Tax Update: Summary of the 2026-27 Federal Budget
On 12 May 2026, Treasurer Jim Chalmers handed down the 2026-27 Federal Budget. Described as the most “ambitious Budget in decades,” it introduces significant structural reforms to Capital Gains Tax (CGT), negative gearing, and the taxation of trusts.
1. Major Reform: Capital Gains Tax (CGT)
The Government is moving away from the flat discount model to an indexation-based system.
- Abolition of 50% Discount: From 1 July 2027, the 50% CGT discount will be replaced by an inflation-adjusted indexation method for assets held longer than 12 months.
- Taxing Real Gains: This method adjusts the asset’s original cost base for inflation, ensuring only the “real gain” is taxed.
- Minimum 30% Rate: A minimum tax rate of 30% will apply to net capital gains realized from 1 July 2027.
- Transitional Rules: Gains realized before 1 July 2027 will still be eligible for the 50% discount. Pre-1985 assets remain exempt if realized before this date, but will be subject to the new rules thereafter.
2. Negative Gearing & Housing
To address housing supply shortages, the government will restrict the ability to offset investment losses against other income.
- New Build Limitation: From 1 July 2027, negative gearing will be limited to new residential builds.
- Established Properties: Losses from established properties acquired after 7:30 pm AEST on 12 May 2026 can only be deducted against rental income or capital gains from other residential properties.
- Grandfathering: Residential properties owned prior to the Budget announcement (12 May 2026) are exempt from these changes until they are sold.
3. Taxation of Discretionary Trusts
New measures aim to improve fairness by ensuring a baseline tax contribution from trusts.
- 30% Minimum Tax: Effective 1 July 2028, a minimum tax of 30% will apply to the taxable income of discretionary trusts.
- Trustee Obligations: Trustees will pay this tax, while beneficiaries (excluding corporates) will receive non-refundable credits for the tax paid.
- Exclusions: This tax does not apply to fixed trusts, complying super funds, charitable trusts, or special disability trusts.
- Restructure Relief: Expanded rollover relief will be available for three years starting 1 July 2027 to help small businesses transition from discretionary trusts into other entities, such as companies.
4. Individual Tax Relief & Cost of Living
The Budget confirmed several measures to support “Working Australians”.
- Working Australian Tax Offset (WATO): A new $250 offset will apply from 1 July 2027 for income derived from work.
- $1,000 Standard Deduction: From the 2026-27 year, taxpayers can claim a standard $1,000 deduction for work-related expenses without needing to itemize receipts.
- Personal Income Tax Cuts: Resident tax rates for the $18,201–$45,000 bracket will decrease to 15% (from 1 July 2026) and then to 14% (from 1 July 2027).
5. Business & Start-up Incentives
- Instant Asset Write-Off: The $20,000 instant asset write-off for small businesses has been permanently extended.
- Loss Carry-Back: Reintroduced from 1 July 2026 for companies with a turnover under $1 billion, allowing them to offset current losses against tax paid in the previous two years.
- Start-up Loss Refundability: From 1 July 2028, small start-ups (turnover <$10m) in their first two years may receive a refundable tax offset for tax losses.
Disclaimer: This summary is based on the 2026-27 Federal Budget announcements. Legislation may be subject to change. Please contact our office for a detailed review of how these measures impact your specific financial situation.
