2026 Federal Budget – How It Started, How It’s Going

 

In the last month the ATO issued two guidances that provide a clue as to where they feel the debate may head next year when the Budget changes take effect:

1. When are you in business (TR 2026/D2)

2. Market valuations for tax purposes

The first guidance is particularly relevant for artists, but it could be useful for anyone considering ways to avoid paying 30% capital gains tax after 1 July next year by forming businesses to dispose of their new art collections, created courtesy of the Budget.

The second guidance concerns the flood of valuations that will occur next year, to comply with the new CGT rules. Anywhere from 50,000 to 100,000 high value artworks, collectibles and personal use assets will have to be valued close to July 2027 because of the non-retrospective nature of such valuations and as the ATO helpfully points out ‘a valuation cannot be forward-looking’.

That’s how it’s going. Let’s look at how it started.

On 12 May, following more than six months of secret public service tax discussions and reviews (reported by The Australian Financial Review, 14 October), Treasurer Jim Chalmers released the 2026 Federal Budget.

The greatest tax reform effort by an Australian government for over thirty years, the underlying narrative was to assist home ownership equity for younger generations. Changes to GST were not included in the Budget, which instead focused heavily on capital gains tax, negative gearing and discretionary trusts.

However, because the government did not consult the public before making these changes, it quickly became apparent the Budget would create inadvertent tax outcomes. The Budget’s design was partly based on Scandinavian systems that impose flat rates of tax on capital gains, whereas Australia has historically levied taxes at progressive rates.

It has become obvious to many people that the wealth they currently hold in tax-free assets, including property, shares, businesses, artworks and personal use assets, would be subject to taxation from 1 July 2027. Not quite inheritance taxation, but pretty close.

On 24 June, Prime Minister Anthony Albanese intervened against the public backlash to the unpopular Budget, with an announcement of major changes to important tax measures that should have been included the previous month, including:

–          small business CGT concessions

–          a new 50% discount for ‘innovative start-ups’

–          negative gearing housing exemptions

However, at the same time, other non-2026 Budget regulations imposed on seemingly everything:

–          introducing payday super

–          banning credit surcharges

–          prohibiting SMSFs from negatively gearing residential property investments

–          reducing deposits on housing from 20% to 5%

have worked in concert with the Budget changes and the Reserve Bank’s attempt to rein in inflation by increasing interest rates, creating an environment of great business and investment uncertainty.

Administrative penalties may apply, even if you engage a professional valuer, for making a false or misleading statement or treating the income tax law in a manner that is not reasonably arguable, if:

–          you have not given the correct information to your valuer

–          you or your agent should reasonably have known the value was incorrect

–          the methodology or valuation hypothesis is based on an unsettled interpretation of a tax or superannuation law or unclear facts

With estimates of 50,000 to 100,000 high value artwork, collectible and personal use assets requiring valuation next year, one can see why the ATO is laying the groundwork now.

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