2026–27 Australian Federal Budget: Key Tax Changes Explained

Overview of Major Tax Changes

The 2026–27 Federal Budget proposes some of the most significant tax reforms in recent years.

The changes could impact:

• Employees and taxpayers
• Property investors
• Trust structures
• Small businesses
• EV salary packaging arrangements

 

The Australian Government announced the 2026–27 Federal Budget on 12 May 2026, introducing a range of proposed tax reforms affecting individuals, investors, trusts, and small businesses.

Key proposed measures include:

• Personal income tax cuts from 1 July 2026
• A new Working Australians Tax Offset (WATO) from 2027–28
• A proposed $1,000 instant work-related deduction
• Major capital gains tax (CGT) reforms from 1 July 2027
• Negative gearing restricted to new residential builds
• A new 30% minimum tax for discretionary trusts from 2028
• Permanent extension of the $20,000 instant asset write-off
• Changes to electric vehicle (EV) fringe benefits tax concessions

Most measures still require legislation before becoming law.

Personal Income Tax Changes

Income Tax Cuts from 1 July 2026

The Government confirmed previously legislated tax cuts for Australian taxpayers.

New tax rates

Taxable Income	Tax Rate
$0–$18,200	Tax free
$18,201–$45,000	15%
$45,001–$135,000	30%
$135,001–$190,000	37%
$190,001+	45%

The 16% tax rate will reduce to:

• 15% from 1 July 2026
• 14% from 1 July 2027

This means taxpayers could save:

• Up to $268 annually from 2026–27
• Up to $536 annually from 2027–28 onwards

The 2% Medicare Levy still applies for most taxpayers.

Working Australians Tax Offset (WATO)

From 2027–28, eligible workers will receive a permanent annual tax offset of up to $250.

The measure effectively increases the tax-free threshold to:

• Approximately $19,985 for most workers
• Up to $24,985 for eligible low-income earners

The Government estimates 97% of eligible workers will receive the full offset.

$1,000 Instant Work-Related Deduction

Workers may soon be able to claim up to $1,000 in work-related expenses without needing receipts. From 01-07-2026

Treasury estimates:

• 6.2 million workers could benefit
• Around 42% of taxpayers may use the deduction
• Average tax savings may be about $205

The deduction only applies to eligible work-related expenses.

Medicare Levy Threshold Increase

Low-income Medicare Levy thresholds will increase by 2.9% from the 2025–26 financial year, providing relief to over one million Australians.

Capital Gains Tax (CGT) Changes

Major CGT Reform from 1 July 2027

The Budget proposes replacing the current 50% CGT discount with a new system consisting of:

1. Inflation Indexation

The cost base of assets would be indexed for inflation, meaning only “real” gains above inflation are taxed.

2. Minimum 30% Tax on Capital Gains

A minimum 30% tax rate would apply to capital gains accrued after 1 July 2027.

• Taxpayers on higher marginal rates would still pay higher rates
• Lower-income taxpayers could pay additional tax on capital gains to meet the 30% minimum

Transition Rules

The Government proposes that:

• Existing CGT rules continue for gains accrued before 1 July 2027
• Investors in new housing can choose between the old and new systems

What Will Not Change

The following remain unaffected:

• Main residence exemption
• Superannuation CGT concessions
• Small business CGT concessions

Pensioners and income support recipients would also be exempt from the proposed minimum tax rate.

Negative Gearing Changes

Negative Gearing Limited to New Builds

From July 2027:

• Existing property investors will be grandfathered and unaffected
• Negative gearing for newly purchased established properties will be restricted

For established residential properties purchased after Budget night:

• Losses can still offset rental income
• Excess losses can be carried forward
• Losses can no longer offset salary or wage income

For new builds:

• Full negative gearing benefits remain available

Discretionary Trust Tax Changes

30% Minimum Tax from 1 July 2028

Discretionary trusts would generally face a minimum 30% tax on trust income.

Under the proposed rules:

• Trustees still allocate income to beneficiaries
• Beneficiaries still declare distributions in their tax returns
• Beneficiaries receive tax credits for tax already paid by the trust

The reform aims to reduce the tax advantages of distributing income to lower-income family members.

Exemptions

The proposed rules would not apply to:

• Fixed trusts
• Charitable trusts
• Superannuation funds
• Deceased estates
• Primary production income
• Certain testamentary trusts

Small Business Restructure Relief

Businesses restructuring away from discretionary trusts will receive rollover relief from 1 July 2027.

This allows restructuring without triggering CGT or income tax consequences.

Small Business Measures

Permanent $20,000 Instant Asset Write-Off

From 1 July 2026:

• Small businesses with turnover under $10 million can immediately deduct eligible assets under $20,000
• The measure becomes permanent

The Government says this will improve investment certainty and business cash flow.

Loss Carry-Back Rules Return

Eligible companies will again be able to:

• Offset current-year losses against profits from the previous two years
• Claim refunds for tax already paid

This measure mainly benefits small businesses.

Start-Up Loss Refunds

From 2028–29, eligible start-ups may receive refunds for tax losses during their first two years.

Refunds are capped based on:

• PAYG withholding paid
• Fringe benefits tax paid

PAYG Instalment Flexibility

Businesses will gain access to:

• Monthly PAYG instalment options
• More accurate instalment calculations using business software

Electric Vehicle (EV) FBT Changes

EV FBT Exemption Changes

The current full fringe benefits tax exemption for eligible EVs will gradually transition to a 25% discount.

Proposed timeline

Period	EV Value	FBT Treatment
Now – 31 Mar 2027	All eligible EVs	Full exemption
1 Apr 2027 – 31 Mar 2029	Up to $75,000	Full exemption
1 Apr 2027 – 31 Mar 2029	$75,001–$91,387	25% discount
From 1 Apr 2029	All eligible EVs	25% discount only

Vehicles under salary packaging arrangements commencing before April 2029 may retain full exemptions under transition rules.

Final Thoughts

The 2026–27 Federal Budget proposes some of the most significant tax reforms in recent years.

As most measures are still proposed, legislation will determine the final outcome and implementation details.