KEY INITIATIVES
On Tuesday, 12 May 2026, Treasurer Jim Chalmers presented the 2026-27 Federal Budget, highlighting significant announcements to help young Australians enter the property market. While recognising that increasing housing supply is key to affordability, the Government views adjustments to negative gearing and the capital gains tax (CGT) discount as critical components in addressing housing affordability.
Described as the Government’s most ambitious budget, the proposed initiatives, if enacted, will directly impact a broad spectrum of Australian society, including individual taxpayers, investors, businesses, employers, and those living with disabilities.
This year’s budget comes amid considerable economic challenges, including global fuel price shocks, persistent inflation, rising interest rates, and escalating concerns about housing affordability. These topics are reflected in the measures announced by the Treasurer.
Despite significant tax system changes, the superannuation system remains largely unchanged this year. Key initiatives include:
- Housing
- Modifications to the tax system to diminish existing concessions for property investors.
- Extension of the temporary ban on foreign purchases of established dwellings until 30 June 2029.
- A $2 billion investment to assist local governments and state utilities in building infrastructure to support new housing developments.
- Defence
- The defence budget will increase by $53 billion over the next decade.
- Fuel
- A $14.8 billion initiative will enhance Australia’s fuel supply security.
- The reduction in fuel excise and heavy vehicle road user charge will remain for an additional three months from 1 April 2026.
- Health
- Additional funding for Medicare Urgent Care Clinics to alleviate pressure on GPs and hospitals.
- Funds allocated for incorporating new medicines into the Pharmaceutical Benefits Scheme, including treatments for cystic fibrosis, kidney disease, and various cancers.
- An additional $25 billion for public hospitals.
- Reforms to the NDIS should save $37.8 billion over the next four years, with a focus on those with permanent and severe disabilities.
- Reduction of private health insurance subsidies for Australians aged 65 and above, with savings redirected to aged care and dementia care units.
Important: Unless otherwise indicated, the measures outlined below are currently only announcements. There is no assurance that they will be implemented as presented by the Government (or at all). We will keep you informed on key developments as they unfold.
INDIVIDUALS AND FAMILIES
A NEW TAX OFFSET
Start date: 1 July 2027
The Government will introduce a $250 ‘Working Australians Tax Offset’ beginning from the 2027–28 income year. This offset will become a permanent feature of the tax system for earners deriving income from employment, such as salaried employees and sole traders.
This offset effectively raises the tax-free threshold for work-derived income by nearly $1,800, bringing it to $19,985 (or up to $24,985 for individuals eligible for the Low Income Tax Offset).
$1,000 INSTANT TAX DEDUCTION FOR WORKERS
Start date: 1 July 2026
During the 2025 federal election, the Labour Party pledged to introduce a $1,000 instant tax deduction for work-related expenses. On 20 April 2026, Treasury released draft legislation for public feedback on this proposal.
Under this proposal, Australian residents can claim a standard deduction for work-related expenses from the 2026-27 income year, capped at the lesser of $1,000 or the individual’s assessable labour income. The usual substantiation rules will not apply to this standard deduction.
Taxpayers can still claim charitable donations, union dues, and professional association membership fees in addition to the standard deduction.
If taxpayers incur qualifying work-related expenses totalling more than $1,000, they can opt to claim their actual expenses, but they must substantiate them.
MEDICARE LEVY THRESHOLDS INCREASED
Start date: 1 July 2025
- The Government will raise the Medicare levy low-income thresholds for singles, families, seniors, and pensioners.
- The single threshold will increase from $27,222 to $28,011.
- The family threshold will rise from $45,907 to $47,238.
- The threshold for single seniors and pensioners will be enhanced from $43,020 to $44,268.
- The family threshold for seniors and pensioners will increase from $59,886 to $61,623.
- Family income thresholds will increase by $4,338 per dependent child or student, up from $4,216.
GOVERNMENT AND REGULATORS
PROTECTING THE TAX SYSTEM AGAINST FRAUD
Start date: 1 July 2026
The Government will allocate $86.3 million over four years to assist in detecting and preventing tax fraud.
Additionally, the ATO will be empowered to combat fraud committed by tax agents and other intermediaries. The ATO will have the authority to pause recovering tax debts owed by taxpayers who fall victim to such fraud, waive those debts when appropriate, and recover debts from the tax intermediaries involved.
The ATO will also conduct targeted compliance checks focused on fraud within the system, particularly concerning the R&D Tax Incentive.
INVESTORS
LIMITS ON NEGATIVE GEARING
Start date: 1 July 2027
Negative gearing occurs when the expenses associated with a rental property exceed the rental income received in a given year, allowing the property owner to claim deductions.
However, the rules regarding negative gearing for residential property are set to change. From July 2027, negative gearing rules will only apply to new builds.
From this date, losses from established residential properties acquired after 7:30 pm (AEST) on 12 May 2026 will only be deductible against rental income or capital gains from residential properties. Any excess losses will be carried forward to offset future residential property income.
New builds refer to residential properties that genuinely add to the housing supply, such as new construction on vacant land or demolitions replaced with a greater number of dwellings.
However, knock-down rebuilds or substantial renovations that do not increase supply will not be classified as new builds.
Properties acquired before 12 May 2026 will not be subject to these changes, which also do not apply to managed investment trusts or superannuation funds, nor do they affect other asset classes such as commercial properties or shares.
CGT DISCOUNT AND PRE-CGT EXEMPTION REPLACED BY INDEXATION AND MINIMUM TAX RATE
Start date: 1 July 2027
The CGT discount has allowed individuals, trusts, and complying superannuation funds to reduce taxable capital gains on assets held for over 12 months, typically at a standard discount of 50% for individuals and trusts, and 1/3 for super funds.
However, beginning 1 July 2027, the Government intends to revert to an indexation system based on the Consumer Price Index (CPI), applicable only to assets held for more than 12 months.
A minimum tax rate of 30% will apply to capital gains accruing after 1 July 2027, with exceptions for recipients of means-tested income support payments (e.g., Age Pension, JobSeeker).
Pre-CGT assets, acquired before 20 September 1985, will no longer be exempt from CGT from 1 July 2027.
Transitional rules are set to limit the impact for existing investments, with the existing CGT discount continuing to apply for gains accrued before 1 July 2027. Taxpayers will need to ascertain the current value of existing assets as of this date for CGT calculations.
The CGT changes will apply across all asset classes, including property and shares, and will affect individuals, trusts, and partnerships. Notably, investors in new residential properties can opt to apply either the 50% CGT discount, cost base indexation, or the minimum tax rate.
MINIMUM TAX ON FAMILY TRUST DISTRIBUTIONS
Start date: 1 July 2028
The Government has announced that a minimum tax rate of 30% will apply to distributions made by discretionary trusts. These trusts, often known as family trusts, have become a popular structure for investment and business activities.
A key characteristic of discretionary trusts is that trustees generally have the authority to allocate income and capital gains to family members and related entities, permitting effective tax planning.
However, from 1 July 2028, trustees will pay a minimum 30% tax on the trust’s taxable income, with non-refundable tax credits available to beneficiaries who are not corporate entities.
Corporate beneficiaries will not be eligible for the non-refundable credit, suggesting that the government intends to discourage income distributions to them.
The Government has indicated that a limited form of rollover relief will be available for three years post-1 July 2027 for small businesses transitioning from a discretionary trust to a company or a fixed trust, potentially minimising GT and other income tax repercussions. Broader issues, such as stamp duty, will also need to be considered before implementing structural changes.
The minimum tax will not be applied to fixed and widely held trusts, complying superannuation funds, special disability trusts, deceased estates, or charitable trusts. Certain income types, including primary production income and trust income concerning vulnerable minors, will also be exempt.
FOREIGN RESIDENT CGT CONCESSION
Start date: The first day of the next quarter after receiving Royal Assent
The Government will introduce a concession within the foreign resident CGT framework for investments in the renewable sector. This transitional arrangement will apply to foreign investors disposing of specific renewable energy infrastructure assets until 30 June 2030.
VENTURE CAPITAL TAX INCENTIVES
Start date: 1 July 2027
The Government will broaden the existing tax incentives for venture capital limited partnerships and early-stage venture capital limited partnerships.
BUSINESS AND EMPLOYERS
INSTANT ASSET WRITE-OFF
Start date: 1 July 2026
The Government has announced that the cost threshold for the instant asset write-off for small business entities will be permanently raised to $20,000 from 1 July 2026.
This initiative allows eligible small business entities with an aggregated turnover of less than $10 million to immediately deduct the full cost of depreciating assets costing less than the threshold. While the previous standard threshold was $1,000, higher temporary thresholds have been applied yearly since 2015. Small business taxpayers should welcome the permanent increase to $20,000, as it should foster greater confidence in investing in new equipment or upgrades. To qualify for immediate deductions, the asset cost must be below $20,000 after deducting any GST credits.
The threshold is applied on an asset-by-asset basis, permitting multiple deductions for assets under $20,000 purchased in a single income year, even if their total cost exceeds $20,000.
Assets costing $20,000 or more may continue to contribute to a small business pool. It is also important to remember that the threshold for the current income year ending 30 June 2026 has already been set at $20,000.
FBT ON ELECTRIC CARS
Start date: 1 April 2027
On 5 May 2026, the Government announced a gradual reduction of the FBT exemption for electric cars over the coming years. This exemption was implemented in the 2022-23 income year as part of an effort to lower electric vehicle costs and promote usage.
While the exemption for plug-in hybrid vehicles has been eliminated on 1 April 2025 (with some pre-existing arrangements still qualifying), battery electric vehicles and hydrogen fuel cell vehicles retain a full FBT exemption under specific conditions.
Nonetheless, the Government plans to scale down the FBT exemption as follows:
- The exemption will remain in its current form until 31 March 2027.
- From 1 April 2027 to 31 March 2029, the full exemption will be limited to cars costing $75,000 or less. Those exceeding this cost but below the luxury car tax (LCT) threshold will receive a 25% FBT discount.
- From 1 April 2029, all electric vehicles priced below the LCT threshold will be subject to a 25% FBT discount.
The Government assures that these modifications will not affect existing leasing agreements.
When an electric vehicle qualifies for concessional FBT treatment under these amendments, employers must still compute the reportable fringe benefits
