2026–27 Federal Budget: What It Means for You
Written by Regan Dolling & Daniel Dubois
Treasurer Jim Chalmers delivered the 2026–27 Federal Budget on 12 May 2026, describing it as one of the most ambitious Budgets in decades. Framed against the global oil shock following conflict in the Middle East and disruption to the Strait of Hormuz, the Budget focuses on easing cost-of-living pressures while introducing major reforms to taxation, housing, and investment structures.
The Budget projects an underlying deficit of approximately $26 billion in 2026–27. Despite this, the Government highlighted an improved medium-term fiscal position, with lower projected debt levels than previously forecast.
For investors, business owners, and families, the key measures include income tax relief, significant proposed changes to capital gains tax (CGT), negative gearing and discretionary trusts, along with ongoing housing, superannuation, and small business reforms. Importantly, many of the major tax measures are proposals only and still require passage through Parliament.
Income Tax Cuts
From 1 July 2026, the 16% tax rate applying to income between $18,201 and $45,000 will reduce to 15%, before reducing further to 14% from 1 July 2027.
Combined with earlier tax reforms, the Government estimates that workers on average earnings could be up to $2,816 per year better off from 2027–28.
The Government is also introducing a $1,000 instant deduction for work-related expenses from 2026–27. Employees will be able to claim this standard deduction instead of itemising eligible work expenses and keeping receipts. Other deductions, such as charitable donations and professional memberships, can still be claimed separately.
A new Working Australians Tax Offset worth up to $250 annually will commence from 2027–28 and will be automatically applied through the tax return process.
In addition, Medicare levy low-income thresholds will increase from 2025–26, reducing or removing the levy for more than one million Australians.
Capital Gains Tax Reform
The proposed CGT reforms are among the most significant tax changes announced in recent decades.
From 1 July 2027, the current 50% CGT discount for assets held longer than 12 months would be replaced with an inflation-based indexation system and a minimum 30% tax on capital gains.
The rules would operate differently depending on when an asset was acquired:
Assets sold before 1 July 2027 would continue under the current rules.
Assets acquired and sold after 1 July 2027 would use indexed cost bases instead of the 50% discount.
Assets already owned before 1 July 2027 would effectively be split into two periods, with gains accrued before that date retaining the existing discount treatment.
The reforms would also remove the longstanding exemption for pre-CGT assets acquired before 20 September 1985. These assets would instead receive a market value cost base from 1 July 2027.
Importantly, the family home exemption remains unchanged, and superannuation funds are excluded from the new rules. Existing small business CGT concessions would also continue.
A notable exception applies to newly constructed residential properties. Investors purchasing new builds will be able to choose between the current 50% discount or the new indexed approach.
As these changes are not yet law, clients with large unrealised gains or planned asset sales should seek advice before making decisions.
Negative Gearing Changes
From 1 July 2027, negative gearing on residential property would be limited to newly constructed homes.
The proposed rules would apply only to residential investment properties purchased after Budget night on 12 May 2026. Existing property owners would be grandfathered under the current system.
Under the new framework, losses from negatively geared established properties could no longer be offset against salary or other income. Instead, those losses would be quarantined and only offset against future profits from the same asset class. Any unused losses could eventually be added to the property’s cost base to reduce CGT when sold.
The Government’s stated aim is to encourage investment into new housing supply rather than existing dwellings.
Discretionary Trusts
From 1 July 2028, discretionary trusts would face a minimum 30% tax on distributed income.
While higher-income beneficiaries may see limited overall change, the reforms would significantly reduce the tax effectiveness of distributing income to low-income family members.
Several trust types are excluded, including fixed trusts, superannuation funds, charitable trusts, deceased estates, and certain testamentary trusts.
To assist with restructuring, the Government will provide a three-year rollover relief period from 1 July 2027, allowing eligible businesses and families to move from discretionary trusts into companies or fixed trusts without immediate CGT consequences.
Family groups and business owners using discretionary trusts should begin reviewing their structures well before these measures commence.
Electric Vehicle FBT Changes
The current Fringe Benefits Tax exemption for eligible electric vehicles acquired through novated leases will be scaled back.
From 1 April 2027:
Full exemptions will apply only to EVs valued below $75,000.
Vehicles above $75,000 but below the luxury car threshold will receive only a partial exemption.
From 1 April 2029, all eligible EVs below the threshold will receive only a 25% exemption.
Clients considering a novated lease arrangement may wish to act before these changes take effect.
Small Business Measures
The Budget includes several measures aimed at improving certainty and cash flow for businesses.
The $20,000 instant asset write-off for businesses with turnover below $10 million will become permanent from 1 July 2026. Eligible businesses can immediately deduct multiple assets, provided each costs less than $20,000.
The Government will also permanently allow companies with turnover up to $1 billion to carry back losses against tax paid in the previous two years, generating cash refunds.
From 2027–28, businesses will be able to opt into a monthly PAYG instalment system linked directly to real business activity through accounting software.
Housing and Infrastructure
Housing affordability and supply remain major Budget priorities.
The Government reaffirmed its target of delivering 1.2 million new homes over five years, supported by more than $47 billion in housing commitments.
Funding includes:
A $2 billion Local Infrastructure Fund to support housing development.
Continued Build-to-Rent concessions.
Ongoing investment in social and affordable housing.
An extension of the foreign buyer ban on established homes until mid-2029.
The proposed CGT and negative gearing reforms are intended to encourage investment into newly constructed housing, though the long-term impact on property prices and rental markets remains uncertain.
Energy, Defence and the Economy
The economic backdrop to this Budget is dominated by higher global energy prices and fuel security concerns.
In response, the Government announced a $14.8 billion fuel resilience package, including funding for fuel security infrastructure, domestic fuel production, and supply chain resilience.
The Budget also continues energy bill relief measures for households and expands Commonwealth Rent Assistance.
Defence spending remains elevated, with major commitments toward submarine infrastructure, defence precincts, and counter-terrorism capabilities.
The Government is also targeting regulatory cost reductions for businesses and removing hundreds of tariffs to reduce compliance costs.
Health and Aged Care
Health spending remains a significant focus.
The Government committed:
$3 billion for aged care improvements.
Additional home care packages and aged care beds.
Funding for developmental support services outside the NDIS.
Ongoing expansion of bulk billing incentives.
The PBS co-payment cap introduced earlier in 2026 remains in place, helping reduce prescription medicine costs.
Superannuation
While the Budget did not announce major new superannuation reforms, several previously legislated measures will commence from 1 July 2026.
These include:
Division 296 tax applying additional tax to super balances above $3 million.
Payday super requirements, forcing employers to pay super at the same time as wages.
Increased contribution caps and higher transfer balance thresholds.
The concessional contribution cap will increase to $32,500, while the non-concessional cap rises to $130,000.
The Budget also confirms greater flexibility for SMSF members temporarily living overseas through changes to residency rules.
Importantly, superannuation funds are excluded from the proposed CGT and discretionary trust changes.
Summary
The 2026–27 Federal Budget introduces some of the most substantial proposed tax reforms in decades.
The headline measures — changes to CGT, negative gearing, and discretionary trusts — would significantly reshape the investment landscape if legislated. At the same time, the Government continues to provide income tax relief, small business support, housing investment, and cost-of-living assistance.
However, many of the major reforms are not yet law and must still pass through Parliament. The final outcome and commencement dates may change during the legislative process.
For individuals and businesses, now is an appropriate time to review investment structures, property strategies, trust arrangements, and superannuation planning to ensure they remain effective under the proposed rules.
We will continue monitoring developments as legislation progresses and encourage clients to seek advice regarding how these proposed changes may affect their personal or business affairs.
If you would like to understand how these proposed changes may impact your personal or business position, please contact our team to arrange a review of your investment and tax planning strategy.