Federal Budget 2026–27 Proposed Tax Changes – Early Summary (Subject to Legislation)

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Federal Budget 2026–27 Proposed Tax Changes – Early Summary (Subject to Legislation)

The Federal Budget was handed down on Tuesday night, announcing a number of significant proposed tax changes affecting capital gains tax (CGT), property investment, trusts, and small business.

As with all Budget announcements, these measures are proposals only. The final impact will depend on the detail when the legislation is passed. We will have certainty in relation to the changes at this time.

Below is a high‑level summary of the key proposals.

1. Capital Gains Tax (CGT) Reform – Proposed from 1 July 2027

A major overhaul of the CGT regime is proposed, replacing the long‑standing 50% CGT discount with a new indexation‑based system and a minimum tax rate.

Key proposed changes

• The 50% CGT discount will be removed for gains arising on or after 1 July 2027.
• Capital gains will instead be indexed for inflation (CPI) by adjusting the cost base.
• A minimum 30% tax rate will apply to net capital gains after indexation.
• Applies to individuals, trusts, partnerships, and pre‑CGT (pre‑1985) assets, subject to transitional rules.

Transitional rules

• Gains accrued before 1 July 2027 remain eligible for the existing 50% discount.
• Assets held across the transition date will have gains apportioned between:
  • Pre - 1 July 2027 gains (50% discount), and
  • Post - 1 July 2027 gains (new indexation system). 
    
• Pre‑1985 assets remain exempt for gains accrued prior to commencement of the new rules.

Exceptions

• Investors in new residential property may be able to choose between:
  • The existing 50% discount, or 
  • The new indexation regime. 
    
• Age Pension and income support recipients will be exempt from the 30% minimum CGT tax.

2. Changes to Negative Gearing – Proposed from 12 May 2026

Negative gearing will be restricted for newly purchased established residential property.

Key proposed changes

• Rental losses on affected properties can only be offset against:
  • Rental income, or 
  • Future capital gains from residential property. 
• Losses cannot be offset against wages or other income.
• Unused losses may be carried forward.

Exemptions

• Existing properties acquired before Budget night are grandfathered until sale.
• New residential builds are excluded.
• Commercial property and shares are not affected.

3. Discretionary Trust Tax – Proposed from 1 July 2028

A minimum 30% tax is proposed for discretionary trusts.

Key proposed changes

• Trust income will be subject to a minimum 30% tax at the trust level.
• Distributions to individual beneficiaries will carry non‑refundable tax credits.
• Certain trusts are excluded, including:
  • Fixed and widely held trusts
  • Superannuation funds
  • Charitable trusts
  • Deceased estates
  • Farming trusts

Additional measures

• Three‑year rollover relief (from 1 July 2027) to support small business restructures.
• Certain income types are excluded, including
  • Farming income 
  • Vulnerable minors
    

4.New Tax Offsets and Deductions

Working Australians Tax Offset – from 2027–28

• A permanent $250 annual tax offset for employment income and sole trader business income.

Instant $1,000 Work‑Related Deduction – from 2026–27

• Eligible taxpayers can claim up to $1,000 in work‑related expenses without receipts.
• Expenses above $1,000 can still be claimed under existing rules.
• Other deductions (e.g. donations, union fees) remain unchanged.

5. Small Business Measures

Instant Asset Write-off – from 1 July 2026

• The $20,000 instant asset write-off will be made permanent.
  • Available to businesses with turnover up to $10 million.
  • Existing simplified depreciation rules continue.

6. Electric Vehicles and FBT – Transitional Changes from 2027

Key proposed changes

• From 1 April 2029, a 25% FBT discount (15% statutory rate) will apply.
  • Transitional rules protect existing eligible EVs.
  • Higher‑value EVs will progressively move into the new regime.
  • Standard FBT rules continue for non‑eligible vehicles. 

Important note

All measures outlined above are subject to legislation and parliamentary approval. We recommend no immediate action until the final law is released.

If you would like to understand how these proposals may affect your personal or business circumstances, please contact our office on 6921 5444. 

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