2026–27 Federal Budget: What this means for you, your family and your business
The 2026–27 Federal Budget, delivered by Treasurer Jim Chalmers on the evening of 12 May 2026, is one of the most significant overhauls of the Australian tax system in nearly three decades. In a single Budget, the Government has made changes to capital gains tax, negative gearing, trust distributions, superannuation, electric vehicles, research and development, and a range of cost-of-living measures. Almost every one of our clients will be affected in some way.
We have prepared this summary to explain the key measures in plain language and to highlight what they mean for you. Many of these changes are still subject to draft legislation, and a number of details are not yet fully confirmed — we have tried to reflect that honestly throughout.
What is clear is that these changes are significant, broad, and for many clients will require a review of existing arrangements. We encourage you to read through the summaries below and to contact us to discuss anything that may be relevant to your situation.
1. The $1,000 Instant Tax Deduction
From 1 July 2026, eligible Australian taxpayers who earn income from work will be able to claim a flat $1,000 deduction for work-related expenses — without needing to keep receipts or itemise individual costs. This is a choice, not an automatic change, and you will still need to decide whether the flat deduction or your actual expenses gives you the better result.
Who Is Eligible?
Australian tax residents who earn income from work, including wages, salaries, and sole trader business income. If your income comes only from investments or rental properties, this deduction does not apply.
Will It Save You Money?
The saving depends on your tax rate. At 32% (30% plus the Medicare Levy), the saving is $320. At 47% (45% plus the Medicare Levy), the saving is $470. If you currently claim more than $1,000 in legitimate work-related expenses, your actual expenses remain the better option.
Charitable donations, union and professional association membership fees, and other non-work deductions can still be claimed on top of the $1,000 flat deduction.
2. $250 Working Australians Tax Offset
The Budget introduces a permanent Working Australians Tax Offset of up to $250 for Australians who earn income from work — including wages, salaries, and the business income of sole traders. This offset does not take effect until the 2027–28 financial year, meaning most clients will first see the benefit when their 2027–28 tax return is lodged and processed.
Key Points
The offset reduces tax owed, rather than providing a direct cash payment. If you pay little or no tax, the benefit will be reduced or nil.
It applies to individuals with income from work — not investment or rental income only.
It increases the effective tax-free threshold for work income by nearly $1,800 to approximately $19,985 — or up to $24,985 for those also eligible for the Low Income Tax Offset.
This is a permanent measure, unlike previous one-off cost-of-living offsets.
Note: If you have an outstanding tax debt or other liabilities, the offset may be applied against what you owe rather than appearing as a refund.
3. Changes to the Fringe Benefits Tax Exemption for Electric Vehicles
Since 2022, battery electric vehicles provided through novated lease or salary packaging arrangements have been fully exempt from Fringe Benefits Tax (FBT). The 2026–27 Budget announces a phased wind-back of that exemption.
What Is Changing and When
Until 31 March 2027: Full FBT exemption remains in place for all eligible EVs.
From 1 April 2027: Full exemption only applies to EVs priced at $75,000 or less. EVs above $75,000 but below the Luxury Car Tax threshold receive a reduced 25% FBT discount only.
From 1 April 2029: The 25% FBT discount applies to all EVs below the Luxury Car Tax threshold, regardless of price.
Important: If your current EV is priced above $75,000, you may lose the full FBT exemption from 1 April 2027 — regardless of when you entered your arrangement. Legislation has not yet been released and no assumptions should be made about existing arrangements being automatically protected.
4. Changes to the Capital Gains Tax Discount
One of the most significant measures in this Budget is the replacement of the 50% CGT discount with cost base indexation for capital gains arising on or after 1 July 2027, combined with a new 30% minimum tax on net capital gains. This applies to all CGT assets — including shares, investment properties, and business assets — held by individuals, trusts, and partnerships.
Transitional Rules
Assets acquired and sold before 1 July 2027 will remain unchanged and subject to current rules.
Assets acquired after 1 July 2027 will be subject to the new arrangements.
Assets acquired before 1 July 2027 and disposed of after that date will have their capital gain effectively split. The portion of the gain accrued up to 1 July 2027 will be taxed under the current rules (including access to the 50% CGT discount), while the portion accruing from 1 July 2027 will be calculated using an indexed cost base based on the asset’s value at 1 July 2027 and will be subject to the minimum tax.
Special Concession for New Residential Properties
Investors in new residential properties will be able to choose between the 50% CGT discount or cost base indexation with the minimum tax — whichever produces the better outcome. Income support and Age Pension recipients will be exempt from the minimum tax.
What This Means for Business Owners
For businesses built from scratch — where goodwill has a zero cost base — the impact is particularly significant. Indexation can only adjust a cost base that exists; a zero cost base produces no reduction. Every dollar of goodwill gain accruing after 1 July 2027 will be fully taxable at the owner's marginal rate, subject to the 30% minimum tax. The Small Business CGT Concessions remain available, but their effective value is reduced.
The Budget confirms expanded rollover relief for three years from 1 July 2027 to support businesses wishing to restructure out of discretionary trusts into a company or fixed trust — without triggering a CGT liability at the time of transfer. This is a genuine and time-limited opportunity.
5. Changes to Negative Gearing — What Property Investors Need to Know
Negative gearing occurs when the costs of owning an investment property exceed the rental income it generates. Under the current rules, that net loss can be deducted against other income, including salary or wages, reducing your overall tax bill.
What Has Changed
Existing investment properties are fully protected. If you already own a negatively geared investment property, your ability to offset losses against other income continues unchanged for as long as you hold that property.
For established residential properties acquired after 7:30pm AEST on 12 May 2026, the rules change from 1 July 2027. Losses from those properties will only be deductible against rental income or capital gains from residential properties. Excess losses are carried forward — they cannot reduce salary or wage income.
Newly constructed properties are exempt. Where you purchase a new build that adds to Australia's housing supply, negative gearing deductions remain fully available.
Contracts entered into before 7:30pm on 12 May 2026 — including those not yet settled — are covered by the grandfathering provisions.
Combined effect: The negative gearing changes interact directly with the CGT changes confirmed in the same Budget. Together, the overall economics of acquiring a new established investment property have shifted materially.
6. Changes to the Taxation of Trust Distributions
The 2026–27 Budget announces the introduction of a 30% minimum tax on discretionary trusts from 1 July 2028. This is an announcement — not yet a law. No legislation has been released and all details are subject to change.
What Has Been Announced
From 1 July 2028, trustees of discretionary trusts will be required to pay a minimum tax of 30% on the taxable income of the trust. Beneficiaries — other than corporate beneficiaries — will receive non-refundable credits for the tax paid by the trustee, similar in concept to franking credits on dividends.
Practical Impact
The practical effect is a significant increase in the tax cost of distributing trust income to beneficiaries who pay tax at a combined rate below 30%. Where a beneficiary's actual tax liability is less than the credit received, the excess is permanently lost — it cannot be refunded. The breakeven point falls at approximately $131,600 of income.
The Rollover Relief Window
The Budget confirms expanded rollover relief for three years from 1 July 2027 to support businesses and individuals wishing to restructure out of discretionary trusts into another entity type before the minimum tax takes effect.
Fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates, and charitable trusts are not subject to the measure. A number of exclusions apply to certain types of income, including primary production income.
7. Superannuation — Key Changes From 1 July 2026
While much of Budget night's focus was on CGT, negative gearing, and trusts, there are several important superannuation changes taking effect from 1 July 2026.
Higher Tax on Large Superannuation Balances
From 1 July 2026, if your total superannuation balance across all funds exceeds $3 million, the earnings attributable to the portion above that threshold will be subject to an additional 15% tax — effectively doubling the tax rate on those earnings from 15% to 30%. This legislation received Royal Assent on 13 March 2026 and is now law. The tax is calculated on the fund's adjusted taxable income — an earlier proposal to include unrealised gains was removed before the legislation passed.
Transfer Balance Cap Increase
The transfer balance cap — the maximum amount you can hold in a tax-free retirement phase pension — increases from $2.0 million to $2.1 million from 1 July 2026. If you are planning to commence a retirement phase pension, this increase may present a planning opportunity.
Payday Super
From 1 July 2026, employers are required to pay superannuation contributions at the same time as wages, rather than quarterly. Payroll systems will need to be updated before the changeover date, and contributions must reach the employee's fund within seven business days of each pay date.
8. Key Business Measures
Instant Asset Write-Off — Now Permanent
The $20,000 instant asset write-off has been confirmed as a permanent feature of the tax system for small businesses with annual turnover of less than $10 million, from 1 July 2026. The write-off applies on a per-asset basis, allowing eligible businesses to immediately deduct the full cost of assets under the threshold in the year they are first used or installed.
Loss Carry-Back for Companies — From 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 in either of the two previous financial years. If your company paid tax in 2024–25 or 2025–26 and subsequently incurs a loss in 2026–27 or later, a cash refund may be available. The carry-back applies to revenue losses only and is limited by your company's franking account balance.
Loss Refundability for Start-Up Companies — From 1 July 2028
From 1 July 2028, small start-up companies with annual turnover under $10 million that incur a tax loss in their first two years of operation will be able to convert that loss into a refundable tax offset — capped at the value of FBT and withholding tax on wages paid to Australian employees.
R&D Tax Incentive — Changes From 2028
From 1 July 2028, the R&D Tax Incentive is being reformed. The offset rates for core R&D expenditure increase by 4.5 percentage points. The intensity threshold drops from 2% to 1.5% and the turnover threshold for the refundable offset rises from $20 million to $50 million. However, supporting R&D expenditure will no longer be eligible — only core R&D expenditure qualifies. The minimum expenditure threshold increases from $20,000 to $50,000.
9. Other Budget Measures
Fuel Excise — Temporary Relief Ending 30 June 2026
The 32 cent per litre reduction in fuel excise, introduced on 1 April 2026, was a temporary three-month measure. It has not been extended and the full excise rate returns from 1 July 2026. If your business is a heavy fuel user, please factor this into your budgeting. Businesses using fuel for business purposes may also be eligible to claim fuel tax credits.
Medicare Levy Low-Income Thresholds Increased
The Medicare levy low-income thresholds have been increased by 2.9% from 1 July 2025 to provide relief for low-income individuals and families. The threshold for singles increases to $28,011, and the family threshold increases to $47,238.
Foreign Purchases of Established Dwellings — Ban Extended
The temporary ban on foreign purchases of established residential dwellings has been extended to 30 June 2029. Existing exemptions — including for permanent residents and New Zealand citizens — continue to apply. For the majority of clients this will have no direct impact.
Disclaimer: This communication provides general information only based on the 2026–27 Federal Budget announcements of 12 May 2026. It is not a substitute for professional advice. Many measures are subject to the release of draft legislation and final details may change. Please seek advice tailored to your individual circumstances before taking any action.