2026-27 Federal Budget Overview
The Federal Budget, handed down on 12 May 2026, included a number of proposed measures that will affect individuals, property investors and businesses.
We’ve summarised the proposed measures that are most likely to impact our clients below. However, keep in mind that the majority of these are yet to pass through Parliament and remain subject to legislative change.
Individuals
The previously announced income tax rate reductions remain on schedule. From 1 July 2026, the 15% tax rate will apply to taxable income between $18,201 and $45,000 (currently taxed at 16%). From 1 July 2027, this rate will reduce further to 14%.
From 1 July 2026, working Australian tax residents will be able to claim a standard deduction of up to $1,000 for work-related expenses without needing to keep receipts or itemise individual claims.
Those with work-related expenses exceeding $1,000 can continue to claim in the usual way, with substantiation. Donations, union fees and professional memberships can still be claimed separately on top of this deduction.
From 1 July 2027, a new permanent annual tax offset of $250 will be available to salary and wage earners and sole traders. This effectively increases the tax-free threshold by approximately $1,800 for eligible workers.
These will increase from 1 July 2025, meaning lower-income earners will have a higher threshold before the 2% Medicare levy begins to apply.
Property & Investment
The current 50% capital gains tax (CGT) discount, which halves the taxable gain on assets held for more than 12 months, would be replaced by cost base indexation (which adjusts the original purchase price for inflation) with a 30% minimum tax applying to net capital gains.
Gains accrued before 1 July 2027 will still be eligible for the existing 50% discount as a transitional measure. Investors in new residential properties will be able to choose between the two methods. The change will also affect assets acquired before 1985, which are currently exempt from CGT entirely.
From 1 July 2027, losses on established residential properties acquired after 7:30pm AEST on 12 May 2026 can only be offset against rental income or capital gains from residential properties, not against other income such as salary. Any excess losses will be carried forward to offset residential property income in future years.
Properties acquired before this cut-off time are unaffected. Exemptions apply for eligible new builds, properties held in widely-held trusts or superannuation funds, build-to-rent developments, and private investors supporting government housing programs.
The existing ban on foreign purchases of established residential dwellings has been extended to 30 June 2029 (previously set to expire March 2027). Exemptions continue to apply for permanent residents and New Zealand citizens.
Trusts
From 1 July 2028, trustees of discretionary trusts (commonly used by family businesses and investors to distribute income flexibly among beneficiaries) will be subject to a 30% minimum tax on the trust’s taxable income.
Non-corporate beneficiaries will receive a non-refundable credit for the tax paid. This will not apply to fixed trusts, widely-held trusts, complying superannuation funds, special disability trusts or deceased estates. Certain income types are also excluded, including primary production income.
To assist those affected, expanded rollover relief (which allows assets to be transferred without triggering immediate tax) will be available from 1 July 2027 to 30 June 2030 for small businesses and others restructuring out of discretionary trusts into a company or fixed trust structure.
Businesses
The $20,000 instant asset write-off for small businesses with aggregated annual turnover under $10 million will be made permanent from 1 July 2026. This allows eligible businesses to immediately deduct the full cost of assets under $20,000, rather than depreciating them over time.
From 1 July 2026, companies with global turnover under $1 billion will be able to carry back a revenue tax loss and offset it against tax paid in the previous two years, generating a refundable offset. This is particularly useful for businesses that were profitable in prior years but have recently moved into a loss position.
From 1 July 2028, start-up companies with turnover under $10 million that generate a tax loss in their first two years of operation will be able to access a refundable tax offset, limited to FBT and withholding tax on wages paid to Australian employees in the loss year.
From 1 July 2027, small and medium businesses can opt in to calculating and paying Pay As You Go (PAYG) tax instalments monthly, using ATO-approved calculations built into accounting software.
This is designed to better align tax payments with actual income and reduce large year-end tax bills. Businesses with a history of non-compliance will be required to move to monthly reporting.
From 1 July 2028, the R&D Tax Incentive (which provides tax offsets for eligible research and development expenditure) will be reformed, including increased offset rates (up 4.5%), a reduced intensity threshold, and a higher turnover threshold for the top offset rate (rising from $20 million to $50 million). The maximum eligible expenditure threshold will also increase from $150 million to $200 million.
Electric Vehicles & FBT
Currently, eligible electric vehicles under $75,000 provided through a novated lease or employer arrangement are fully exempt from Fringe Benefits Tax (FBT).
From 1 April 2029, this full exemption will be replaced by a permanent 25% FBT discount. Transitional arrangements will apply:
- Electric vehicles under $75,000 provided before 1 April 2029 will retain the full FBT exemption for the life of that arrangement.
- Electric vehicles above $75,000 but within the fuel-efficient luxury car tax threshold provided between 1 April 2027 and 1 April 2029 will be eligible for the 25% discount.
ATO Compliance & Integrity
The ATO has been allocated significant additional funding to expand fraud detection, compliance activity and real-time monitoring, with a particular focus on tax intermediaries (such as agents and advisers involved in fraudulent schemes). New powers will allow the ATO to pause or waive tax debts for taxpayers who are victims of fraud by intermediaries, and to recover those debts directly from the intermediary. Clients with more complex arrangements or R&D claims should be mindful of heightened ATO scrutiny.
Please treat the above as a high-level summary only. The detail of each measure may change as the relevant legislation progresses. Should you wish to discuss how any of these proposals may affect your personal circumstances, business structure, investments or tax planning, please do not hesitate to contact our office.