The 2026–27 Budget didn’t just reshape Australia’s tax system. It handed the ATO a potential roadmap for where to focus compliance resources next. Here’s who may be in the crosshairs, and steps you could take before July.
In the past, significant tax reform has been followed by ATO scrutiny. The mechanism is simple: new rules create disputed edges, grey areas, and transition complexity. The ATO staffs up, targets data-matching, and audits the new terrain. It happened with trust distributions in 2022. It happened with work-from-home deductions after COVID. It could happen again.
The 2026–27 Budget contains five structural changes that each carry their own audit risk. Below is a plain-English breakdown and a client-type risk rating for each one.
The 5 key changes
Why property investors need to be careful
The negative gearing and CGT changes are significant in combination, and the compliance risk starts earlier than many clients realise.
On negative gearing: the relevant cut-off is not 1 July 2027, it’s Budget night. Established residential properties acquired after 7:30pm AEST on 12 May 2026 will no longer allow rental losses to be offset against other income (such as wages) from 1 July 2027. Properties held before that time are grandfathered under current rules. New builds remain eligible for full negative gearing. The ATO will be data-matching property acquisition dates against tax returns; a contract date mis-recorded by even one day could be a trigger.
On CGT: the new model replaces the 50% discount with cost base indexation and introduces a 30% minimum tax on real capital gains for assets held 12 months or more, applying to gains accruing after 1 July 2027. Existing assets held at 1 July 2027 will have gains split, the pre-2027 portion retains the 50% discount, while the post-2027 portion falls under the new rules. (Note: superannuation funds are not affected, and investors in new builds can elect between old and new arrangements.)
This calculation requires accurate cost base records going back potentially decades. If your clients cannot substantiate their cost base in detail, they are exposed — not because they have done anything wrong, but because they cannot prove it.
The cost of a successful ATO audit: Even when the taxpayer is fully compliant, responding to an ATO audit typically involves significant professional fees. Based on industry experience, these can range from $3,000 up to $15,000. That’s before any amended assessments or penalties are considered.
Trust clients: the scrutiny starts now, not in 2028
The 30% minimum trust tax doesn’t land until July 2028, but the ATO may not wait that long. Historically, the ATO has increased compliance activity in the lead-up to major legislative changes where they want to understand the existing landscape before the new rules kick in. Clients who have been creative with discretionary trust distributions should be conducting a health check now, not in 2027.
Important carve-outs: The minimum tax does not apply to fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates, or charitable trusts. Critically for rural practices, primary production income is excluded from the minimum tax regime. Discretionary testamentary trusts existing at Budget announcement are also excluded.
For in-scope discretionary trusts, a 3-year rollover relief window will be available from 1 July 2027 to 30 June 2030, allowing restructure into a company or fixed trust without income tax or CGT consequences; something important to note.
This change is estimated to raise $4.5 billion over five years. Revenue expectations of that scale come with a compliance strategy behind them.
Small business: opportunity with a catch
The permanent $20,000 instant asset write-off is genuinely good news. But permanent rules attract permanent ATO attention. The write-off has historically been one of the most common areas for small business compliance reviews, and a newly legislated permanent version will bring fresh scrutiny to businesses that push the classification boundaries.
The two-year loss carry-back for businesses under $1 billion is a significant policy expansion. Newly eligible businesses filing carry-back claims for the first time are exactly the kind of unusual pattern that ATO data-matching is designed to flag.
The WATO is simpler than it looks — until it isn’t
The new Working Australians Tax Offset of up to $250 sounds straightforward, but it applies only to earned income — wages, salaries, and sole trader business income, from 1 July 2027. For clients with a mix of investment income, trust distributions, and salary, which describes a large portion of any accounting practice’s book, correctly categorising income to claim the offset accurately is a compliance task. Incorrect WATO claims will be low-hanging fruit in ATO data-matching reviews.
What you can do before June 30
- Investment property clients: Review records now, particularly for any property acquired on or after Budget night. The grandfathering line is the contract date of 12 May 2026 — document it clearly.
- Trust clients: Brief all discretionary trust clients on what’s coming. Identify any who may benefit from restructure during the rollover relief window (1 July 2027 – 30 June 2030). Note farming and other carve-outs before assuming exposure.
- Employer clients: Update PAYG withholding as tax rates step down.
- All clients: Provide clients with information about available tax audit insurance options in light of the compliance environment ahead.
The rules are changing. The ATO will be watching closely. The accountants whose clients are protected, and who can demonstrate professional defensibility in every position, will be better placed to navigate what comes next.
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This article is general information only and does not constitute tax advice, legal advice or financial product advice. It does not take into account any person’s objectives, financial situation or needs. Readers should seek professional advice specific to their circumstances.
Any references to tax audit insurance are general in nature. Cover is subject to the relevant policy wording, limits, exclusions and eligibility criteria, and may not respond to every audit, review, investigation, cost or circumstance. Tax audit insurance does not cover tax, penalties, interest or fines.
Budget measures referenced are proposals only and remain subject to legislative passage. Detailed legislation has not yet been released for all measures.
