AUSTRALIAN FEDERAL BUDGET 2026-27

OVERVIEW

The 2026-27 Federal Budget introduces significant tax reforms focused on capital gains tax (CGT) restructuring, residential property negative gearing restrictions, discretionary trust taxation, and targeted support for working Australians and small businesses. These changes will have considerable implications for individual taxpayers, investors, and businesses across Australia.

THE BIG THREE

1. CAPITAL GAINS TAX REFORM

Replacement of 50% Discount with Indexation

Effective 1 July 2027, the fundamental CGT regime changes:

• The 50% CGT discount for assets held over 12 months is replaced with cost base indexation
• A 30% minimum tax applies to net capital gains
• Changes apply to all asset types held by individuals, trusts, and partnerships
• Gains accruing before 1 July 2027 retain the 50% discount
• Pre-CGT assets remain exempt where gains accrued before 1 July 2027

Transitional Arrangements

Properties acquired before 7:30 PM (AEST) on 12 May 2026 are protected, as are new residential property investments, which can elect between the 50% discount or the new indexation/30% minimum tax regime.

Low-income protection: Income support and Age Pension recipients are exempt from the minimum tax.

Foreign Investor Renewable Energy Concession

A time-limited concession applies to foreign investors disposing of renewable energy infrastructure assets between commencement and 30 June 2030.

2. RESIDENTIAL PROPERTY NEGATIVE GEARING REFORM

Effective 1 July 2027, significant changes apply to established residential property investments:

• Losses from established properties are ring-fenced and can only offset rental income or capital gains from residential properties
• Excess losses carry forward for use in future years
• New builds remain exempt from these restrictions
• Existing investors are protected: Properties acquired before 7:30 PM (AEST) on 12 May 2026 are exempt until disposal
• Superannuation properties, widely held trusts, build-to-rent developments, and properties supporting government housing programmes are excluded

3. DISCRETIONARY TRUST TAXATION

Minimum 30% Tax

From 1 July 2028 (2029 income year onwards), trustees of discretionary trusts must pay a minimum tax of 30% on taxable income.

• Non-corporate beneficiaries receive non-refundable credits for trustee-paid tax
• Corporate beneficiaries are assessed on trust income entitlement without credits
• This does not apply to fixed trusts, fixed testamentary trusts, complying superannuation funds, special disability trusts, or deceased estates

Restructuring Relief

The Government provides expanded rollover relief from 1 July 2027 for three years, enabling small businesses and other entities to restructure from discretionary trusts into companies or fixed trusts without adverse tax consequences.

4. PERSONAL INCOME TAX CHANGES

Tax Rate Reductions

The Government has committed to continuing previously announced tax rate reductions:

• From 1 July 2026: The 16% tax rate reduces to 15%
• From 1 July 2027: The 15% tax rate further reduces to 14%
• Tax-free threshold remains at $18,200

New Working Australians Tax Offset

From the 2028 income year, all working Australians will receive a $250 annual tax offset on income derived from employment or sole trader business activities.

Standard Deduction for Work-Related Expenses

From 1 July 2026, eligible taxpayers can claim up to $1,000 in work-related expenses without itemisation or substantiation. Those incurring higher expenses may continue claiming deductions in the usual manner.

Medicare Levy Thresholds

From 1 July 2025, Medicare levy low-income thresholds increase by 2.9%:

• Singles: $27,222 to $28,011
• Families: $45,907 to $47,238
• Single seniors and pensioners: $43,020 to $44,268
• Family seniors and pensioners: $59,886 to $61,623
• Additional per dependent child: $4,307 to $4,338

Private Health Insurance Rebate

From 1 April 2027, the age-based uplift for individuals aged 65 and above will be removed, resulting in equalised rebate percentages across all age groups.

5. BUSINESS SUPPORT MEASURES

Permanent $20,000 Instant Asset Write-Off

From 1 July 2026, the $20,000 instant asset write-off becomes permanent for small businesses with turnover below $10 million. Assets of $20,000 or more can be placed into the simplified depreciation pool. The five-year re-entry restriction remains suspended until 30 June 2027.

Loss Carry-Back for Companies

From 1 July 2026, companies with aggregated global turnover below $1 billion can carry back tax losses to offset tax paid in the previous two years. This applies to revenue losses only and is limited to the company’s franking account balance.

Loss Refundability for Start-Up Companies

From 1 July 2028, start-up companies with turnover below $10 million can generate refundable tax offsets from losses incurred in their first two years of operation, limited to FBT and withholding tax on Australian wages paid.

Dynamic PAYG Instalment Calculations

From 1 July 2027, small and medium businesses can opt into monthly PAYG reporting and payments, with ATO-approved calculations embedded in accounting software. Non-compliant taxpayers will be required to report monthly.

Research and Development (R&D) Tax Incentive Reform

From 1 July 2028, the R&D tax incentive is reformed:

• Core R&D offset increases by 4.5 percentage points (approximately 25% increase to 50%)
• Intensity threshold reduces from 2% to 1.5%
• Supporting R&D expenditure becomes ineligible
• Refundable offset access extends to firms with turnover up to $50 million (previously $20 million)
• Maximum expenditure threshold increases from $150 million to $200 million
• Minimum expenditure threshold increases from $20,000 to $50,000

6. FRINGE BENEFITS TAX (FBT)

Electric Vehicle FBT Discount Reduction

From 1 April 2029, the FBT discount on eligible electric vehicles reduces:

• Permanent 25% discount (15% statutory rate) for electric vehicles up to the fuel-efficient luxury car tax threshold
• Transitional protection: All vehicles already eligible retain their existing discount
• Electric vehicles under $75,000 provided before 1 April 2029 retain 100% FBT exemption
• Vehicles valued $75,000–luxury threshold provided between 1 April 2027 and 1 April 2029 receive 25% discount

7. OTHER MEASURES

Foreign Purchase Ban Extension

The temporary ban on foreign purchases of established residential dwellings is extended by two years and three months until 30 June 2029.

Tax System Fraud Prevention

The Government invests $86.3 million (four years from 1 July 2026, plus $9.7 million ongoing from 2030-31) in Phase 2 of the Counter Fraud Strategy:

• Real-time fraud detection and prevention enhancements
• Expanded fraud protections for individuals
• Live monitoring of fraudulent account access
• Strengthened ATO powers to combat tax agent fraud
• Expanded information-gathering capabilities

Global Anti-Base Erosion Rules

Australia’s global minimum tax legislation is amended to implement the OECD/G20 Inclusion Framework’s side-by-side package agreed January 2026.

Fuel Excise and Road User Charge Relief

A three-month temporary reduction (1 April to 30 June 2026) reduces fuel excise by 60.9% (32 cents per litre) and suspends heavy vehicle road user charges.

KEY IMPLEMENTATION DATES

Change	Commencement Date
Tax rate reduction to 15%	1 July 2026
$1,000 work expense standard deduction	1 July 2026
Permanent $20,000 instant asset write-off	1 July 2026
Loss carry-back for companies	1 July 2026 (for losses in years commencing 1 July 2026)
Medicare levy threshold increases	1 July 2025
Negative gearing ring-fencing (residential property)	1 July 2027
CGT discount replacement with indexation	1 July 2027
Dynamic PAYG calculations	1 July 2027
Tax rate reduction to 14%	1 July 2027
PHI rebate age-based uplift removal	1 April 2027
Discretionary trust minimum tax	1 July 2028
R&D incentive reform	1 July 2028
Loss refundability for start-ups	1 July 2028
$250 Working Australians Tax Offset	2028 income year
Electric vehicle FBT discount reduction	1 April 2029

PROFESSIONAL RECOMMENDATIONS

Tax planning urgency: The 2026-27 Budget introduces significant structural changes. We recommend:

1. Investors in residential property review their portfolios immediately regarding negative gearing arrangements
2. Discretionary trust owners assess restructuring opportunities under the three-year rollover relief window
3. Capital asset holders evaluate CGT timing strategies before 1 July 2027
4. Small business operators audit depreciation strategies to maximise the permanent $20,000 write-off
5. Companies with tax losses consider loss carry-back applications for prior-year tax relief
6. R&D-active businesses review eligibility under reformed incentive parameters

For detailed analysis of how these measures apply to your specific situation, please contact our office. We are here to ensure your tax position is optimised under the new regulatory environment.

This summary is current as at 13 May 2026 and is based on the National Tax & Accountants’ Association Federal Budget 2026-27 Summary Handout. Professional tax advice should be sought before implementing any strategy. Tax legislation is subject to change.