Last night the Federal Government handed down its 2026 Federal Budget, with Treasurer Jim Chalmers delivering a “stake in the ground” economic blueprint for Labor’s second term in office.
Against a backdrop of persistent cost-of-living pressures, rising interest rates and geopolitical instability, this year’s Budget focused heavily on balancing targeted household support with longer-term fiscal sustainability.
In his Budget delivery speech, Chalmers said it was the “most important and ambitious budget in decades” and “ambitious in the face of adversity”, focusing in particular on the conflict in the Middle East.
The core of this Budget is an economic strategy with five main parts, he said. These are:
- Getting through the global oil shock and building resilience;
- Taking the pressure off people where we can;
- Making the economy more productive to lift living standards over time;
- Reforming the tax system for workers, businesses and future generations – including a new tax cut for every working Australian taxpayer; and
- Making the budget stronger, more sustainable, and helping to take the pressure off inflation by saving more than we spend.
While some parts of the Budget had been signalled in advance, several measures remain particularly relevant in the context many broader financial planning strategies, in particular controversial breaks from pre-election promises to not make changes to negative gearing and CGT rules, in addition to a surprise minimum 30% rate of taxation of trusts.
Restriction of Negative Gearing
From 1 July 2027, negative gearing concessions will be limited to newly constructed residential properties. Investors purchasing established residential investment properties after the announcement time of 7:30pm (AEST) on 12 May 2026 will no longer be able to offset rental losses against salary or other personal income.
Existing holdings will be grandfathered. This means properties acquired prior to the announcement, including those under contract but not yet settled, will continue to retain access to the current negative gearing rules until sold.
The Government’s intention is to direct tax incentives toward the creation of additional housing stock by preserving full negative gearing benefits for eligible new developments.
Investors acquiring established properties after Budget night will still be able to deduct expenses against rental income generated by the property itself. Any excess losses that cannot be utilised immediately may be carried forward to offset future property income, however they will no longer reduce unrelated taxable income such as employment earnings.
Changes to Capital Gains Tax
The Government has also announced a major overhaul of the Capital Gains Tax regime, replacing the broad 50% CGT discount with an indexation-based approach going back to policy last seen in 1999. Under the proposed model, only the portion of a capital gain exceeding inflation will be subject to tax.
To soften the transition, the new rules will only apply to gains accruing from 1 July 2027 onwards. Capital growth generated before that date will still qualify for the existing 50% discount.
Assets acquired prior to September 1985 will maintain their historical CGT exemption for gains accumulated before 1 July 2027. However, any increase in value occurring after that date will fall within the new framework.
While this announcement was presented as a measure to temper rising house prices, the CGT changes extend beyond real estate and will also affect shares, business assets, and other investment classes. Nevertheless, investors in newly built residential housing will continue to receive concessional treatment, with the option of applying either the existing 50% discount or the new indexation method combined with the proposed minimum tax rules.
In addition, the Government has proposed a 30% minimum tax rate on capital gains. This measure is designed to prevent taxpayers from strategically realising gains during low-income years or retirement in order to access lower marginal tax rates.
Recipients of income support payments, including Age Pensioners, will be exempt from the minimum CGT tax provisions, although a significant enough capital gain may result in the loss of these benefits in any case.
Impact on Superannuation and SMSFs
One of the more welcomed outcomes from the Budget was the exclusion of superannuation from the broader CGT changes.
Superannuation funds, including Self-Managed Super Funds (SMSFs), will continue to operate under the existing tax framework. The current one-third CGT discount available to super funds on assets held longer than 12 months will remain unchanged.
Given that superannuation earnings are generally taxed at a concessional 15% rate, the retained discount continues to result in an effective tax rate of approximately 10% on long-term capital gains within super.
No changes have been announced to tax free status of funds under the tax free threshold in pension mode.
Taxation of Discretionary Trusts
The Budget also proposes significant reform to the taxation of discretionary trusts through the introduction of a minimum 30% tax rate.
From 1 July 2028, trustees of discretionary trusts will be required to pay tax at a minimum rate of 30% on taxable trust income. Beneficiaries other than corporate beneficiaries will receive non-refundable tax credits reflecting tax already paid by the trustee.
The new minimum tax will not apply to fixed trusts, widely held trusts, complying superannuation funds, charitable trusts, deceased estates, special disability trusts, or fixed testamentary trusts.
Certain categories of income will also remain excluded, including primary production income, some income relating to vulnerable minors, income already subject to non-resident withholding tax, and income derived from assets held in discretionary testamentary trusts existing at the time of the announcement.
To assist taxpayers wishing to restructure, the Government will introduce expanded rollover relief for a three-year period commencing 1 July 2027. This is intended to support small businesses and investors transitioning from discretionary trust structures into companies or fixed trusts without triggering immediate tax consequences.
Measures Supporting Small Business
The Budget also contains several initiatives designed to provide greater certainty and support for small businesses.
Most notably, the $20,000 Instant Asset Write-Off has now been made a permanent part of the tax system. Businesses with annual turnover below $10 million will be able to continue immediately deducting eligible asset purchases costing less than $20,000, removing the uncertainty created by repeated temporary extensions in prior years.
The Government has also confirmed the permanent introduction of a two-year loss carry-back regime for companies with turnover of up to $1 billion, effective from 1 July 2026. This measure is intended to improve cash flow resilience and encourage investment and entrepreneurial risk-taking.
In addition, eligible start-ups will gain access to refundable tax losses from 1 July 2028. Refundability will be limited to the amount of PAYG withholding tax and fringe benefits tax paid in relation to employees, providing early-stage businesses with access to cash refunds before they become profitable.
$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 claiming 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 on top of 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 for their 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).
Each of our clients’ individual circumstances will be impacted differently by the measures announced in last night’s Budget. We will continue to assess the implications for your personal strategy and discuss any relevant considerations at your next scheduled review, or earlier if required.
Of course, if there is anything you would like to discuss sooner or if you have any questions regarding the Budget announcements, please contact our office on 9323 3000 and we will be happy to assist.
