Australian Federal Budget 2026 to 2027

Federal Budget 2026 to 2027: What the Changes Mean for You

The 2026 to 2027 Federal Budget, handed down on 12 May 2026, brings some of the most significant tax changes Australian businesses, investors and families have seen in years. Below is a clear summary of what has been announced and what each measure could mean for you.

A note before you read on: the measures covered here are announcements. We are monitoring developments closely as legislation moves through Parliament, and we will keep you informed every step of the way. If any of this affects your position, that is exactly the kind of forward planning we are here for.

1. Individuals and Families

Income Tax Cuts
Start date: 1 July 2026

The following income tax rate reductions are already legislated and will apply from the 2026 to 2027 income year.

$1,000 Instant Tax Deduction for Work Related Expenses
Start date: 1 July 2026

From 1 July 2026, Australian tax residents who earn income from work will be able to claim a standard $1,000 deduction for work related expenses, with no receipts or itemised records required.

Key points:

• The deduction is capped at the lower of $1,000 and your assessable labour income.
• Charitable donations, union fees and professional association memberships can still be claimed on top of this deduction.
• Where your actual work related expenses exceed $1,000, you can claim the higher amount, provided you substantiate all expenses.

Example. Sarah is a teacher earning $85,000. She spends $650 on work related materials and has no receipts. Under the new rules she can claim the $1,000 standard deduction with no documentation, saving her around $300 in tax. Daniel is an engineer who spends $1,800 on tools and professional development. He keeps his receipts and claims the full $1,800, which leaves him better off than taking the $1,000 standard deduction.

Working Australians Tax Offset ($250)
Start date: 2027 to 2028 income year (from 1 July 2027)

A new permanent $250 Working Australians Tax Offset will apply from the 2027 to 2028 income year for employees and sole traders earning income from work. This effectively lifts the tax free threshold for work income by nearly $1,800, taking it to $19,985, or $24,985 for those also eligible for the Low Income Tax Offset.

Medicare Levy Low Income Thresholds Increased
Start date: Retrospective, from 1 July 2025

The Medicare levy low income thresholds have increased by 2.9% from 1 July 2025. Where your income sits below these thresholds, you pay no Medicare levy or a reduced amount.

2. Investors: Major Changes to CGT and Negative Gearing

This is the most significant part of the Budget. If you hold investment property or other assets, these changes could have a meaningful impact on your tax position. We recommend speaking with us about your specific circumstances.

Negative Gearing Limited to New Builds
Start date: 1 July 2027 (for properties purchased from 7:30pm AEST 12 May 2026)

Currently, where your rental property runs at a loss, meaning expenses exceed rental income, you can offset that loss against your other income such as salary and wages. This is known as negative gearing.

From 1 July 2027, this offset against other income will apply to new builds. For established residential properties purchased from 7:30pm AEST on 12 May 2026, losses will be deductible against other rental income or capital gains from residential property, with any excess losses carried forward.

What is grandfathered (protected from these changes):

• Properties you already held as at 7:30pm AEST on 12 May 2026, including contracts entered into but not yet settled.
• New residential builds that genuinely add to housing supply.
• Properties held through managed investment trusts or superannuation funds.

Example. Lisa negatively gears an investment unit she purchased in 2020. Her rental income is $24,000 a year and her expenses (interest, rates, maintenance) total $32,000, giving her an $8,000 loss that she currently offsets against her $120,000 salary. Lisa’s existing property is fully grandfathered and her position continues unchanged. If Lisa purchases a second established unit after 12 May 2026, any losses from that property from 1 July 2027 can be offset against her rental income or property capital gains rather than her salary. With no other property income, those losses carry forward until she has rental income or sells a property.

Capital Gains Tax: 50% Discount Replaced by Indexation
Start date: 1 July 2027 (for gains accruing from that date)

This is a fundamental change to how capital gains are taxed in Australia.

Currently, where you hold an asset for more than 12 months, you can discount the capital gain by 50% before including it in your taxable income. From 1 July 2027, this discount will be replaced with:

• Cost base indexation based on the Consumer Price Index, which adjusts your cost base for inflation so you are taxed on real gains above inflation.
• A 30% minimum tax rate on net capital gains accrued from 1 July 2027.

Important transitional protections:

• The 50% CGT discount continues to apply to gains that accrued before 1 July 2027.
• Assets acquired before 20 September 1985 remain exempt for gains accrued before 1 July 2027.
• Investors in new residential properties can choose either the 50% CGT discount or the new indexation and minimum tax approach.
• Recipients of the Age Pension, JobSeeker or other means tested income support payments are exempt from the 30% minimum tax.

Example (existing investors). Michael owns an investment property purchased in 2019, valued at $500,000 on 1 July 2027. He sells it two years later for $560,000. For the period before 1 July 2027, the 50% CGT discount applies to his earlier gains. For the $60,000 gain after 1 July 2027, after indexing his cost base for two years of inflation at 2.5%, his taxable capital gain from that period works out to approximately $34,688, slightly more than the $30,000 he would have paid under the old 50% discount. At a 47% tax rate, the difference is roughly $2,200 in extra tax on the post July 2027 gain. Michael pays no tax until the property is sold.

Example (share investors). Anna holds a diversified share portfolio worth $200,000 on 1 July 2027, with an original cost of $80,000. Her $120,000 unrealised gain all accrued before 1 July 2027. If Anna sells after 1 July 2027, she pays tax on the pre July 2027 gain under current rules with the 50% discount. For any further gains after 1 July 2027, the new indexation and 30% minimum tax applies. On a 37% marginal rate, any new gains after 1 July 2027 are effectively taxed at 37%, so the minimum tax adds nothing further. Action point: valuing your assets as at 1 July 2027 will be important, and we will assist you with this.

3. Family Trusts: Minimum 30% Tax
Start date: 1 July 2028

If you operate a discretionary (family) trust, this change is significant and calls for planning now.

From 1 July 2028, the trustee of a discretionary trust will pay a minimum 30% tax on the trust’s taxable income, regardless of how income is distributed to beneficiaries. Non corporate beneficiaries will receive a non refundable tax credit for the tax paid by the trustee. Corporate beneficiaries (bucket companies) will be excluded from these credits, and the change appears designed to discourage distributions to bucket companies.

Trusts excluded from the minimum tax include fixed and widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts. Some income types are also excluded, including primary production income and income relating to vulnerable minors.

Rollover relief will be available from 1 July 2027 for three years, allowing small businesses and others to restructure out of discretionary trusts into a company or fixed trust, with concessions to minimise CGT consequences. Stamp duty and other costs will still need careful consideration before any restructure.

Example. The Smith family trust generates $200,000 in business income in the 2028 to 2029 year, after paying $100,000 in wages to a family member. The trustee currently distributes $50,000 each to four adult children who have no other income. Under current rules, the four children pay minimal tax, with total tax of around $28,000. Under the new rules, the trust pays 30% minimum tax, totalling $60,000. Each member receives a $15,000 non refundable credit, which exceeds their roughly $7,000 tax liability, so they pay nothing further. Total tax on the $200,000 is $60,000. By contrast, a company structure paying the 25% small business rate on the same income results in approximately $50,000 in total tax. Action point: if you operate through a family trust, contact us now to review whether restructuring before 1 July 2027 makes sense for you.

4. Small Business

$20,000 Instant Asset Write Off Made Permanent
Start date: 1 July 2026 (permanent)

Good news for small businesses. The $20,000 instant asset write off is now permanent for businesses with annual turnover under $10 million. You can immediately deduct the full cost of any depreciating asset costing less than $20,000 (net of GST) in the year of purchase. The threshold applies per asset, so you can purchase multiple assets under $20,000 in the same year and claim an immediate deduction for each.

Example. Riverside Cafe (turnover $800,000) purchases a new commercial coffee machine for $12,500 and a point of sale system for $8,800 in the 2026 to 2027 year. Both assets cost less than $20,000, so both qualify for an immediate deduction totalling $21,300. At a 25% tax rate, this delivers a tax saving of $5,325 in that year.

Loss Carry Back for Companies
Start date: 1 July 2026

Companies with aggregated annual global turnover below $1 billion can now carry back a revenue tax loss and offset it against tax paid in the two prior income years. Refunds are limited to the company’s franking account balance. This is particularly helpful for businesses that were profitable in prior years and face a difficult trading period, as they can generate a cash refund.

Loss Refundability for Small Start Up Companies
Start date: 1 July 2028

New start up companies with turnover under $10 million that make a tax loss in their first two years of operation will be able to convert that loss into a refundable tax offset. The offset is limited to the FBT and PAYG withholding on wages paid to Australian employees in that year.

PAYG Instalments: Monthly Option
Start date: 1 July 2027

From 1 July 2027, small and medium businesses will be able to opt in to monthly PAYG instalment reporting and payments using ATO approved calculations built into accounting software. This helps instalments better reflect real business activity and can support cash flow management.

R&D Tax Incentive Reformed
Start date: 1 July 2028

The R&D Tax Incentive will be reformed from 1 July 2028. Key changes include:

• Increased offset for core R&D expenditure, by approximately 25% to 50%, via a 4.5 percentage point increase in offset rates.
• Intensity threshold reduced from 2% to 1.5%, allowing more firms to access the higher offset rate.
• Supporting R&D expenditure will cease to qualify.
• Minimum expenditure threshold increased from $20,000 to $50,000.
• Maximum expenditure cap lifted from $150 million to $200 million.
• Turnover threshold for the refundable offset increased from $20 million to $50 million.

5. Electric Cars and FBT
Start date: phased from 1 April 2027 to 1 April 2029

The full FBT exemption for electric vehicles is being wound back progressively.

Existing salary packaging arrangements continue unchanged. Employers should note that reportable fringe benefits must still be calculated as if the 20% statutory rate applied, even where the exemption or discount applies.

6. Foreign Purchasers of Established Dwellings
Extended to 30 June 2029

The ban on foreign persons purchasing established residential dwellings has been extended by a further two years and three months, until 30 June 2029. Limited exceptions continue to apply for investments that increase housing supply.

7. Economic Outlook

Next Steps: What Should You Do?

Given the scale of these changes, we recommend reviewing your situation with us as a priority. In particular:

• Property investors. If you are considering purchasing an established investment property, you would need to have entered a contract before 7:30pm 12 May 2026. For purchases already made, speak with us about CGT planning strategies.
• Family trust clients. The 1 July 2027 to 30 June 2030 rollover relief window matters. We can review your trust structure and assess whether restructuring into a company or fixed trust makes sense before the minimum tax commences on 1 July 2028.
• Employers with electric vehicle novated leases. We can review any arrangements to confirm which discount applies and plan accordingly.
• Small business clients. The permanent $20,000 instant asset write off and the new loss carry back are both available from 1 July 2026. Talk to us about investment timing and tax planning.
• All clients. We recommend a tax planning meeting before 30 June 2026 to take stock of your position before the first changes take effect.

These measures are announcements at this stage. We will monitor developments as legislation is introduced and keep you informed. This is the 360 ONE way: seeing the whole picture, planning ahead, and helping you make small, considered decisions that compound into stronger outcomes over time.

To discuss what any of this means for you, get in touch with our team.