The May 2026 Federal Budget did not bring major direct changes to superannuation, but it did shake up the tax system overall with the biggest changes since the Keating years. In relation to Self Managed Superannuation Funds (“SMSFs) the announcements were rather positive as the Div296 taxes were already introduced. The fallout from the announcement and the proposed changes will be heard for a while and lets say these are proposed changes and not law as yet. Expect a major backflip based on the “polls” which will be negative for sure.
Changes to Super
The budget was rather silent on Superannuation with the “big” Div296 tax introduced in 2025. The Government announced additional funding for the Australian Taxation Office to take over and modernise the ABN and Super Fund Lookup systems. ASIC is also receiving additional funding following collapses like Shield and First Guardian, with the focus appearing to be stronger oversight and earlier intervention where retirement savings are involved.
Meanwhile, the long-promised residency changes for SMSFs first announced back in 2022 remain exactly where they have been for years — “still on the roadmap.” No draft legislation, no commencement date, and no real update beyond confirmation the Government still intends to deal with it eventually.
The Government also announced consultation on strengthening the superannuation performance test to ensure it remains “fit for purpose” and does not create unintended barriers to investment. This is another backflip like “super switching” because things didn’t suit the industry funds. Instead of exposing underperformance, five years of testing has just exposed their mediocrity and benchmark hugging.
So, while there was not a great deal of direct superannuation reform announced in the Budget itself, the much bigger story was the proposed taxation changes outside super.
MAJOR TAX SHAKE UP OUTSIDE OF SUPER INCLUDING DEATH TAXES!
Negative Gearing & CGT
Prior to the 2016 Federal election, The Australian Labor Party (“ALP”) proposed restricting negative gearing to newly constructed homes only. While the ALP took this specific negative gearing and CGT policy to the 2016 and 2019 elections, they did not form government. These were the unlosable elections and come 2026 these changes are announced in a budget when the PM promised no changes prior to the federal election just 12 months ago. Is it any wander why the Australian people are sick of the major parties?
The shock announcement and impact of the changes are summarised below:
From 1 July 2027, investors will no longer be able to offset rental losses against other income for established residential properties. The changes do not apply to individuals who purchased residential property before 12 May 2026 which will be grandfathered and are limited to established residential housing rather than new builds.
The Government also announced major proposed changes to Capital Gains Tax. The current 50% CGT discount would be abolished and replaced with an indexation system. More significantly though, the Government also announced a minimum 30% tax on capital gains, effectively meaning gains would no longer simply flow through and be taxed at an individual’s marginal tax rate.
In another major shock, pre-1985 assets lose their CGT exemption. In our opinion, this is a move against a long-standing “sacred cow” of the tax system, even if almost no one still holds assets from that far back.
Discretionary Trusts and the stealth death tax
Discretionary trusts such as family trusts are also being targeted by a death tax by stealth. Under the proposal, trusts would pay a flat 30% tax before distributions are made to beneficiaries. The stated goal is to reduce income splitting arrangements where trust income is directed toward lower income family members.
Beneficiaries would receive a tax credit for tax already paid by the trust, although it remains unclear exactly how this will interact with company beneficiaries and whether double taxation issues may arise.
Redwood Thoughts
The federal budget has been a major talking point for all Aussies. It is important to understand that these changes detailed above are announcements only – there is still a consultation and legislative process to unfold. The detail will matter enormously as will the polls which seem to be extremely negative for the ALP. For now, our advice is to ignore the noise, there should be no rushed decisions. Once draft legislation is released, we will be able to properly assess the impact and determine next steps.
The interesting part about all of this is that most of these broader tax changes do not apply within superannuation. While the Budget did not necessarily make super more attractive directly (Div296 changes raised eyebrows!), it may have indirectly increased the attractiveness of the super environment by making investing outside super potentially far harsher from a tax perspective.
It is also important to remember that none of these measures are law yet. All of the proposals still need to pass Parliament, and that process can take years — assuming the measures pass at all, which based on the polling, there will be a major backflip on the announcement and the politics will play out, at our expense.
Disclaimer – The content has been prepared by Redwood Advisory Pty Ltd without taking account of the objectives, financial situation or needs of a particular individual and does not constitute financial product advice. This article should not be considered personal financial advice as it is intended to provide factual information only.
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