subject to finalising implementation details.
SUPPORT AT HOME PROGRAM
The Government will provide $1.4 billion over four years from 2026–27 (and $377.3 million per year ongoing) to improve affordability and access to home care supports, including:
• $1.0 billion over four years from 2026–27 (and $336.8 million per year ongoing) to ensure the service type ‘personal care’ (including showering) is fully funded by the government for all care recipients in the Support at Home program.
• $389.8 million over four years from 2026–27 (and $40.5 million per year ongoing) to implement Support at Home program refinements, including to assessments, hardship applications and the end-of-life pathway, and to bring forward the release of Support at Home program places in 2026–27.
PRIVATE HEALTH INSURANCE REBATE
The Government will remove the age-based uplift of the Private Health Insurance Rebate (the PHI Rebate) from 1 April 2027.
PHARMACEUTICAL BENEFITS SCHEME
The Government will provide $5.9 billion over five years from 2025–26 for new and
amended listings on the Pharmaceutical Benefits Scheme (PBS) and Repatriation
Pharmaceutical Benefits Scheme.
More to come…
Rick Maggi CFP, Westmount Finamcial, Financial Advisor (Perth)
US stocks rose further last week – the sixth weekly gain in a row – with ongoing hopes for a US-Iran peace deal despite continuing skirmishes in the Strait of Hormuz. One sign of optimism was the decline in oil prices. A stronger than expected US payrolls report on Friday also boosted stocks.
Yet another week in the lingering Iran war and hope springs eternal. The global economy is facing a race against time – settle the Iran war and re-open the Strait before the lagged impact of the lack of new supply jacks up prices. So far at least, inventory run-down, some demand restricting measures across Asia and persistent hopes for a peace deal has limited lift in near-term oil price futures – but the clock is still ticking.
Both sides are exchanging peace proposals – at the same time as they’re firing on each other’s ships! But there seems enough wiggle room on both sides that hopefully a deal can be done soon – though the outcome is unlikely to be much better for the US than the Obama-era deal that Trump tore up in 2018.
The current environment reminds me of the COVID-crisis – after an initial sell-off due to lockdowns, markets kept rallying despite abysmal economic data, due to the ongoing hope of a vaccine and economic re-opening. Markets can endure near-term sticks it seems if there remains an attractive carrot ahead of them.
But for now, markets remain in limbo – waiting on a peace deal. As the consequences of no deal seem catastrophic for both sides, it’s hard to imagine they can’t/won’t agree. Yet the week begins with news that Iran is refusing US demands to dismantle its nuclear facilities and suspend uranium enrichment for 20 years.
Global markets rebound...
Global equity markets have now staged a remarkable 6-week rebound on peace talk hopes. Overall global stocks and the S&P 500 are now trading comfortably above the levels prevailing just before the Iran war began. But it’s not just peace-talk hopes, but a renewed infatuation with the AI trade – especially hardware companies.
Accordingly, the US, Japan and emerging markets continue to do best in the rebound so far, whereas Europe, Australia and small caps have not. The Nasdaq 100 has shot the lights out. Korea is also soaring, thanks to the market’s love of hardware companies such as Samsung benefiting from the AI boom – as, unlike software companies, they’re at less apparent risk from disruption.
Australia: RBA and the Budget...
Local stocks underperformed global stocks again last week, with the RBA delivering on its threat to raise interest rates for the third time in a row. Concerns around capital gains tax increases in this week’s Federal Budget did not help.
It’s been a sorry tale for local stocks in recent weeks – which have failed to benefit all that much from the global market rebound. A low technology exposure, along with RBA and Federal Budget concerns, have been major drags.
If there was any solace in last week’s RBA rate hike news, it was that the Bank might be kind enough to pause at the next meeting in June – just to assess the impact of its work to date.
My hope is that by the time the August meeting comes around, the Iran war will have ended and oil prices will have retreated further, lessening the pressure on the RBA to hike further. Potential disruption in the property market following this week’s Federal Budget might also give the RBA reason to hold off. We'll see.
Tax grab or boost for intergenerational equity?
Rumours suggest a fairly aggressive attack on negative gearing and capital gains. This will apply to all assets it seems – such as property and shares – with an exemption only for new properties.
Modelling suggests that the shift to inflation-indexing of capital gains – rather than the 50% discount – will increase the effective capital gains tax the longer you hold an investment and the higher the return it attracts.
As an example, an investment returning 7% in capital gains each year held for 10 years will attract a 15% CGT under the current system, but 21.3% under inflation-indexing (assuming inflation of 2.5% p.a. and a marginal income tax rate of 30%).
If the annual return was 10%, the CGT under the current system would remain 15% but lift to 24.7% under inflation-indexing.
If the 7% returning investment is held for 30 years, the CGT under inflation-indexing rises to 25%, though stays at 15% under the current system.
Boomer investors will be hurt, but so will younger investors – especially as they have longer investment timeframes and tend to hold higher-growth investments.
As for the property market, the expected tilt favouring new property will only succeed in driving up land values and developer profits (due to supply constraints, the more favourable tax benefits will be quickly capitalised into prices), while there’s also a risk of a leap in rents on existing properties as investors exit the market and demand higher compensation to offset the less favourable tax benefits.
Also getting media coverage is an effective doubling of the capital gains tax on entrepreneurial companies from 25% to a world-beating 50%!.
All up, the idea that these changes will boost ‘intergenerational equity’ seems a stretch – there may be several unintended consequences that actually make economic conditions even harder for the young (higher rents, high new property prices, reduced returns on longer-term investments and the hobbling of the start-up/entrepreneurial sector).
It’s true that current tax incentives favour gearing up into property especially – but a key problem is the high 47% top marginal tax rate which kicks in at a relatively low income by global standards and is considerably higher than the corporate tax rate. That just invites creative tax planning – the impetus for which won’t change after tomorrow. True tax reform would have involved effective tax-base broadening (as we’re likely to see tomorrow) along with a reduction in marginal income tax rates.
More to come.
Rick Maggi, CFP, Westmount Financial, Financial Advisor (Perth)
The Reserve Bank of Australia (RBA) has announced a 0.25 percentage point increase to the official cash rate, lifting it to 4.1 per cent. While the move wasn't universally anticipated by market commentators, many economists had flagged the possibility in the wake of growing geopolitical tensions following the outbreak of conflict between the US, Israel, and Iran.
Leading up to the decision, markets were fairly divided — the ASX's RBA Rate Tracker had placed a 58 per cent chance on a rate rise and a 42 per cent chance of no change as of 16 March 2026. Ultimately, the RBA board voted five to four in favour of the increase, with four members preferring to hold the rate steady at 3.85 per cent.
In its statement, the RBA explained that a broad range of data has confirmed a build-up in inflationary pressures across the second half of 2025. The board acknowledged that some of this uptick reflects temporary factors, but noted that the labour market has tightened and capacity pressures are slightly higher than previously assessed.
"Developments in the Middle East remain highly uncertain," the RBA noted, adding that across a wide range of scenarios, the conflict could add to both global and domestic inflation. With inflation expected to remain above target for some time and risks tilting to the upside, the board determined a rate increase was the appropriate response.
A Closely Watched Decision
In the lead-up to the meeting, debate centred on whether the RBA would deliver a back-to-back hike — returning the cash rate to levels seen just over a year ago — or adopt a hawkish hold ahead of a potential May increase, as surging oil prices and renewed inflation risks complicated the picture.
Prominent voices weighed in on both sides. Betashares' David Bassanese and T. Rowe Price's Scott Solomon both anticipated an immediate March rise, while Ebury's Anthony Malouf suggested the board might prefer to wait for the late-April first-quarter CPI print before acting. All four major banks, however, had already shifted to a base case of back-to-back hikes in March and May.
What the Experts Are Saying
MLC Senior Economist Bob Cunneen had sounded the alarm ahead of the decision, warning that inflation was already running too hot. He pointed to the sharp rise in petrol prices following the outbreak of conflict in the Middle East as a key catalyst, noting that national prices had climbed from around $1.71 per litre in February to above $2.20. In his view, this alone could push Australia's annual inflation — which sat at 3.8 per cent to January — closer to 5 per cent in the months ahead.
CreditorWatch Chief Economist Ivan Colhoun echoed this sentiment, describing the rate rise as justified given the slow return of inflation to target, as well as recent data on inflation, unemployment, and growth. He acknowledged the decision brings unwelcome news for households and businesses, but stressed that allowing inflation to run above target for an extended period would ultimately be more damaging.
"While this is news that is unwelcome for both households and businesses, neither is the situation where inflation is allowed to run above-target for a further extended period," Colhoun said.
Rick Maggi | Westmount Financial | Financial Advisor | Perth
