2026-27 Federal Budget: Key Changes for Health Businesses and Health Professionals

The 2026-27 Federal Budget is one of the most significant overhauls of the Australian tax system in nearly three decades. In a single night, the Government has reshaped the rules around capital gains, negative gearing, trust distributions, superannuation, electric vehicles, research and development, and cost-of-living measures. For practice owners and health professionals, there is barely a corner of your financial world that hasn't been touched in some way.

What makes this Budget particularly complex is that the changes don't sit in isolation. The CGT changes magnify the negative gearing changes, which in turn interact with the new trust rules. The combined effect is considerably larger than any single measure on its own, and the right response will depend on how the pieces fit together in your specific situation.

Many of the details are still subject to clarification and legislation, but the direction is clear. Good advice will be key to ensuring you're well-positioned and don't end up paying more tax than you need to as the new rules take effect.

Capital Gains Tax Returns to Indexation

The centrepiece of the Budget is the replacement of the 50% CGT discount with cost base indexation for gains arising on or after 1 July 2027, combined with a new 30% minimum tax on net capital gains. This is effectively a return to the rules that applied in Australia from 1985 to 1999, and it applies to all CGT assets held by individuals, trusts, and partnerships.

The 50% CGT discount continues to apply to all gains arising before 1 July 2027, regardless of when the asset was purchased. Investors in new residential builds can choose between the 50% discount and indexation, whichever produces the better outcome. For assets sold after 1 July 2027, gains accrued before that date still receive the 50% discount, while the post-2027 portion is reduced only by indexation.

Example

• Kelly bought an investment property eleven years ago for $500,000. By 30 June 2027, it's worth $1 million, and she eventually sells it in 2037 for $2 million. Under the current rules, the full $1.5 million gain qualifies for the 50% CGT discount, resulting in a tax bill of around $353,000.

• Under the new rules, the gain is split. The pre-July 2027 portion still gets the 50% discount, while the post-2027 portion is reduced only by indexation. Because indexation only lifts the cost base in line with inflation, more of the gain ends up taxable. The total tax bill comes in at around $408,000, which is roughly $56,000 more for the same property.

• Selling before 30 June 2027 would produce a much smaller tax bill today, around $118,000, but it also means giving up another decade of potential growth. Whether that trade-off makes sense depends on Kelly's broader circumstances.

*Figures are illustrative only, assume CPI of 3% per annum and a 47% combined rate, and are subject to final legislation.

What the CGT Changes Mean for Business Owners

If you've spent years building a valuable practice, the rules under which you will eventually sell that business have just been rewritten. The biggest issue is likely to be goodwill. When you build a practice from scratch, the goodwill that develops over time has a cost base of zero.

Under the current rules, the entire goodwill gain qualifies for the 50% CGT discount on sale. Under the new rules, any growth in your goodwill from 1 July 2027 onwards is reduced only by indexation, and a percentage uplift on zero is still zero. Every dollar of post-2027 goodwill gain will be fully taxable at up to 47% combined, unless it can be reduced under the small business CGT concessions.

In practical terms, the tax on that portion of your goodwill is effectively doubled. If you've built your practice over fifteen or twenty years, goodwill is typically the single largest asset in a sale, so this could mean a material reduction in the after-tax proceeds available to fund the next stage of your life.

Small Business CGT Concessions Still Apply, But Are Worth Less

The Small Business CGT Concessions, including the 50% active asset reduction, the $500,000 lifetime retirement exemption, and the 15-year exemption, all remain available and continue to be among the most valuable concessions in the Australian tax system. The catch is that with no reduction on a zero cost base, your starting gain is larger, and the concessions apply to a higher taxable amount. They still help, they're just working harder on a bigger number.

Is Your Business Structure Still Right?

The Budget confirms expanded rollover relief for three years from 1 July 2027, specifically to support businesses wishing to restructure out of discretionary trusts into a company or fixed trust without triggering a CGT liability on transfer. This is a genuine and time-limited opportunity. If you currently operate your practice through a discretionary trust or as a sole trader, the question of whether your structure still makes sense is now more pressing. The historical advantages of trusts have narrowed, and company structures are relatively more competitive than they've been in the past 25 years. The right answer depends on your specific circumstances, and it's a conversation worth having well before the rollover window closes.

A New 30% Minimum Tax on Discretionary Trusts

From 1 July 2028, trustees of discretionary trusts will be required to pay a minimum tax of 30% on the trust's taxable income. Beneficiaries (other than corporate beneficiaries) will receive non-refundable credits, similar in concept to franking credits. Where the credit exceeds a beneficiary's actual tax liability, the excess is permanently lost.

A good number to know is that the break-even point is approximately $131,600 in beneficiary income. Every beneficiary earning below that level results in some portion of the trust's tax being unrecoverable.

The Budget announcement raises more questions than it answers. The treatment of corporate beneficiaries is unclear, and the announced exclusions (primary production income, vulnerable minors, existing testamentary trusts) will need precise legislative definition. Draft legislation is expected in the second half of 2026, and we advise against making planning decisions based on the announcement alone.

Negative Gearing: Existing Properties Protected

Existing investment properties are fully grandfathered. If you already own a negatively geared investment property, your ability to offset losses against other income continues unchanged for as long as you hold that property.

The new rules apply to established residential properties acquired after 7:30pm AEST on 12 May 2026, and take effect from 1 July 2027. Losses from these properties will only be deductible against rental income or capital gains from residential property, not against salary or wage income. Newly constructed properties remain exempt and continue to be fully negatively geared.

If you are considering another investment property purchase, the rules have changed in ways that affect both your ongoing cash flow and your future capital gains position. The economics of a new build versus an established property are now materially different and require new analysis.

Good News for Companies

From 1 July 2026, the loss carry-back returns for companies with aggregated global turnover under $1 billion. If your company paid tax in 2024-25 or 2025-26 and incurs a revenue loss in 2026-27 or later, that loss can be applied against the earlier tax paid and refunded in cash, subject to the company's franking account balance. This is particularly valuable for companies that were profitable in recent years but are expecting to experience a downturn.

From 1 July 2028, small start-up companies with annual turnover under $10 million will be able to convert losses in their first two years of operation into a refundable tax offset, capped at the value of FBT and PAYG withholding on Australian wages. The ATO will pay out the offset as cash even where no tax has previously been paid.

What Should You Do Now?

Some measures take effect immediately, others from 1 July 2026, 2027, or 2028. The right response will vary for each practice or taxpayer, depending on your group structure, how long you've held your investments, and current business conditions.

As more details become available, we'll be providing further information to our clients most directly affected. None of these issues need to be resolved overnight, but each will require careful planning once the full picture is clear. As always the team at GrowthMD will be ready to help you navigate through the changes.

*This article is based on the Federal Budget announcement of 12 May 2026. Many measures remain subject to draft legislation, and final details are yet to be confirmed. This article is general information only and is not advice. Please contact GrowthMD to discuss how these measures may apply to your specific circumstances.