On 12 May 2026 the Treasurer handed down the 2026-27 Federal Budget, which contains a number of significant measures that will change the tax landscape for a wide range of taxpayers. The Government has announced changes to the CGT discount, negative gearing, the taxation of trusts, the instant asset write-off, personal income tax, the FBT exemption for electric vehicles, the foreign resident CGT regime and more.
While we are still waiting on more detail for some of the key measures, the first suite of legislation relating to some of the proposed changes has been introduced to Parliament, giving us a clearer picture of how the Government intends for these measures to operate.
Aside from the Federal Budget, the Tribunal’s decision in the Botella case is a timely reminder of the need to take care when assisting clients with Division 7A loan issues, especially when it comes to written complying loan agreements.
The Federal Court decision in the Cameron case also highlights the need to be cautious with family trust elections. Mistakes or poor record keeping can lead to potentially significant family trust distribution tax liabilities.
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Inside this month, Ann Dai (Tax Adviser), Michael Carruthers (Tax Director), and Amy Yan (Associate Tax Director) bring you:
The Government has handed down the 2026-27 Federal Budget on 12 May 2026 with a wide range of significant tax reform measures being announced.
Some of the key measures include:
Since the Budget was handed down, legislation relating to some of the key tax related measures has been introduced to Parliament. Further details can be found in the “Legislation” section of the Round Up.
The Government has extended the ban which prevents foreign persons from purchasing established dwellings in Australia (limited exceptions apply). While the ban was meant to expire on 31 March 2027, it has been extended to 30 June 2029.
You are classified as a foreign person if you intend to buy Australian residential or commercial property and you are not one of the following:
A permanent resident who is not ordinarily a resident in Australia may also be treated as a foreign person in some circumstances.
A ‘foreign person’ includes temporary residents and NZ citizens who are non-residents. A temporary resident is an individual who:
The Government also announced that it would strengthen and streamline Australia's foreign investment framework, including reforms to foreign investment laws and the Register of Foreign Ownership of Australian Assets. Existing obligations remain in place until these reforms have been implemented.
The ATO has finalised its updated guidance for individuals on income and deductions relating to rental properties, including its controversial new approach to holiday homes that are used to derive rent. This comprises three separate, but related documents, as follows:
TR 2026/1
The ruling provides guidance for individuals who earn income from their rental property, and applies to both short-term rental arrangements, such as holiday accommodation or room sharing through online platforms, and long-term residential leasing.
The ruling explains when rental receipts will be assessable income, when expenses relating to rental properties can be claimed as deductions, and how deductions should be apportioned where a property is used partly for income-producing and private purposes. It also outlines the ATO’s view on the operation of the “leisure facility” rules in section 26-50 ITAA 1997, under which certain holding costs for holiday homes may be denied completely unless an exception applies. The key thing to note is that if a property is classified as a leisure facility then certain expenses won’t be deductible at all, even if the property is used to derive some assessable rental income during the income year.
A transitional compliance approach applies to expenses incurred before 1 July 2026, with the Commissioner indicating compliance resources will generally not be devoted to reviewing the application of section 26-50 to holiday homes during this period, except in cases involving avoidance, fraud, evasion, or inappropriate use of the concession.
PCG 2026/2
PCG 2026/2 outlines the ATO’s compliance approach to apportioning rental property deductions where an individual uses a property partly to derive assessable income and partly for private purposes, such as renting out part of a home while living in the remainder. In these situations, expenses must be apportioned on a “fair and reasonable” basis to determine the deductible amount.
The guideline sets out apportionment methods the Commissioner will accept in common scenarios. While taxpayers can potentially adopt a different methodology, they will need to demonstrate why it is fair and reasonable in their circumstances and will not have the protection of the guideline.
PCG 2026/2 applies to individuals only and does not cover rental properties used in carrying on a business or held by non-individual entities. It also generally excludes holiday homes, although an exception may apply where the property is mainly held to produce rental income. In those cases, the guideline can assist in apportioning deductions for any private use.
PCG 2026/3
PCG 2026/3 sets out how the ATO differentiates and manages risk for a range of rental property arrangements which could potentially be subject to the leisure facility rules in section 26-50.
The ATO has issued a draft legislative instrument LI 2026/D3, Draft Superannuation Guarantee (Administration)(Out-of-Cycle Qualifying Earnings) Determination 2026, which outlines when employers may receive additional time to make on-time superannuation guarantee (SG) contributions for certain out-of-cycle qualifying earnings under the Payday Super rules.
Under the draft instrument, where an employer has an established payroll schedule and makes a payment outside the normal pay cycle, the following payments may qualify as out-of-cycle earnings:
Rather than the standard 7 business day contribution deadline, employers would have until 7 business days after the employee’s next regular payday to make an on-time SG contribution for these payments. The measure is intended to reduce compliance costs by avoiding ad hoc contribution requirements for irregular payments made outside the usual payroll cycle.
However, termination payments will generally not qualify for the extended timeframe where there is no later qualifying earnings day for that employee. In those cases, the standard 7 business day deadline continues to apply.