Since the Federal Treasurer handed down the 2026–27 Federal Budget on 12 May 2026 there has been significant commentary on the more controversial proposals, including the decision to replace the CGT discount with an indexation system and impose a 30% minimum tax rate on discretionary trusts. The Government has since announced some changes to these proposals.

CGT Changes

On Budget night the Treasurer announced that the existing 50% CGT discount for individuals and trusts would be replaced with an indexation system and a 30% minimum tax rate on capital gains accruing from 1 July 2027.

In addition, the Government is increasing the annual turnover threshold for accessing the 50% "active asset reduction" under the small business CGT concessions, from $2 million to $10 million, from 1 July 2027. The existing $2 million threshold remains in place for the other three small business CGT concessions (the 15-year exemption, retirement exemption and small business rollover relief). Taxpayers who cannot pass the turnover test can still access the concessions via a $6 million net asset value test.

Testamentary Trusts

The Government had initially indicated that the 30% minimum tax on discretionary trusts (from 1 July 2028) would apply to testamentary trusts unless they existed before 12 May 2026. The Government has now announced that income from all testamentary trusts will be exempt, subject to:

• The exclusion being limited to income from assets of the relevant deceased estate.
• For testamentary trusts established on or after 1 July 2028, the exclusion only applies to trusts that can benefit individuals and income tax exempt entities.

SMSF Borrowing Arrangements

One of the most significant changes to the Australian superannuation system in decades has now commenced. From 1 July 2026, Payday Super requires employers to ensure super contributions reach employee super funds within seven business days of each payday. For many businesses, this represents a major shift from a quarterly payment cycle to a more frequent, real-time obligation.

What Exactly Has Changed?

Under the previous rules, employers generally had until 28 days after the end of each quarter to make super contributions. Under Payday Super, the clock now starts on each "Qualifying Earnings" (QE) day — essentially your payday for salary, wages, commissions, bonuses and certain contractor payments.

Key Requirements

• Contributions must be received and allocated to the employee's fund within 7 business days of payday.
• Shortfalls are now calculated per QE day rather than quarterly.
• The ATO's Small Business Superannuation Clearing House has closed — businesses previously using it must now use a SuperStream-compliant alternative.

Managing the June–July Changeover

There is a technical quirk that could catch out unsuspecting employers around the July 2026 changeover. Any SG contributions made from 1 July 2026 will reduce the super owing for the June quarter first, before any remaining amount is used to meet Payday Super obligations for July pay runs. The best way to manage this depends on the dates of your July pay runs.

Three Practical Steps to Take Now

1. Review your systems — Confirm that your payroll software, clearing house and internal processes are operating correctly. Review pay codes and contribution workflows to ensure QEs are correctly identified.
2. Monitor cash flow and processes — Assess the impact of more frequent payments. Review approval processes, onboarding procedures and the handling of bonuses or out-of-cycle payments.
3. Strengthen controls and communication — Ensure payroll and finance teams understand the new requirements. Ongoing monitoring will help identify issues before they become compliance problems.

The ATO is sharpening its focus on how taxpayers generating income from personal services deal with that income for tax purposes. A recent Spotlight bulletin from Small Business Assistant Commissioner Tony Poulakis highlighted the release of Practical Compliance Guideline PCG 2025/5, which clarifies the ATO's compliance approach to the "alienation" of personal services income (PSI).

PSI arrangements involve routing income earned through your personal skills and efforts via a company or trust, rather than receiving it directly. Many such arrangements are entirely legitimate — but where income is generated primarily from one individual's efforts, the ATO is concerned about structures that divert income to reduce tax. Even where a business qualifies as a Personal Services Business (PSB), the general anti-avoidance provisions in Part IVA can apply if the arrangement is primarily tax-driven.

What Does the ATO Consider Low Risk?

• The individual who performs the work receives most of the economic benefit through salary, wages, bonuses, director fees or trust distributions.
• Profits retained in a company are kept for genuine and short-term business reasons.
• Family members or associates are only paid reasonable amounts for genuine work performed.

What Will Attract ATO Attention?

• Splitting income with family members who have made little or no contribution to earning it.
• Retaining substantial profits in a company without a genuine short-term commercial purpose.
• Directing profits to entities or beneficiaries primarily because they are taxed at lower rates or hold tax losses.

A Limited Opportunity to Review Existing Arrangements

This is not an amnesty, but it is a meaningful opportunity for business owners to proactively assess their position and make changes where necessary. Questions worth considering now:

• Are retained profits supported by documented short-term commercial reasons?
• Are payments to family members commercially justifiable?
• Would your arrangements withstand ATO scrutiny if reviewed?

The Tax Ombudsman has reported a dramatic 127% increase in complaints about the ATO this financial year (to 30 April 2026), with nearly 3,000 complaints received in the first ten months. Debt collection, penalties and tax debt interest charges (GIC) have dominated the issues raised. Tax Ombudsman Ruth Owen has linked the sharp rise directly to the ATO's intensified focus on recovering outstanding debts amid tighter economic conditions.

Why Complaints Are Rising

Debt collection accounted for around 23% of complaints, followed by payment-related issues (16%) and penalties plus interest (15%). Common concerns include:

• Refund offsets against debts
• Director Penalty Notices
• Challenges in setting up or maintaining payment plans
• The rapid accumulation of General Interest Charge (GIC) on overdue amounts

Practical Wins: Relief Is Possible

Important Developments on GIC Remission

In March 2026, the Tax Ombudsman released a major review titled In the Interest of Fairness, examining the ATO's handling of GIC remission requests. The review identified inconsistent decision-making, unclear guidance and communication gaps. The ATO accepted all recommendations and has begun implementing improvements, including:

• Enhanced website guidance with practical examples
• New, more user-friendly remission application forms
• A $2,500 cap on phone approvals with a dedicated review team for larger requests
• Better support frameworks for vulnerable taxpayers

What This Means for You

1. Act early on tax debts — Don't wait for the ATO to contact you. If you're facing cash flow pressure, engage proactively before penalties and GIC escalate. Early action often leads to better terms.
2. Keep detailed records — Strong documentation is crucial when seeking remission. Demonstrate why the delay occurred and what steps you've taken to rectify it.
3. Use professional representation — Tax agents can liaise directly with the ATO, prepare strong submissions and escalate to the Ombudsman where appropriate.

With the start of the 2026–27 financial year, SMSF trustees should take a proactive approach to ensure funds remain compliant and well positioned. Below is a practical checklist of the key legislative changes, compliance deadlines and actions to prioritise.

1. Review Transfer Balance Cap and Pension Planning

• TBC indexation: From 1 July 2026, the general transfer balance cap (TBC) increases from $2.0 million to $2.1 million. Check whether your personal TBC is eligible for indexation — the ATO calculates this based on reported transfer balance account (TBA) events, so ensure all events to 30 June 2026 have been reported.
• Legacy pensions: The five-year legacy pension exit measure (7 Dec 2024 – 6 Dec 2029) remains available. Confirm deed powers and consider the interaction with Division 296 and commutation rules before acting.

2. Update Contribution Strategies and Caps

3. Pension Minimums, TRIS and ECPI Risks

• Check minimum pension percentages for each age group and ensure pensions meet the standards to avoid breaches and potential loss of fund tax-exempt income.
• For transition to retirement (TTR) pensions, ensure you don't exceed the 10% maximum. If turning 65 in 2026–27, a TTR automatically moves into retirement phase — speak to your adviser about implications well before your 65th birthday.
• Follow correct commencement and commutation procedures; incorrect handling can trigger adverse tax outcomes. Report all TBA events to the ATO by the due date.

4. Review Related Party Loans and Update Interest Rate

PCG 2016/5 sets out the terms and conditions related party loans should have. The interest rate must be reviewed annually in line with the relevant rate determined in May before the financial year commences. The rate has increased from 8.95% / 10.95% to 9.35% / 11.35% for property and listed securities respectively — repayments must be adjusted to reflect these new rates.

5. Check Compliance for Payroll and Contributions (SuperStream 3.0 / Payday Super)

• NPP readiness: From 1 July 2026, funds and employers must be capable of receiving contributions via the New Payments Platform (NPP). Ensure your SMSF bank account can accept Osko/PayID payments.
• Member Verification Requests (MVRs): Employers will use MVRs to confirm whether a fund can accept a contribution. Inform your SMSF accountant or administrator if your employer will be sending an MVR.
• Closely held employees: Confirm whether SuperStream exemptions apply and ensure payroll systems are updated — late lodgements may result in penalties, and the ATO can remove fund details from the SMSF lookup database if tax returns are overdue.

6. Consider Division 296 Transitional Rules and Tax Traps

The 2026–27 year has specific transitional rules for Division 296, where the relevant total super balance (TSB) is measured at 30 June 2027. Trustees should assess whether electing to set a Division 296 cost base to 30 June 2026 market values is appropriate. This election doesn't need to be made until the lodgement of the 2027 SMSF Annual Return, but it applies to all assets and has consequences for capital losses and later adjustments. Seek tailored advice before electing.

7. Practical Housekeeping

• Deed powers and trustee structure — Consider whether a corporate trustee structure may be a better option for your fund. Changes to trustee structure must be reported to the relevant authority within required timeframes.
• Document everything — Keep clear records of trustee decisions, valuations, contribution timing evidence and employer communications. Documentation is key for the annual audit and any ATO queries.