Federal Budget 2026

The 2026/27 Federal Budget handed down last night includes some of the most significant reforms over the last two decades, with very broad implications for financial advisers and their clients. While the key changes have occurred where expected, the nature and scale of the reforms have been substantial.

In this year’s Federal Budget Wrap, we have focused on key tax changes relevant to clients.

While these changes are not yet law, the government is expected to introduce enabling legislation as quickly as possible.

Taxation

CAPITAL GAINS TAX ARRANGEMENTS

From 1 July 2027, the 50 per cent CGT discount will be replaced by cost base indexation for assets held for more than 12 months, with a 30 per cent minimum tax on net capital gains. These changes will apply to all CGT assets, including pre-1985 CGT assets, held by individuals, trusts and partnerships.

Transitional arrangements will limit the impact on existing investments by ensuring that the changes apply only to gains arising on or after 1 July 2027. The 50 per cent CGT discount will continue to apply to gains arising before 1 July 2027. Capital gains on pre-1985 assets arising before 1 July 2027 will remain exempt from CGT. Establishing the value of assets at 1 July 2027 will be a critical exercise.

To maintain incentives for new housing supply, investors in new residential properties will be able to choose either the 50 per cent CGT discount, cost base indexation, or the minimum tax. Income support payment recipients, including Age Pension recipients, will be exempt from the minimum tax rate.

NEGATIVE GEARING

The Government will limit negative gearing for residential property to new builds. From 1 July 2027, losses from established residential properties acquired from 7:30PM (AEST) on 12 May 2026 will only be deductible against rental income or the capital gains from residential properties. Excess losses will be carried forward and offset against residential property income in future years.

These changes will apply to established residential properties acquired from 7:30PM (AEST) on 12 May 2026. Properties acquired before this (including contracts entered into but not yet settled) will be exempt from the changes until disposed of.

Eligible new builds will be exempt from the changes, ensuring the benefits of negative gearing are directed to investment that increases the housing stock. Properties in widely held trusts and superannuation funds will also be exempt, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs.

TAXATION ON DISCRETIONARY TRUSTS

The Government will introduce a 30 per cent minimum tax on discretionary trusts. From 1 July 2028, trustees will pay a minimum tax of 30 per cent on the taxable income of discretionary trusts. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee, which can be used to offset current year income tax liabilities.

The tax will be paid by the trustee, as the trustee controls distributions. Beneficiaries will still need to declare the income in their tax returns.

The introduction of a minimum tax on discretionary trusts will reduce incentives for complex tax structuring and protect the integrity of the tax base. To support adjustment, expanded rollover relief will apply for three years, from 1 July 2027, to assist small businesses and other taxpayers in restructuring out of discretionary trusts into companies or fixed trusts. This will provide relief from income tax consequences, including capital gains tax, for those who choose to restructure.

From 1 January 2027, the Australian Small Business and Family Enterprise Ombudsman will be available to assist small businesses in understanding their options and where they can get further advice. Specific arrangements will be put in place by the Australian Securities and Investments Commission (ASIC) to support small businesses that wish to incorporate and access benefits such as the 25 per cent small business tax rate.

The minimum tax rate will not apply to other types of trusts, such as fixed and widely held trusts (including fixed testamentary trusts), complying superannuation funds, special disability trusts, deceased estates and charitable trusts. Some types of income, such as primary production income of farms, certain income relating to vulnerable minors, amounts to which non-resident withholding tax applies, and income from assets of discretionary testamentary trusts existing at the time of announcement, will also be excluded.

$1,000 INSTANT TAX DEDUCTION

The Government will introduce an instant tax deduction of up to $1,000 from the 2026–27 income tax year. Australian tax residents who earn income from work will be eligible for the instant tax deduction and will not need to itemise and claim work-related expenses if their claim is less than $1,000.

Individuals who incur work-related expenses greater than the instant tax deduction can continue to claim their deductions in the usual way. Charitable donations, union and professional association membership fees, and other non-work-related deductions can still be itemised separately and claimed in addition to the instant tax deduction.

WORKING AUSTRALIANS TAX OFFSET (WATO)

The Government will introduce a $250 Working Australians Tax Offset from the 2027–28 income tax year. This will be a permanent annual tax offset for Australians on income derived from work, such as wages and salaries, and the business income of sole traders, from 1 July 2027.

The WATO will increase the effective tax-free threshold for income derived from work by nearly $1,800 to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset).

MEDICARE LEVY LOW-INCOME THRESHOLDS

The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners by 2.9 per cent from 1 July 2025, continuing to exempt low-income individuals and families from paying the Medicare levy.

  • The threshold for singles will be increased from $27,222 to $28,011.

  • The family threshold will be increased from $45,907 to $47,238.

  • For single seniors and pensioners, the threshold will be increased from $43,020 to $44,268.

  • The family threshold for seniors and pensioners will be increased from $59,886 to $61,623.

  • The family income thresholds will increase by $4,338 for each dependent child or student, up from $4,216.

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 up to $10 million. Assets valued at $20,000 or more can continue to be placed into the small business simplified depreciation pool. The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years after opting out will remain suspended until 30 June 2027.

LOSS REFUNDABILITY FOR BUSINESSES AND START-UPS

The Government will provide tax relief to businesses and start-ups by reforming the treatment of tax losses.

For tax years commencing on or after 1 July 2026, companies with an aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid up to two years earlier. Loss carry-back will apply only to revenue losses and will be limited by a company’s franking account balance.

The Government will also introduce loss refundability for small start-up companies. For tax years commencing on or after 1 July 2028, start-up companies with an aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to utilise the loss to generate a refundable tax offset. The offset will be limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year.