Budget 2026–27

Major Reform

Negative gearing limited to new builds

Negative gearing refers to the ability of a property owner to claim deductions for costs associated with holding an investment property where those costs exceed the rental income received in the same income year.

At present, rental losses can generally be offset against other income, including salary, wages and net capital gains, reducing overall taxable income or creating a tax loss to carry forward.

From 1 July 2027, negative gearing on residential property will be restricted to new builds. Losses on established investment properties purchased after 7.30pm AEST on 12 May 2026 will only be deductible against rental income or capital gains from other residential properties, rather than against salary or business income.

Excess losses will be carried forward and may be applied against future residential property income.

Key points

• Properties held, or under contract, at the time of the announcement will retain full negative gearing until sold.
• New builds will remain fully negatively gearable before and after 1 July 2027.
• Exemptions are expected to apply to widely held trusts, SMSFs, build-to-rent projects and private investors supporting government housing programs.

CGT 50% discount replaced by cost base indexation

The CGT discount currently allows individuals, trusts and complying superannuation funds to reduce a capital gain on assets held for more than 12 months. The standard discount is 50% for individuals and trusts, with a one-third discount applying to superannuation funds.

From 1 July 2027, the Government proposes to replace the discount system with a cost base indexation method linked to CPI, similar to the regime that applied between 1985 and 1999. Indexation would only be available for assets held for more than 12 months.

A minimum tax rate of 30% would also apply to capital gains accruing from 1 July 2027, subject to limited exceptions for recipients of means-tested income support payments such as Age Pension and JobSeeker.

Pre-CGT assets have historically been exempt from CGT, but that exemption would no longer apply from 1 July 2027. Transitional rules are expected to preserve the existing CGT discount and pre-CGT exemption for gains accrued before that date.

These changes would apply to all CGT assets, including property and shares, and would affect individuals, trusts and partnership-held assets.

Investors in new residential properties would be able to choose between the existing 50% discount and the new indexation method.

Key points

• The changes apply to all CGT assets, including pre-CGT assets, held by individuals, trusts and partnerships.
• Only gains accruing after 1 July 2027 are affected; earlier gains would retain the 50% discount.
• Investors in new residential properties may be able to choose either the 50% discount or the new indexation method.
• Recipients of the Age Pension and JobSeeker are expected to be exempt from the 30% minimum tax.

Minimum 30% tax on discretionary trust income

Discretionary trusts, often called family trusts, are commonly used for both investment and business purposes. One of the key features of a discretionary trust is that the trustee generally has flexibility in deciding how income and capital gains are allocated across family members and related entities.

From 1 July 2028, trustees would be subject to a minimum 30% tax on the taxable income of discretionary trusts. Beneficiaries other than corporate beneficiaries would receive non-refundable credits for tax paid by the trustee, while corporate beneficiaries would not receive the same credit.

The Government has also indicated that limited rollover relief may be available for three years from 1 July 2027 for small businesses and others seeking to restructure out of a discretionary trust into a company or fixed trust. Any restructure would need to be considered carefully, including the potential CGT and stamp duty consequences.

Certain income would be excluded from the measure, including primary production income, some income relating to vulnerable minors, non-resident withholding amounts and income from assets of discretionary testamentary trusts existing at the announcement date.

Key points

• Excluded trusts would include fixed and widely held trusts, complying super funds, special disability trusts, deceased estates and charitable trusts.
• Excluded income would include primary production income, certain income for vulnerable minors, non-resident withholding amounts and income from assets of discretionary testamentary trusts existing at announcement.
• Roll-over relief may be available for three years from 1 July 2027 to restructure into a company or fixed trust.

Individuals and Families

$1,000 instant tax deduction for work-related expenses

Australian tax residents who earn employment income would be entitled to a $1,000 standard deduction for work-related expenses, with no receipts required where actual expenses are below that amount.

If your work-related expenses exceed $1,000, you can still claim the higher amount in the usual way. Charitable donations and professional membership fees may still be claimed separately.

$250 Working Australians Tax Offset (WATO)

A new permanent $250 tax offset for Australian workers, including wages, salaries and sole trader income, would increase the effective tax-free threshold to approximately $19,985, or $24,985 for those also eligible for the Low Income Tax Offset.

More than 13 million workers are expected to benefit from the measure.

Medicare levy low-income thresholds increased

Private Health Insurance Rebate — age-based uplift removed

The higher rebate rate currently available to policyholders aged 65 and over would be removed.

The savings from this measure would be redirected toward residential aged care beds and home care supports.

Business Measures

$20,000 instant asset write-off permanently extended

The $20,000 instant asset write-off for small businesses with annual turnover up to $10 million would be made permanent.

Assets costing $20,000 or more would continue to be added to the simplified depreciation pool.

The instant asset write-off allows eligible small business entities to claim an immediate deduction for the full cost of depreciating assets costing less than the relevant threshold, after subtracting any GST credits that can be claimed.

Monthly PAYG instalments available for SMEs

Small and medium businesses would be able to opt in to reporting and paying PAYG instalments monthly, using an ATO-approved calculation embedded in accounting software.

This is intended to better align tax payments with real-time business performance and cash flow.

Fuel excise temporarily halved

In response to fuel price pressures, the Government reduced fuel excise by 60.9%, equivalent to about 32 cents per litre on petrol and diesel, for a period of three months from 1 April 2026.

The heavy vehicle road user charge was also reduced to zero for the same period.

Small business support extended

An additional $8.2 million has been allocated to extend the Small Business Debt Helpline and the NewAccess for Small Business Owners mental health coaching program to 30 June 2027.

Venture capital tax incentives expanded

The Budget proposes changes to the venture capital tax incentive regimes, including increases to key asset caps and fund size limits.

Companies

Loss carry-back reintroduced for companies under $1 billion turnover

Companies with aggregated global annual turnover below $1 billion would be able to carry back revenue tax losses against tax paid in the previous two years, subject to the company’s franking account balance.

This can generate a cash refund in a loss year and may provide a meaningful cash-flow benefit for businesses investing in growth.

The ability to carry back a loss will only apply to tax losses, not capital losses.

Loss refundability for small start-up companies

Small start-up companies with turnover under $10 million that generate a tax loss in their first two years of operation would be able to convert that loss into a refundable tax offset, limited to FBT and withholding tax on wages paid to Australian employees in the loss year.

R&D Tax Incentive reformed

The R&D Tax Incentive would be reformed as follows:

Superannuation

Payday Super — now law

Employers must pay superannuation at the same time as salary and wages.

Penalties and charges for late or missed payments have also been updated, so payroll systems should be reviewed well before the start date.

Division 296 — 30% tax on super balances above $3 million — now law

The additional tax on large superannuation balances has passed Parliament.

Thresholds will be indexed to CPI each year.

Low Income Superannuation Tax Offset (LISTO) increased

The LISTO eligibility threshold rises from $37,000 to $45,000, and the maximum LISTO amount increases from $500 to $810, reflecting the 12% Superannuation Guarantee rate

Property & International

Foreign ban on purchasing established homes extended

The existing ban on foreign persons, including temporary residents and foreign-owned companies, purchasing established residential dwellings has been extended by a further 2 years and 3 months to 30 June 2029.

Existing limited exceptions continue to apply.

Electric car FBT — transition to permanent 25% discount

The full FBT exemption for eligible electric vehicles will transition to a permanent 25% FBT discount from 1 April 2029. Transitional arrangements protect existing commitments: