Topic for Practice Updates - October 2026

Federal Budget 2026 Tax Changes: What Property Investors Need to Know About Depreciation and CGT 

The first tranche of the 2026–27 Federal Budget tax reforms has passed Parliament. It changes how property investors use rental losses and how capital gains are taxed, with most changes starting on 1 July 2027. 

From 1 July 2027, negative gearing for residential property will be limited to eligible new builds. For established residential properties bought after 7:30pm (AEST) on 12 May 2026, rental losses will only be deductible against residential property income, including residential property capital gains. Any excess loss will be carry forward that excess to offset residential property income in future years rather than reducing salary or other income. Properties held before Budget night keep their existing negative gearing treatment, and new builds remain fully negatively geared. 

For CGT, the 50% discount for individuals, trusts, and partnerships will be replaced with cost base indexation. A 30% minimum tax will also apply to real capital gains accruing from 1 July 2027. For assets held before that date and sold afterwards, the gain will be split. The 50% discount will apply to the gain up to 1 July 2027, and the new rules will apply after that, the 1 July 2027 value can be set by a market valuation or an ATO apportionment method. Investors in new builds can choose between the 50% discount and the indexation method. 

Depreciation schedules remain important for supporting deductions and tracking carried-forward losses. Investors who expect to sell after 1 July 2027 should talk to us about whether a valuation at that date or the apportionment method will give the better outcome and should keep contract records for any purchase made around Budget night. 

Dynamic and monthly PAYG instalments from 1 July 2027 

In the 2026–27 Budget, the Government announced that from 1 July 2027, businesses will be able to vary their PAYG instalments more easily, so they reflect real-time business conditions. This is known as dynamic PAYG instalments. From the same date, businesses will be able to opt in to reporting and paying PAYG instalments monthly. Taxpayers with a history of non-compliance will be required to report and pay monthly. 

The ATO has also released draft guidance (PCG 2026/D3) indicating it will not pursue general interest charges where businesses use the dynamic calculation as intended. The measure is not yet law. 

R&D Tax Incentive reforms: exposure draft released 

Treasury has released exposure draft legislation to reform the Research and Development Tax Incentive (R&DTI) from 1 July 2028. The proposed changes would: 

• increase offsets for eligible core R&D activities and remove eligibility for supporting R&D activities 

• reduce the intensity threshold for the non-refundable offset from 2% to 1.5% 

• increase the turnover threshold for the refundable offset from $20 million to $50 million 

• increase the minimum expenditure threshold from $20,000 to $50,000 

• increase the maximum expenditure threshold from $150 million to $200 million 

• limit the refundable offset to firms up to 10 years old, extended to 15 years for eligible firms doing R&D related to therapeutic goods. 

Treasury also sought views on whether clinical manufacturing R&D expenditure should be eligible. Consultation ran from 10 to 28 September 2026. The measures are not yet law. Businesses that currently claim the R&DTI, particularly supporting activities or older or larger claimants of the refundable offset, should consider how the changes may affect future claims. 

ATO focus on taxpayers who vary their PAYG instalments 

The ATO is writing to taxpayers who have varied their PAYG instalments to nil for several years, or to their tax agents. The letters remind them that the general interest charge (GIC) may apply where instalments have been significantly understated. 

PAYG instalments are regular payments made during the year towards the expected tax on business and investment income, so taxpayers aren't left with a large bill at year end. Taxpayers can vary their instalments if their circumstances change. However, the ATO expects any variation to be based on information that is reasonable, current, and able to be substantiated. 

Taxpayers who have varied their instalments should: 

• Review their instalment amounts regularly 

• Keep records that support each variation decision 

• Update the variation if their financial circumstances change. 

If you have varied your instalments, particularly to nil, now is a good time to check that the estimate still reflects your expected income for the year. 

FBT changes for salary sacrificed work-related benefits 

From 1 April 2027, the start of the 2027–28 FBT year, the FBT treatment of some salary sacrificed work-related benefits will change. These changes are linked to the new $1,000 standard deduction for work-related expenses. 

Employers will no longer be able to use the "otherwise deductible rule" to reduce FBT on expense payment benefits that are work-related, covered by the standard deduction, and provided through salary sacrifice. Examples include reimbursing home office, phone or internet, and self-education expenses. The rule still applies to benefits not covered by the standard deduction or not provided through salary sacrifice. 

The following work-related items will also lose their FBT exemption when provided through salary sacrifice: 

• portable electronic devices 

• computer software 

• protective clothing 

• briefcases 

• tools of trade. 

Where these items are provided outside salary sacrifice and used mainly for work, all employers will be able to provide more than one item with the same or a substantially identical function in an FBT year and still access the exemption. This removes the current limit of one exempt item per employee per FBT year. 

Employers offering salary packaging for work-related items should review their arrangements before 1 April 2027. 

ATO to stop accepting credit cards after 30 November 2026 

The ATO will stop accepting credit cards as a payment method after 30 November 2026. The change follows the Reserve Bank of Australia's review of merchant card payment costs and surcharging. The ATO has decided that, as a government agency, it would not be appropriate to pass the cost of credit card merchant fees to the community. 

The ATO is writing directly to taxpayers who have a payment plan linked to a credit card. Anyone with a direct debit arrangement linked to a credit card will need to update their payment method before their next instalment due after 30 November 2026 to stay compliant with their payment plan.  

Taxpayers and businesses that currently pay tax by credit card should plan for the change now, including any cash flow impact. The ATO will continue to support taxpayers experiencing financial hardship.  

Foreign resident capital gains withholding variations consolidated 

Under the foreign resident capital gains withholding (FRCGW) regime, purchasers of certain Australian assets must withhold an amount when buying from a foreign resident. The Commissioner can reduce or vary these amounts for particular classes of transactions. 

A new 2026 legislative instrument replaces five earlier variation instruments with a single instrument. The earlier instruments covered: 

• acquisitions from multiple entities 

• deceased estates 

• income tax exempt entities 

• relationship breakdowns 

• mortgagee sales with no residue. 

The new instrument has the same effect as those it replaces, except for acquisitions from income tax exempt entities, where the evidence required has changed. It largely commenced on 17 September 2026. 

Separately, strengthened foreign resident CGT rules apply to CGT events on or after 1 October 2026. Purchasers and their advisers should check which variation and rules apply before settlement. 

Tax Ombudsman review into administration of Director Penalty Notices 

The Tax Ombudsman has announced a review into how the ATO administers Director Penalty Notices (DPNs). The review will look at whether, before, during and after a DPN is issued: 

• The ATO's communications give current and former directors adequate and timely information about their obligations, the penalty, the underlying tax debt and the options available to them 

• The ATO appropriately and consistently considers directors' individual circumstances, including during debt recovery 

• The ATO appropriately responds to factors such as vulnerability, coercive directorship, and financial abuse. 

Submissions closed on 29 September 2026, and the report is expected by April 2027. In the meantime, directors remain personally exposed for unpaid PAYG withholding, GST and superannuation guarantee liabilities. Directors should make sure company lodgments are up to date and act quickly if they receive a DPN. 

Need help navigating these changes? 

With a number of tax, superannuation and compliance changes taking effect this financial year, now is a good time to review how the latest developments may affect you or your business. If you have any questions about the updates covered in this newsletter or would like assistance with your tax and compliance obligations, contact the Lynden Group team. We're here to help you understand the changes, stay compliant, and plan with confidence. 

Email: info@lyndengroup.com.au