The Federal Treasurer handed down the 2026-2027 Budget on 12th May 2026 framed around package of saving initiatives, tax reform, productivity and investment.
Tax reform in the Budget included changes to the capital gains tax discount, negative gearing, and the taxation of discretionary trusts while introducing a modest income tax offset worth up to $ 250 per worker.
Below are key things from a tax perspective in the Federal Budget 2026-2027
Tax Cuts from 1 July 2026
The Government will provide a modest tax cut for resident taxpayers from 1 July 2026. The rate applicable to the income band from $ 18,2001 $ 45,000.00 will decrease by 1% from 1 July 2026 and a further 1% from 1 July 2027.
1 Capital Gain Tax
From 1 July 2027, the 50% CGT discount will be replaced by cost base indexation for assets held for more than 12 months. Indexation will be calculated using CPI.
These changes will apply to all CGT assets, including Pre-September 1985 CGT assets held by individuals and trusts. There are no changes to the taxation setting for superannuation.
Minimum tax rate of 30% will apply to net capital gains accruing from 1 July 2027.
Recipients of means-tested income support payments, such as the Age Pension or Jobseeker, will be exempt from minimum tax.
1.1New Residential Property Exception
In a new residential property, an investor will be able to choose either 50% discount or cost base indexation or minimum tax.
1.2Transitional arrangement
There will be no changes in the arrangement for assets purchased and sold prior to 1 July 2027, and the assets purchased after 1 July 2027 will be treated wholly under the new arrangement. Assets owned prior to 1 July 2027 and sold after 1 July 2027 will be treated under current arrangements on gains made prior to this date, and under the new arrangements for gains made after this date (with no impacts until the gains are realised). Capital gains on pre–20 September 1985 CGT assets arising before 1 July 2027 remain exempt from CGT.
2 Negative Gearing
From 1 July 2027, losses from established residential properties will only be deductible against rental income or the capital gains from residential properties. Excess losses will be carried forward and are able to offset against residential property income in future years.
These changes will be applied to established residential properties acquired from 7:30 pm (AEST) on 12 May 2026. Properties acquired prior to this time (including contracts entered but not yet settled) will be exempt from changes until disposal.
Eligible new builds will be exempt from these changes.
2.1 Who does it apply to?
These changes will apply to individuals, partnerships, companies, and most trusts. Widely held trusts (for example, most managed investment trusts) and superannuation funds (including SMSFS) will be excluded.
Exclusions will also be available for private investors who support the government housing programme.
3 Reforming the taxation of discretionary trusts
From 1 July 2028(i.e.,, from the 2029 income year), trustee will pay a minimum tax of 30% on the taxable income of discretionary trusts. Beneficiaries, other than corporate beneficiaries, will receive non- refundable credits for the tax payable by the trustee.
Under the minimum tax, corporate beneficiaries will be assessed on the trust income to which they are entitled, without being able to claim the credits for tax payable by the trustee.
The minimum tax will not apply to other types of trust, such as fixed trusts, fixed testamentary trusts, complying superannuation funds, special disability trusts, and deceased estates.
Some types of income, such as primary production income, certain income relating to vulnerable minors, amounts to which non- resident withholding tax applies, and income from assets of the discretionary testamentary trust existing at announcement, will also be excluded.
The Government will provide expanded rollover relief for three years from 1 July 2027 for small businesses and others that wish to restructure out of a discretionary trust into another type, such as a company or fixed trust.
4 Individuals
4.1 Working Australian Tax Offset (WATO)
The Government will introduce a $ 250.00 Working Australians Tax Offset with effect from the 2028 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.
4.2 $ 1,000.00 standard deduction for work-related expenses
The Government will introduce a standard tax deduction of up to $ 1,000.00 for work- related expenses from the 2027 income year. Individuals who incur work-related expenses greater than the $ 1,000 maximum standard deduction can continue to claim their deductions in the usual way.
Charitable deduction, union and professional association membership fees, and other non- work-related deductions can still be itemised separately and claimed on top of the standard deduction.
5 Business
5.1 Permanent $ 20,000 instant asset write- off
From 1 July 2026, the Government will permanently extend the $ 20,000 instant asset write-off for small businesses with a 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 provision that prevented small businesses from re-entering the simplified depreciation regime for five years after opting out will continue to be suspended until 30 June 2027.
5.2 Reintroducing “loss carry back” for companies
From the tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover less than $ 1 billion will be able to carry back a tax loss and offset it against tax paid up to two income years earlier.
Loss carry back will apply to limited losses only and will be limited to a company’s franking account balance.
6 Reducing the FBT concession for electric cars
From 1April 2029, a permanent 25% discount on FBT will be available for all electric cars valued up to and including the fuel-efficient luxury car threshold, implemented through 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 car valued up to and including $ 75,000 that are provided before 1 April 2029 will continue to be eligible for a 100% discount on FBT, implemented through 0% rate in the statutory formula.
- Electric cars valued above $ 75,000 and up to and including the fuel -efficient luxury car tax threshold between 1 April 2027 and 1 April 2029 will be eligible for a 25% discount on FBT, implemented through a 15% rate in FBT statutory formula.
- The existing 20% statutory rate will continue to apply for all other cars, including electric cars, costing more than fuel- efficient luxury car tax thresholds.