When Treasurer Chalmers called it “the most ambitious Budget in 26 years,” he wasn’t exaggerating. For high net worth individuals and Family Offices, these reforms represent the biggest structural shift in wealth planning since the introduction of CGT itself.

Last night’s Federal Budget delivered what many expected but hoped wouldn’t happen: fundamental changes to the tax structures that have underpinned Australian wealth creation for decades. Treasurer Jim Chalmers delivered his fifth Budget on 12 May 2026, calling it “the most important and ambitious Budget in decades” with tax reforms he said were the most ambitious in 26 years.

For our high net worth clients and the Family Offices we advise, three major changes will reshape how wealth is accumulated, protected, and transferred in Australia. The implications are immediate, the timeline is compressed, and the planning opportunities are finite.

The Three Pillars of Structural Change

1. The End of Discretionary Trust Tax Planning (From July 2028)

The most significant change for Family Offices is the introduction of a 30% minimum tax on discretionary trust distributions from 1 July 2028. This fundamentally alters the tax efficiency that has made discretionary trusts the backbone of Australian family wealth structures.

What’s changing:

• Trustees will pay a minimum tax of 30% on taxable income distributed to beneficiaries
• Individual beneficiaries will receive non-refundable credits for tax paid by the trustee
• Trust distributions to beneficiaries whose non-trust income is below $45,000 will result in them losing the benefit of the tax-free threshold and the 15% marginal rate
• This amounts to a maximum impact of $9,480 per beneficiary

What’s protected:

• Fixed trusts, special disability trusts, charitable trusts, and deceased estates are excluded
• Primary production income, non-resident withholding tax amounts, and income from testamentary trust assets existing at 12 May 2026

The Family Office impact: The income streaming and tax minimisation strategies that have made discretionary trusts attractive for family wealth management are effectively eliminated. Many family structures will need fundamental restructuring.

2. Capital Gains Tax Reform: The 50% Discount Dies (From July 2027)

From 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships will be replaced with cost base indexation and a 30% minimum tax rate. This change affects every significant investment decision for HNW families.

The new structure:

• Cost-based indexation will ensure only real capital gains are subject to tax
• A flat 30% rate will align capital gains tax with the marginal tax rate faced by the average worker
• The 50% CGT discount will continue to apply to gains arising before 1 July 2027
• Main residence exemptions and super tax arrangements remain unchanged

Investment strategy implications: For assets purchased after July 2027, the tax efficiency of capital growth strategies is significantly reduced. This fundamentally changes the risk-return equation for family investment portfolios.

3. Negative Gearing Restrictions: New Property Only (From July 2027)

From 1 July 2027, negative gearing for residential property will be limited to new builds, with properties held at 7:30pm AEST on 12 May 2026 exempt.

For property investors:

• Existing properties are fully protected under grandfathering
• Investors who buy established housing after Budget night will still be able to deduct losses against residential property income but won’t be able to deduct them against other income like wages.
• New housing investments and affordable housing programs remain eligible for full negative gearing

The Small Business CGT Concession: From Valuable to Essential

For entrepreneurs, founders, and small business owners, the CGT reforms create a critical two-tiered system that makes small business CGT concessions the difference between a successful exit and a heavily taxed one.

The Protection That Remains

The Government will maintain existing CGT concessions for small businesses, allowing them to halve or completely disregard CGT on the sale of eligible assets. This means the 15-year exemption, 50% reduction, retirement exemption, and rollover relief remain unchanged.

The Stakes Have Changed Dramatically

However, this creates a stark divide between businesses that qualify for these concessions and those that don’t:

For qualifying business sales: Full protection under existing concessions, potentially eliminating CGT entirely through the 15-year exemption or retirement exemption.

For non-qualifying business sales: A founder building and selling a business for $1m could lose more than $225k under the new CGT regime compared to current settings.

The Start-up and Tech Sector Uncertainty

The government has stated that it will consult with stakeholders on the treatment of early stage and start-up businesses, given the unique features of the tech and start-up sectors. This creates immediate uncertainty for the innovation economy.

Previously, the start-up sector, and tax concessional options granted by start-up companies under Division 83A of the Income Tax Assessment Act 1997 (Cth), benefited from a 50% discount applied to the margin between capital proceeds and cost-base. Now, indexation would provide minimal benefit (as the indexation multiple would be applied against a small base).

For founders who built businesses with minimal initial capital investment – common in tech and service businesses – the indexation benefit will be negligible, making the difference between qualifying and not qualifying for small business concessions potentially worth hundreds of thousands of dollars.

Strategic Imperatives for Business Owners

Structure Review: Every business structure should be reviewed to ensure optimal qualification for small business CGT concessions. The $6 million maximum net value test, active asset test, and other qualifying criteria become absolutely critical.

Timing Considerations: Businesses that don’t qualify for small business concessions should seriously evaluate completing sales before 1 July 2027 to access the current 50% CGT discount.

Employee Share Schemes: A founder selling shares in a start-up, an employee selling shares acquired under an employee share scheme, or a business owner selling shares in a private company may all be affected (unless another concession applies). These arrangements require immediate review.

Active Asset Compliance: Ensuring businesses maintain active asset status and meet the $6 million net asset value test becomes mission-critical for exit planning.

The Strategic Response Framework

For HNW families and Family Offices, the timeline for strategic response is compressed but manageable:

Immediate Actions (May 2026 – June 2027)

Investment acceleration: Any significant capital gains realisations should be evaluated for completion before 1 July 2027 to access the 50% CGT discount.

Trust structure review: This is the last full year of unchanged discretionary trust planning. Comprehensive review of all family trust structures is essential before the 30% minimum tax implementation.

Property portfolio crystallisation: Existing property investments are protected, but any new established property acquisitions should be completed before July 2027 to retain full negative gearing benefits.

Restructuring Window (July 2027 – June 2030)

The government will expand rollover relief for 3 years from 1 July 2027 to allow small businesses to restructure out of discretionary trusts into companies or fixed trusts. This creates a critical planning opportunity.

Strategic options:

• Fixed trust conversion: Maintaining trust structure while eliminating discretionary distribution flexibility
• Corporate restructure: Companies become equally or more attractive given the 25% small business rate vs 30% minimum trust tax
• Hybrid structures: Combining multiple entity types to optimise different income streams

The New Steady State (From July 2028)

The post-reform environment will favour:

• Corporate structures for active business income
• Fixed trusts for asset protection with predictable distributions
• Direct individual ownership for assets benefiting from remaining concessions
• Superannuation for tax-effective wealth accumulation

The Family Office Action Plan

For Family Offices and HNW families, the strategic response requires coordinated action across multiple timeframes:

Phase 1: Protection (Now – June 2027)

• Complete comprehensive review of all discretionary trust structures
• Evaluate capital gains crystallisation opportunities before 50% discount elimination
• Review business structures for small business CGT concession qualification
• Consider accelerated business sale timing for non-qualifying entities
• Secure existing property investment positions
• Model post-reform tax outcomes for different restructuring scenarios

Phase 2: Restructuring (July 2027 – June 2030)

• Execute optimal entity restructures using rollover relief provisions
• Transition to post-reform investment strategies
• Implement new distribution and accumulation approaches
• Establish governance frameworks for modified structures

Phase 3: Optimisation (From July 2028)

• Operate within new tax framework
• Monitor for further legislative changes
• Adapt investment strategies to new tax environment
• Maintain flexibility for future planning opportunities

The Broader Implications

These reforms represent more than tax changes – they’re a fundamental shift in how Australia treats private wealth. The government says 83% of the benefit of the current CGT discount goes to the top 10% of taxpayers by income, indicating a deliberate policy to redistribute tax benefits.

For entrepreneurs and business founders, this creates a two-speed system where qualifying for small business CGT concessions becomes the difference between building generational wealth and facing punitive tax rates on business sales.

For professional advisors and Family Offices, this creates both challenge and opportunity. Those who can navigate the transition effectively will create significant value for their clients. Those who delay planning risk locking their clients into suboptimal structures for decades.

The Time to Act

The 2026 Budget represents a watershed moment for Australian wealth planning. The combination of discretionary trust reform, CGT changes, and negative gearing restrictions creates the most significant structural shift in decades.

For HNW families and Family Offices, the window for strategic response is defined and finite. The complexity requires sophisticated planning, but the timeframes allow for considered decision-making rather than rushed reactions.

The families and Family Offices that emerge strongest from these changes will be those that treat this as a strategic planning opportunity rather than a compliance burden.

Stewart & Smith Advisory specialises in helping Australian Family Offices and HNW families navigate complex tax and wealth planning challenges. Our integrated approach combines immediate tactical responses with long-term strategic planning to optimise outcomes within evolving regulatory frameworks.

Facing the Budget 2026 changes? Let’s discuss developing a comprehensive transition strategy that protects and optimises your family wealth within the new framework.