KEY INITIATIVES
On Tuesday, 12 May 2026, Treasurer Jim Chalmers presented the 2026-27 Federal Budget, highlighting key announcements aimed at assisting young Australians in accessing the property market. While the Government acknowledges that increased supply is critical for housing affordability, it also views modifications to negative gearing and the capital gains tax (CGT) discount as vital components of the overall housing affordability strategy.
The Government has labelled this its most ambitious budget yet. If the proposed measures are enacted, the effects will reverberate across a broad spectrum of Australian society, affecting individual taxpayers, investors, businesses, employers, and people with disabilities.
This year’s budget emerges amid considerable economic challenges such as global fuel price shocks, ongoing inflation, increasing interest rates, and growing concerns surrounding housing affordability. These themes are woven into the measures announced by the Treasurer.
While significant changes to the tax system have been introduced, the superannuation system remains untouched this year. Key initiatives include:
- Housing
- Modifications to the tax system aimed at reducing 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.
- Defence
- The defence budget is set to increase by $53 billion over the next decade.
- Fuel
- A $14.8 billion package will support Australia in strengthening its fuel supply.
- The reduction in the fuel excise and heavy vehicle road user charge will extend for an additional three months starting 1 April 2026.
- Health
- Increased funding for Medicare Urgent Care Clinics to alleviate pressure on GPs and hospitals.
- Funds earmarked for listing new medicines on the Pharmaceutical Benefits Scheme, including treatments for cystic fibrosis, kidney disease, and various cancers.
- Additional $25 billion in funding for public hospitals.
- Expected reforms to the NDIS are projected to save $37.8 billion over the next four years, focusing more on those with permanent and severe disabilities.
- Cuts to private health insurance subsidies for Australians aged 65 and over, with savings redirected to fund aged care and dementia care units.
Important: Unless otherwise noted, the measures discussed below are currently announcements only. There is no guarantee they will be implemented as proposed by the Government (or at all). We will keep you informed about key developments as they arise.
INDIVIDUALS AND FAMILIES
A NEW TAX OFFSET
Start date: 1 July 2027
The Government will introduce a $250 ‘Working Australians Tax Offset’ starting from the 2027–28 income year. This offset will be a permanent feature of the tax system and is aimed at taxpayers with income derived from work, including employees receiving salaries or wages and sole traders running businesses.
The offset effectively raises the tax-free threshold for income derived from work by nearly $1,800 to $19,985 (or up to $24,985 for those eligible for the Low Income Tax Offset).
$1,000 INSTANT TAX DEDUCTION FOR WORKERS
Start date: 1 July 2026
During the 2025 federal election campaign, the Labour Party pledged to implement a $1,000 instant tax deduction for work-related expenses. On 20 April 2026, the Treasury released draft legislation for public consultation on this proposal.
The central feature of the proposal allows Australian residents to claim a standard deduction from the 2026-27 income year onwards for work-related expenses, capped at the lesser of $1,000 or the individual’s assessable labour income. The usual substantiation rules will not apply for claiming the standard deduction.
Additional claims for charitable donations, union dues, and professional association membership fees can be made alongside the standard deduction.
Taxpayers incurring over $1,000 in qualifying work-related expenses can instead claim their actual expenses as a deduction but 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, and seniors and pensioners.
- Single threshold increases from $27,222 to $28,011.
- Family threshold increases from $45,907 to $47,238.
- Single seniors and pensioners threshold rises from $43,020 to $44,268.
- Family threshold for seniors and pensioners increases from $59,886 to $61,623.
- Family income thresholds will rise by $4,338 for each 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 enhance detection and prevention of tax fraud.
Moreover, the Government will bolster the ATO’s capability to combat fraud by tax agents and other intermediaries. The ATO will be empowered to pause the recovery of tax debts owed by taxpayers affected by fraud, waive those debts under appropriate circumstances, and recover those debts from the tax intermediaries.
The ATO will also engage in additional targeted compliance activities to further address fraud in the tax system, including those related to the R&D Tax Incentive.
INVESTORS
LIMITS ON NEGATIVE GEARING
Start date: 1 July 2027
‘Negative gearing’ refers to when a rental property owner claims deductions for expenses related to holding the property that exceed the rental income received in the relevant income year.
Typically, losses from rental properties can be offset against other income (such as salaries, wages, and net capital gains) to reduce overall taxable income or carried forward to future years.
However, the rules governing negative gearing for residential properties will change, as the Government has announced that existing negative gearing rules will now only apply to new builds from 1 July 2027.
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 residential property income in future years.
‘New builds’ are defined as residential properties that genuinely contribute to supply, such as dwellings built on vacant land or cases where existing properties are demolished and replaced with more dwellings.
Knock-down rebuilds or major renovations that do not increase supply will not qualify as new builds.
Properties acquired before 12 May 2026 will remain exempt from the changes, which do not apply to managed investment trusts or superannuation funds. Furthermore, other asset classes such as commercial properties or shares will not be affected.
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 compliant superannuation funds to lessen the taxable capital gain on the disposal of assets held for over 12 months.
The standard discount rate stands at 50% for trusts and individuals (lower rates may apply to non-residents and temporary residents in certain cases) and a 1/3 discount rate for superannuation funds.
However, the Government intends to revert to an indexation system based on the Consumer Price Index (CPI) from 1 July 2027, similar to that applied between 1985 and 1999. This indexation will only be accessible for assets held for over 12 months.
In addition, a minimum tax rate of 30% will be enforced on capital gains accruing on or after 1 July 2027, with some exceptions for recipients of means-tested income support payments (e.g., Age Pension, JobSeeker).
Assets acquired before 20 September 1985 (known as pre-CGT assets) will lose their historic exemption from CGT starting 1 July 2027.
Transitional rules will mitigate the impact of these changes for existing investments. The existing CGT discount and exemption for pre-CGT assets will still apply to gains accrued before 1 July 2027. Taxpayers will need to assess the value of existing assets as of 1 July 2027 for CGT calculations.
These CGT changes apply across all asset classes, including property and shares, affecting individuals, trusts, and partnership-held assets.
However, 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 30% tax rate will apply to distributions made by discretionary trusts, commonly referred to as family trusts.
A key feature of discretionary trusts is that the trustee generally has the authority to allocate income and capital gains to family members and related entities.
This flexibility allows discretionary trusts to serve as effective tax planning tools. For instance, income distributed to an adult child could be tax-free if the child has no other income and distributions are below the tax-free threshold for individuals.
However, starting 1 July 2028, the trustee of a discretionary trust will be required to pay a minimum 30% tax on the trust’s taxable income. Individuals and non-corporate beneficiaries will receive a non-refundable tax credit for the trustee’s paid tax.
This non-refundable credit will not extend to corporate beneficiaries, often known as bucket companies. The changes aim to partially discourage trustees from distributing income to corporate beneficiaries.
The Government has indicated that limited rollover relief will be offered for three years from 1 July 2027 to small businesses and others looking to restructure from a discretionary trust into a company or fixed trust. This relief may help alleviate CGT and other income tax implications, although broader considerations, such as stamp duty, will need thorough analysis before any significant structural changes are made.
The minimum tax will not apply to fixed and widely held trusts, compliant superannuation funds, special disability trusts, deceased estates, or charitable trusts. Specific income types, such as primary production income, certain income related to vulnerable minors, amounts subject to non-resident withholding tax, and income from assets of testamentary trusts established before 12 May 2026, will also be exempt.
FOREIGN RESIDENT CGT CONCESSION
Start date: The first day of the next quarter following Royal Assent
The Government will implement a concession in the foreign resident CGT regime for investments in the renewable energy sector.
This transitional arrangement will be applicable to foreign investors disposing of certain renewable energy infrastructure assets from the start date 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 a permanent increase in the cost threshold for the instant asset write-off for small business entities to $20,000 from 1 July 2026.
This instant asset write-off allows eligible small business entities with an aggregated turnover of less than $10 million to claim an immediate deduction for the full cost of depreciating assets costing below the specified threshold. While the standard threshold is $1,000, higher temporary thresholds have been in effect since 2015, leading to confusion.
A permanent increase to $20,000 is promising news for small business taxpayers, who will have greater confidence when investing in new equipment or upgrading existing assets. For the immediate deduction to apply, the asset’s cost must be under $20,000 after deducting applicable GST credits.
The cost threshold applies on an asset-by-asset basis, permitting immediate deductions for multiple assets purchased for less than $20,000 within a particular income year, even if their total exceeds $20,000.
Assets valued at $20,000 or more can still be added to a small business pool. Please remember: the threshold for the current income year, ending 30 June 2026, has already been raised to $20,000.
FBT ON ELECTRIC CARS
Start date: 1 April 2027
On 5 May 2026,
