What does the 2026-27 Federal Budget mean for you?

The Federal Treasurer, Dr Jim Chalmers, delivered the 2026–27 Federal Budget on 12 May 2026.

It’s a budget focussed on tax reform with major changes that will impact many of our clients.

At this stage, nothing has been legislated and further detail is expected. Most major measures are not due to commence until after 30 June 2027, with transitional rules and rollover relief likely to assist with implementation.

We will continue to monitor developments and keep you informed as the proposals evolve. There may be planning opportunities to mitigate adverse impacts, including potential restructuring options.

Please contact us if you have any immediate concerns about how these proposals may affect your specific circumstances.

 A budget for tax reform and it’s complicated

Key Highlights

Capital gains tax (CGT)

• The 50% CGT discount will be replaced with cost base indexation from 1 July 2027.
• A minimum 30% tax rate will apply on realised gains.
• Applies to all CGT assets (including pre‑CGT assets), except new builds.
• Gains accrued before 1 July 2027 retain the 50% discount.
• Pre-CGT assets will now be taxed, but only be taxed on gains accruing from 1 July 2027.
• 50% discount will remain available for new residential properties.
• Main residence exemption and small business CGT concessions to remain.

Negative gearing

• Limited to new residential builds from 2027–28.
• Grandfathering applies to all existing investments made before 7:30pm AEST on 12 May 2026.
• Doesn’t apply to superannuation funds (including SMSF).
• Restriction on negative gearing only applies to residential property. Other asset classes like shares and commercial property, continue with` the existing rules.

Discretionary trusts

• Trustees to be taxed at 30% from 1 July 2028.
• Non-refundable credits provided to (non-corporate) beneficiaries.
• In order to discourage the use of corporate beneficiaries, no credit for tax paid by the trustee will be available for a distribution to a company. As a result, the same income can be taxed twice. Firstly at 30% at the trust level, and then the remaining 70% will be taxed in the company at company tax rates.

Working Australian tax offset

• New $250 annual tax offset proposed for eligible Australian workers to ease cost‑of‑living pressures will apply from 1 July 2027.

Fringe Benefits Tax (FBT) – electric vehicles

• The current FBT discount for affordable EVs will be gradually reduced and transition to a permanent 25% discount, phased over three stages.

In detail

Capital Gains Tax (CGT)

• The 50% CGT discount will be replaced with cost base indexation for all CGT assets (except new homes) from 1 July 2027, with a 30% minimum tax on realised gains also applying from that date.
• Gains accrued from 1 July 2027 on pre-CGT assets (previously exempt from tax) will be subject to the minimum 30% tax rate.
• Main residence exemption will remain tax free when sold.
• Small Business CGT concessions will remain unchanged.

Capital gains up to 30 June 2027

• The existing CGT rules continue to apply.
• Assets held more than 12 months are eligible for the 50% CGT discount.
• Pre‑CGT assets (acquired before 20 Sept 1985) remain fully exempt.

Capital gains from 1 July 2027

• The 50% CGT discount is turned off for future gains on most CGT assets.
• It is replaced by cost base indexation using CPI.
• A minimum tax rate of 30% applies to post‑1 July 2027 capital gains
• Applies to:
  • Individuals, trusts and partnerships
  • All CGT assets except new homes
  • Includes legacy and pre‑CGT assets (subject to transitional rules)

Assets acquired before 1 July 2027 and sold after that date (transitional rule)

The capital gain is split into two parts:

1. Gain up to 30 June 2027

• Calculated using original cost base
• 50% CGT discount applies

2. Gain from 1 July 2027 onwards

• The asset is treated as having a new cost base equal to its value on 1 July 2027
• This cost base is indexed for inflation using CPI
• The resulting gain is taxed under the indexation method
• A minimum tax rate of 30% applies to this post‑1 July 2027 gain

Determining the asset’s value at 1 July 2027?

• Done when the asset is eventually sold
• Taxpayer can choose to:

1. Obtain a valuation as at 1 July 2027 (eg. share market price, formal valuation), or
2. Use an ATO‑provided apportionment formula based on total growth over the holding period.

New builds (special rule)

• Owners can choose between:
  • The 50% CGT discount, or
  • Cost base indexation
• 30% minimum tax still applies regardless of the choice
• Strict definition of “new build” applies (knock‑down rebuilds and substantial renovations excluded).

Income support recipients (exclusion)

• If receiving an eligible income support payment in the year the gain is realised:
  • The 30% minimum tax does not apply
  • Normal tax rates apply instead

Negative Gearing

• Negative gearing for residential property will be limited to new builds from 1 July 2027 (some exemptions will apply).
• Losses from residential properties can no longer be offset against salary or other income (unless you acquired the property prior to 12 May 2026).
• Change applies to individuals, companies, partnerships and most trusts.
• Doesn’t apply to superannuation funds and widely held trusts.
• Losses can be carried forward and used against future residential property profits or capital gains.
• Changes only apply to residential property. Other investments (shares, commercial property etc.) can continue to be negatively geared.

Grandfathering rules and key acquisition dates

Properties acquired before 7:30pm (AEST) on 12 May 2026

• • Properties are fully grandfathered.
  • Existing negative gearing rules continue until the property is sold.

Properties acquired between 7:30pm (AEST) on 12 May 2026 and 30 June 2027

• • Properties can be negatively geared during this period.
  • From 1 July 2027, negative gearing ceases unless the property qualifies as a new build.

Properties acquired from 1 July 2027 onwards

• • Only eligible new builds can be negatively geared against other income.

Who is excluded from the new rules

The changes do not apply to:

• Widely‑held trusts (e.g. managed investment trusts)
• Superannuation funds (including SMSFs).

Additional exemptions for:

• Build‑to‑rent developments
• Private investors supporting government housing programs (e.g. affordable housing schemes).

Discretionary Trusts

Start date – 1 July 2028

• A minimum tax rate of 30% applies to the taxable income of discretionary trusts.
• This is a trust‑level minimum tax.
• Higher tax rates can still apply where relevant.
• Where the trust receives franked dividends franking credits must be used first to satisfy the 30% minimum tax.

How the new minimum tax works

• The trustee calculates and pays tax at a minimum of 30%.
• Applies to the trust’s taxable income, regardless of beneficiary profiles.

Treatment of beneficiaries

• Non‑corporate beneficiaries receive non‑refundable tax credits for tax paid by the trustee.
• Corporate beneficiaries do not receive these credits.

• In order to discourage the use of corporate beneficiaries, no credit for tax paid by the trustee will be available for a distribution to a company. As a result, the same income can be taxed twice. Firstly at 30% at the trust level, and then the remaining 70% will be taxed in the company at company tax rates.
  • Simple example
    • Trust earns $100
    • Trust pays 30% tax = $30 → $70 left
    • Company receives $70
    • Company pays 30% tax on $70 → $21
    • Total tax paid = $51 (instead of just $30 if it was only taxed once)

Trusts and entities excluded from the minimum 30% tax

• Unit trusts and widely‑held trusts.
• Complying superannuation funds (including SMSFs).
• Special disability trusts
• Deceased estates
• Charitable trusts

Excluded income

The minimum tax will not apply to:

• Income from assets of discretionary testamentary trusts existing at 7:30pm (AEST) on 12 May 2026.
• Certain primary production income.
• Certain income relating to vulnerable minors.
• Amounts subject to non‑resident withholding tax.

Restructuring support

• Expanded rollover relief available for 3 years from 1 July 2027 to 30 June 2030.
• Designed to help taxpayers move assets out of discretionary trusts.
• Restructure into entities such as:
  • Companies, or
  • Fixed trusts

Individuals

• Each working Australian taxpayer will receive a $250 Working Australians Tax Offset from the 2027–28 income tax year.
• The Medicare levy low‑income thresholds for singles, families, and seniors and pensioners will be increased by 2.9% from 1 July 2025.
• The age-based uplift of private health insurance rebate (the PHI rebate) will be removed from 1 April 2027.

Business

• Australia will transition to a permanent 25% discount on FBT for certain electric vehicles.
• The instant asset write-off of $20,000 for small businesses (<$10M aggregated turnover) applying the simplified depreciation rules has been extended permanently.
• Companies with up to $1 billion in turnover will be eligible to carry back tax losses for up to 2 years from 1 July 2026. The loss carry-back scheme allows eligible corporate entities to carry back tax losses to offset against profits taxed in prior years, resulting in a refundable tax offset (cash refund) instead of carrying the loss forward.
• Small start-ups in their first 2 years of operation will be able to get a refund for tax losses capped to the value of tax remittances relating to employment from 1 July 2028.
• Reforms have been announced to the R&D tax incentive from 1 July 2028 as part of the government’s response to the Ambitious Australia: Strategic Examination of Research and Development Final Report.

Tax administration

• Access to monthly reporting and payments as well as dynamic PAYG instalment calculations will be expanded for small and medium businesses from 1 July 2027.

For more details please access our full budget report HERE.