Impact of the Federal Budget on Succession Planning for Farmers

Budget

The 2026 Federal Budget was announced at 7:30 pm on the 12th of May 2026 (the “Budget”). This Budget has been called one of the most ambitious budgets since the introduction of Goods and Services Tax in the late 1990s. This is largely due to widespread changes to tax structures stemming from proposed changes to negative gearing, minimum tax on distributions from discretionary trusts (generally called family trusts), and changes to capital gains tax discounts.

Firstly, it is important to note that the Budget is not a method to impose changes to law, or to introduce new laws. Instead, the Budget is a representation made by the sitting government as to the future intention of the government to make changes to laws. In order to enact those proposed changes, a bill must pass through the House of Representatives (the lower house) and the Senate (the upper house) with both houses passing the proposed bill by way of majority vote.

The Australian Labor Party holds a voting majority of more than 50% in the lower house. However, they only hold 29 of 76 votes in the upper house. Accordingly, Labour will be relying on support from the Greens, or other parties to ensure the bill can pass through the Senate and become law. Therefore, while it is likely that the changes proposed the Budget in will become law, it is not certain.

Capital Gains Tax Amendments

The current capital gains tax (CGT) discount, as has applied since 1999, grants a flat rate discount of 50% of the capital gain for a taxable asset taken after 20 September 1985 provided the asset has been held for more than one year. Importantly, most assets held continuously from prior to 20 September 1985 are currently exempt from CGT.

The government has proposed to amend the CGT discount to fully tax the “real gains” of an asset. This will be calculated by taking the value of the asset as at 1 July 2027 and adjusting it annually in line with inflation.

Should an asset:

(a) be sold after that date for a value that is greater than the adjusted value of the property, then CGT will be payable on the portion of the sale price in excess of the adjusted value of the asset;
(b) be sold after that date for a value that is less than the adjusted value of the property, then no CGT be payable, although it is unclear whether a capital loss would apply to that asset.

In addition to the above, the method of calculating CGT has changed. Whereas previously CGT was taxed as if it were normal income, at your marginal rate, the new tax for CGT will be the greater of your marginal rate or 30%.

It also appears to be government’s intention for CGT to accrue on those assets that had previously been exempt from CGT as it was held continuously since before 20 September 1985.
This could have significant impact on farmers looking to retire or to hand over ownership of the farm to future generations as the farmer will likely be required to pay a greater amount of CGT on a sale of their farmland, including on any transfer to a future generation for little or no consideration.

Importantly, the government has indicated that it does not intend to alter the small business CGT concessions that many farmers can implement in their estate planning to reduce the amount of CGT payable, or to roll over assets into a separate arrangement without triggering a CGT event, including:

– the 15 year exemption;
– the small business 50% active asset reduction (which is different to the flat rate of 50% and could be stacked);
– the small business retirement exemption; and
– the small business rollover.

Further, the government has indicated that it will seek to introduce temporary relief, spanning from 1 July 2027 to 30 June 2030, from CGT consequences for those people seeking to transfer assets out of a discretionary trust to a separate arrangement. While no details have been provided about this relief, it could be an effective tool for those looking to restructure their farm.

Minimum Tax on Discretionary Trust Distributions

The government has proposed to introduce a minimum tax of 30% on any distribution made from a “discretionary trust” to a beneficiary of that trust. In most cases, this will reduce the benefit of income splitting, whereby the income of the trust is divided between the lower earners to minimise the tax payable by the trust.
This minimum tax will be implemented by way of:
(a) requiring that the trustee pay tax on any distributable income from a trust; and
(b) introducing the concept of a non-refundable tax credit from a trust to a beneficiary.
It is intended that companies will not be eligible to benefit from the non-refundable tax credit, potentially resulting in the concept of bucket companies as beneficiaries of a trust becoming redundant.
Importantly for farmers, the government has indicated that it intends to ensure that primary production income is exempt from the minimum 30% tax on distributions, meaning income derived from the off farm assets (think rental properties, shares, interest on cash, etc.) held within a trust will be taxed at 30%, but income derived from primary production activities will not.

Negative Gearing

Of the three major amendments proposed in the Budget, the amendment to negative gearing could be the least relevant to farmers.
Negative gearing is the concept of reducing a person’s normal income by deducting from it the losses relating to ownership of an asset owned for the purpose of earning income. In the context of residential investment properties this would commonly include costs relating to interest on a mortgage, maintenance costs, management fees, and insurance.
The ability to negatively gear an existing residential property purchased after the Budget was announced will no longer apply. Instead, those losses can be carried forward into subsequent tax years and applied to income derived from leasing a residential property or capital gains tax payable in respect of the sale of a residential property.
It is important to note that it is intended that this exclusion only apply to:

(a) existing dwellings;
(b) that:
a. were purchased or ownership was obtained in after 12 May 2026; or
b. a contract to purchase the property was not signed before 7:30 pm on 12 May 2026; and
(c) are residential properties.

This exemption will likely not apply to loans relating to the purchase of farmland, nor should it apply to any interest payable on redraw facilities, lines of credit, or other loans taken out in order to run the business.

The only limitations farmers may face in respect of the amendments to negative gearing would be if purchasing residential investment properties for off-farm children formed part of their estate plan.

Estate planning

With the significant changes proposed in the Budget, it is now more important than ever to review your current structure and your estate plan to ensure you are prepared for the upcoming changes, and that you have the appropriate structure balancing asset protection, flexibility as to succession of your farm, and to ensure you avoid any unnecessary taxes and other costs.

Author: Tom O’Dwyer

Published: 27 May 2026

The information in this article is general in nature and is not to be relied upon as legal advice. As always, we recommend you seek thorough legal advice to consider your own circumstances and determine whether the information contained in this article is applicable to you. This article is current as at the date of publishing but will not be updated as circumstances change.