May 2026 Budget: watch for major tax reform
The May 2026 Federal Budget is shaping up to potentially be the most significant tax reform package since the introduction of the GST in 2000. Public commentary and pre-budget positioning have suggested that changes may be as follows (non-exhaustive):
- capping or restricting negative gearing (likely limited to new builds or a small number of properties)
- reducing the 50% CGT discount on investment assets and
- introducing a minimum tax on certain trust distributions, which would broadly align with the ATO’s current approach to section 100A.
None of these has been formally announced, however, the Government is making all the noises consistent with a looming change and appears to be conditioning the public for change ahead of the Budget.
Discussions with clients may have already begun. For now, it is mere speculation, however, it is suggestive that significant changes are on the horizon.
Tax planning season this year could be particularly important.
GIC remission: Ombudsman has her say
The Tax Ombudsman's recent report found that the ATO's general interest charge (GIC) remission decisions have become inconsistent and, in some cases, harsh enough to drive taxpayers into insolvency. The percentage of remission requests granted fell from 88% in 2024 to 76% in 2025, while the total GIC balance ballooned from $3.4 billion in 2019 to $9.7 billion in 2025. The Ombudsman found poor guidance, "pot luck" outcomes and a lack of empathy for taxpayers genuinely trying to engage. The ATO has accepted all recommendations and promised calibration sessions, better training, improved written guidance and a post-implementation review of its centralised remission function.
Remission is still possible and remains well worth pursuing. However, the bar is higher and a well-prepared application is now essential. Remission requests should clearly address what caused the debt, why remission is appropriate, the taxpayer's payment history and capacity to pay and what steps were taken to engage with the ATO. Poorly prepared or vague requests are increasingly being refused.
Succession planning in the ATO's sights
The ATO has confirmed that succession planning for private groups will remain a major compliance focus in 2026 with attention on:
- changes in effective control not reflected in legal documentation
- restructuring of trusts and companies between generations
- forgiveness or restructuring of related-party loans and
- transactions involving business real property and active assets.
The concern is that arrangements dressed up as succession planning can mask unreported CGT events, Division 7A issues or misuse of the small business CGT concessions.
Contemporaneous documentation, proper valuations and careful treatment of CGT and Division 7A are essential. Informal, undocumented restructures are a red flag. Engage experts early. Establish positions that are at least reasonably arguable and consistent with your clients’ risk appetite.
Sham contracting: ATO and Fair Work
The ATO and the Fair Work Ombudsman have announced an intensified joint crackdown on sham contracting, initially targeting the building and construction and road freight industries. Using TPAR data, Single Touch Payroll, ABN records and tip-offs, the two agencies are identifying individuals who are effectively employees in all but name. Unpaid super, PAYG withholding, payroll tax, penalties and Fair Work claims are all in play.
Alerts like these are typically an indication that they will become a focus of reviews and audits.
Businesses relying on ‘contractors’ who work exclusively for them, take direction like employees and do not genuinely bear business risk are at risk of scrutiny.
Unwritten arrangements: importance of documentation
In Commissioner of Taxation v S.N.A Group Pty Ltd FCAFC 10, the Full Federal Court unanimously denied over $19 million in service fee deductions paid between related parties after a written agreement lapsed in 2015. The Court held that conduct alone (including continued payments and accounting entries) does not establish a binding legal obligation.
Many private groups rely on ‘understood’ arrangements between related entities for management fees, service charges, licence fees and cross-charges of staff and assets. S.N.A Group confirms that longstanding practice is not enough. If the written agreement does not exist (or has lapsed) the payments may simply not be deductible. Any material inter-entity arrangements should be formally documented, reviewed regularly and kept current. We recommend a review of related-party arrangements across client groups following this decision.
Fabricated records: two Tribunal cases in ATO’s favour
Two recent Tribunal decisions have involved fabricated or unreliable records (including car logbooks and work-from-home records) that did not align with objective evidence such as calendar entries, job requirements and third-party records. In each case, deductions were disallowed and penalties upheld on the basis that the taxpayer had not taken reasonable care. We expect reconstructed records to become a sharper ATO focus in 2026, particularly given the ATO's expanded data-matching capabilities.
We expect that logbooks may attract greater scrutiny following the ATO’s recent tribunal successes.
Logbooks and home-office records must be kept contemporaneously: they cannot be reconstructed after the fact.
Division 296: now passed both Houses
Division 296 has now passed both Houses of Parliament.
See previous newsletters.
Superannuation caps increasing from 1 July 2026
The concessional contributions cap rises from $30,000 to $32,500. The non-concessional cap rises from $120,000 to $130,000. The bring-forward cap increases to up to $390,000 (depending on total super balance). The general transfer balance cap also increases from $2m to $2.1m from 1 July 2026.
Increased opportunities to use superannuation contributions to reduce taxable income.
