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Federal Budget 2026/27

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This year’s Federal Budget introduces the most significant tax reforms in recent years. Here are the highlights.

 

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The 50% Capital Gains Tax discount is being replaced by indexation

 

From 1 July 2027, the 50% Capital Gains Tax (CGT) discount will be replaced by an indexation method for investments held for more than 12 months, with a 30% minimum tax on net capital gains.

 

These changes will apply to all assets, including pre-CGT assets (pre-20 September 1985), held by individuals, trusts and partnerships.

 

Transitional arrangements ensure the changes only apply to gains happening on or after 1 July 2027. The 50% CGT discount will continue to apply to gains that accumulated before 1 July 2027. Assets that are sold prior to 1 July 2027 will continue to be subject to the existing rules.

 

Investors in new residential properties will be able to choose either:

 

• the 50% CGT discount; or

• indexation with the 30% minimum tax.

 

Income support payment recipients, including Age Pension recipients, will be exempt from the

minimum tax.

 

 

Changing negative gearing for residential property investments

 

From 1 July 2027, losses from established residential properties will be deductible only against rental income or capital gains from residential properties. Any excess losses will be carried forward to be offset against residential property income in future years.

 

These changes will apply to established residential properties acquired after 7:30 PM (AEST) on 12 May 2026. Properties acquired before this time, including contracts entered into but not yet settled, are exempt from the changes until disposal.

 

Eligible newly built residential properties will be exempt from the changes. Properties in superannuation funds and widely held trusts will be excluded, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs.

 

 

Reforming the taxation of discretionary trusts

 

From 1 July 2028, trustees will pay a minimum tax of 30% on the taxable income of discretionary trusts. Non-corporate beneficiaries will receive non-refundable credits for the tax paid by the trustee. Corporate beneficiaries will be assessed on their entitled trust income without access to these credits.

 

The minimum tax will not apply to other types of trusts, such as fixed trusts, fixed testamentary trusts, complying superannuation funds, special disability trusts, and deceased estates. Specific exclusions also apply to primary production income, certain income relating to vulnerable minors, amounts subject to non-resident withholding tax, and income from assets held in discretionary testamentary trusts that existed at the time of the announcement.

 

The Government will offer expanded rollover relief for three years from 1 July 2027 for affected trusts that wish to restructure into another type of entity, such as a company or fixed trust.

 

 

Measures impacting individuals

 

Introducing a Working Australians Tax Offset

 

The Government will provide a $250 Working Australians Tax Offset with effect from the 2027/28 (from 1 July 2027) income year. This new offset will provide a permanent annual tax offset for Australians for their income derived from work such as salary and wages and the business income of sole traders.

 

 

The $1,000 Standard Deduction for Work-related Expenses

 

The Government will introduce a standard tax deduction of up to $1,000 for work-related expenses starting 1 July 2026. Accordingly, taxpayers earning income from work will not need to itemise or substantiate work-related expenses if they are claiming no more than $1,000.

 

 

Previously announced tax cuts in 2027 and 2028

 

The Budget confirms the previously announced personal income tax cuts, which progressively lower the lowest marginal tax rate over the next two financial years.

 

Under this legislation, the tax rate for the $18,201 to $45,000 bracket will drop from the current 16% down to 15% from 1 July 2026 and decrease again to 14% from 1 July 2027. All other tax brackets and the $18,200 tax-free threshold remain unchanged.

 

 

Increasing the Medicare levy low-income thresholds

 

The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners by 2.9% from 1 July 2025 as follows:

 

Singles: The threshold increases from $27,222 to $28,011.

Families: The threshold increases from $45,907 to $47,238.

Single Seniors and Pensioners: The threshold increases from $43,020 to $44,268.

Senior and Pensioner Families: The threshold increases from $59,886 to $61,623.

 

For each dependent child or student, the family income threshold increases by a further $4,338, up from the previous amount of $4,216.

 

 

Private Health Insurance Rebate

 

From 1 April 2027, the Government will remove the age-based uplift for the Private Health Insurance (PHI) rebate. Currently, individuals aged 65 and over are eligible for a higher rebate percentage; after this change takes effect, a single standard rebate rate will apply regardless of age.

 

 

Measures impacting businesses

 

Permanent $20,000 instant asset write-off

 

From 1 July 2026, the Government will permanently provide the $20,000 instant asset write-off for small businesses with turnover of less than $10 million. Assets valued at $20,000 or more can continue to be placed into the small business depreciation pool. The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years after opting out will continue to be suspended until 30 June 2027.

 

 

Reintroducing Loss Carry Back for companies

 

The Government will provide tax relief to businesses by changing the treatment of tax losses. For tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid up to two years earlier. Loss carry back will apply to revenue losses only and will be limited to a company’s franking account balance.

 

 

Fringe Benefits Tax concession for electric cars

 

From 1 April 2029, a permanent 25% discount on FBT will be available for all electric cars valued up to and including the fuel-efficient luxury car tax threshold, implemented as a 15% rate in the statutory formula. The following transitional arrangements will apply:

 

• All eligible electric cars will retain the FBT discount rate that was in place when the arrangement commenced.

 

• All electric cars valued up to and including $75,000 that are delivered before 1 April 2029 will continue to be eligible for a 100% discount on FBT, implemented through a 0% rate in the statutory formula.

 

• Electric cars valued above $75,000 and up to and including the fuel-efficient luxury car tax threshold that are delivered between 1 April 2027 and 1 April 2029 will be eligible for a 25% discount on FBT, implemented through a 15% rate in the FBT statutory formula.

The existing 20% statutory rate will continue to apply for all other cars, including electric cars costing more than the fuel-efficient luxury car tax threshold.

 

Reportable fringe benefits will continue to be determined for eligible electric cars as if a 20% FBT statutory formula rate or cost basis method applied.

 

 

Loss refundability for small start-up companies

 

The Government will introduce refundable losses for small start-up companies. From 1 July 2028, start-up companies with aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to utilise the loss to generate a refundable tax offset. The offset will be limited to the value of fringe benefits tax (FBT) and withholding tax on wages paid in respect of Australian employees in the loss year.

 

 

Dynamic PAYG instalment calculations

 

The Government will provide fundings to the ATO to expand its dynamic PAYG instalment calculation pilot and broaden access to monthly reporting. From 1 July 2027, small and medium businesses can opt into paying PAYG instalments monthly, using an ATO-approved calculation embedded directly in their accounting software to adjust payments in real time. This ensures tax payments closely align with actual business performance. However, monthly reporting and payment will be mandatory for taxpayers with a proven history of non-compliance.

 

 

Fraud Protection Funding

 

The Government will allocate $86.3 million over four years from 1 July 2026, plus $9.7 million annually from 2030/31, to implement Phase 2 of the Counter Fraud Strategy. This initiative aims to modernise fraud prevention and detection across the tax and superannuation systems. The funding will boost the ATO's real-time detection capabilities, strengthen identity protections for individuals, and extend live monitoring of fraudulent account access to safeguard tax agents, businesses, and high-risk superannuation updates.

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Vincent Wan

CPA, Registered Tax Agent

May 2026