The Federal Treasurer, Dr Jim Chalmers, handed down the 2026–27 Federal Budget on 12 May 2026, delivering sweeping changes to capital gains tax, negative gearing, discretionary trust taxation and business incentives; all against a backdrop of elevated interest rates and global geopolitical uncertainty.
For businesses carrying debt, the implications are significant. After-tax cash flows will compress for many borrowers, though several measures (most notably the reintroduction of loss carry-back) provide genuine and immediate relief. Acting before key deadlines will be critical to protecting debt serviceability and financial flexibility.
The Economic Backdrop
Treasury’s GDP growth forecasts look optimistic relative to the RBA’s own projections. With the oil price shock likely to extend economic uncertainty, and interest rates remaining higher for longer, consumption and business investment may well underperform expectations. The Budget forecasts aggregate deficits of $150.5 billion to 2029–30, with net government debt reaching $767.8 billion (21.9% of GDP). The cost of capital is unlikely to fall sharply in the near term and businesses with debt must plan accordingly.
Key Measures for Businesses with Debt
1. Tax Loss Carry-Back: Immediate Cash Flow Relief
From 1 July 2026, companies with turnover under $1 billion can carry back current-year tax losses against taxes paid in the prior two years, generating a cash refund. The measure is permanent and limited to revenue losses and the company’s franking account balance.
For leveraged businesses, this is a significant near-term measure. Loss carry-back refunds should be modelled into cash flow forecasts to understand the impact to liquidity and debt serviceability.
2. CGT Reform: A Closing Window for Asset Disposals
From 1 July 2027, the 50% CGT discount is replaced by CPI-based cost base indexation, with a 30% minimum tax on net capital gains. This applies to individuals, trusts and partnerships.
Higher tax on asset disposals reduces net proceeds available to repay debt. Businesses or owners considering asset sales to deleverage have a narrow window before 1 July 2027 where the 50% discount still applies. Pre-CGT assets used as loan security may now carry a tax liability upon realisation that has not previously been modelled by lenders or borrowers.
3. Negative Gearing: Property Security Under Pressure
From 1 July 2027, negative gearing for residential property is restricted to new builds only. Losses on established properties acquired after 12 May 2026 are quarantined to residential property income and gains.
For businesses with investment property in their security package, the after-tax cash flow profile of those assets changes materially. Interest coverage and LVR assumptions on property-backed facilities should be revisited. Collateral valuations may soften over time as investment appetite for established residential property reduces. Grandfathering protects existing portfolios until disposal.
4. Discretionary Trust Minimum Tax: Structural Consequences
From 1 July 2028, trustees of discretionary trusts pay a 30% minimum tax on trust taxable income. Corporate beneficiaries receive no credit, effectively making those structures unviable.
Many mid-market borrowers operate through trust structures. Compressed post-tax distributions will reduce capacity to service debt. Lenders should reassess covenant compliance and cash flow waterfall assumptions for trust-structured borrowers. Critically, a three-year rollover relief window (2027–2030) provides time to restructure into companies or fixed trusts without tax consequences — a period likely to drive significant refinancing activity.
5. Other Notable Measures
- $20,000 Instant Asset Write-Off (permanent from 1 July 2026) — improves near-term tax cash flows for small business borrowers (turnover under $10m), modestly supporting debt coverage ratios.
- R&D Tax Incentive Reform (from 1 July 2028) — removal of supporting activity expenditure eligibility will reduce R&D refunds for some businesses. Clients relying on RDTI refunds to support working capital facilities should re-model their position ahead of 2028.
- Government-Backed Financing — the $7.5bn Fuel & Fertiliser Security Facility (via Export Finance Australia) offers lower-cost debt for eligible clients in energy, agriculture and logistics.
- NDIS & Human Services — the Budget signals a fundamental reset of the NDIS, tightening eligibility and transitioning lower-level supports to state-based systems. For businesses with debt facilities supported by NDIS revenue, forward cash flow projections and covenant compliance should be reviewed.
How AbCap Can Help
At Aberdeen Capital Debt Advisory, we help businesses navigate the intersection of tax policy and debt capital structure. In the wake of this Budget, we can assist with:
- Debt Review & Covenant Assessment — reassessing facilities in light of changed after-tax cash flows
- Refinancing Strategy — supporting clients through the trust restructuring window (2027–2030)
- Working Capital Optimisation — reviewing cashflow and impact to capital structure so you can act before the CGT discount window closes and incorporating loss carry-back refunds into liquidity planning
- Capital Structure Advisory — balancing debt and equity in a higher-tax environment
The 2026–27 Budget has fundamentally shifted the tax landscape for businesses, trusts and investors. For those carrying debt, it is prudent to understand the impact to your business before key deadlines close strategic windows and structural tax changes flow through to cash flows and covenant positions.
