2026 Federal Budget
On Tuesday 12 May 2026, Treasurer Jim Chalmers handed down the 2026–27 Federal Budget. The Government is calling it its most ambitious budget yet, and if the proposed measures go ahead, they’ll affect a broad range of Australians including taxpayers, investors, businesses, and employers.
While several major tax changes were announced, the superannuation system appears to have escaped any significant changes this year.
Important: Unless stated otherwise, the measures outlined below are announcements only at this stage. There’s no certainty they’ll be introduced in the form announced or at all. We’ll keep you updated as more details emerge.
While the Budget covered a wide range of measures, below are the key announcements we believe will have the biggest impact.
Limits on negative gearing
Start date: 1 July 2027
Under the proposed changes, losses from established residential investment properties purchased after 7:30pm (AEST) on 12 May 2026 will no longer be deductible against other types of income, such as salary or business income. Instead, these losses can only be offset against rental income or capital gains from residential property investments. Any unused losses will be carried forward and can be used against future residential property income.
However, these changes do not apply to “new builds”. Renovations, knock-down rebuilds, or upgrades that do not increase the number of dwellings will not qualify as new builds.
Importantly, properties purchased before 12 May 2026 will not be affected by these changes. The proposed rules also won’t apply to managed investment trusts or superannuation funds, and they won’t affect investments in other asset classes such as commercial property or shares.
CGT discount and pre-CGT exemption replaced by indexation and minimum tax rate
Start date: 1 July 2027
The CGT discount has enabled individuals, trusts and complying superannuation funds to reduce the taxable capital gain made on disposal of an asset that has been held for more than 12 months. The standard discount rate is 50% for trusts and individuals (although lower discount rates can apply to non-residents and temporary residents in some cases), with a 1/3 discount applying to superannuation funds.
However, from 1 July 2027 the Government is planning to revert to an indexation system based on the Consumer Price Index (CPI), much like the system that applied between 1985 and 1999. Indexation would only be available for assets that have been held for more than 12 months.
In addition to this, a minimum tax rate of 30% will apply to capital gains that accrue from 1 July 2027. There will be some exceptions to this for recipients of means-tested income support payments (eg, Age Pension, JobSeeker).
Assets acquired before 20 September 1985 (referred to as pre-CGT assets) have historically been exempt from CGT, but this exemption will no longer apply from 1 July 2027.
Transitional rules will limit the impact of these changes for existing investments. The existing CGT discount and exemption for pre-CGT assets will continue to apply to gains that accrued before 1 July 2027. Taxpayers will need to determine the value of existing assets on 1 July 2027 to enable CGT calculations to be undertaken.
The CGT changes apply to all asset classes, including property and shares. The changes will apply to individuals, trusts and assets held by partnerships.
Having said all that, investors in new residential properties will be able to choose to apply either the 50% CGT discount or cost base indexation and the minimum tax.
Minimum tax on family trust distributions
Start date: 1 July 2028
The Government has announced that from 1 July 2028 onwards the trustee of a discretionary trust will pay a minimum 30% tax on the taxable income of the trust. Individuals and other non-corporate beneficiaries will receive a non-refundable tax credit for the tax paid by the trustee.
The non-refundable credit will not be available for corporate beneficiaries (often referred to as bucket companies). It seems like the changes are being made partly to discourage trustees from distributing income to corporate beneficiaries.
The Government has indicated that a limited form of rollover relief will be available for three years from 1 July 2027 for small businesses and others who wish to restructure out of a discretionary trust into a company or fixed trust. The rollover relief might help to minimise CGT and other income tax implications, but broader issues such as stamp duty will need to be carefully considered before any changes to an existing structure are implemented.
The minimum tax will not apply to fixed and widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts.
Some types of income such as primary production income, certain income relating to vulnerable minors, amounts that are subject to non-resident withholding tax and income from assets of testamentary trusts existing at 12 May 2026 will also be excluded.
FBT on electric cars
Start date: 1 April 2027
On 5 May 2026 the Government announced that the FBT exemption for electric cars would be gradually scaled back over the next few years.
The Government is planning to progressively reduce the scope of the FBT exemption on the following basis:
The FBT exemption will continue to operate in its current form (fully exempt for electric vehicles if the car costs less than $91,387) until 31 March 2027.
From 1 April 2027 to 31 March 2029 the full FBT exemption will only be available if the car costs $75,000 or less. Electric cars above this threshold but costing less than the luxury car tax (LCT) threshold for fuel-efficient cars will receive a 25% FBT discount.
From 1 April 2029 all electric cars costing less than the LCT threshold will receive a 25% FBT discount.
The Government indicates that existing lease arrangements won’t be impacted by these changes.
When an electric car is provided to an employee and it qualifies for concessional FBT treatment under these measures it will still be necessary for employers to calculate the reportable fringe benefits amount, ignoring the application of the FBT exemption or discount. This can impact on other areas of the tax and social security systems.
Instant asset write-off
Start date: 1 July 2026
The Government has announced that the cost threshold for the purpose of applying the instant asset write-off for small business entities will be permanently increased to $20,000 from 1 July 2026.
The instant asset write-off allows eligible small business entities with aggregated turnover of less than $10 million to claim an immediate deduction for the full cost of depreciating assets which cost less than a specified dollar threshold. While the default threshold is $1,000, higher temporary thresholds have been implemented on a year-to year basis since 2015, often leading to confusion and uncertainty.
A permanent increase in the cost threshold to $20,000 should be welcome news to small business taxpayers who will have a greater level of confidence when it comes to investing in new plant or equipment or upgrading business assets.
$1,000 instant tax deduction for workers
Start date: 1 July 2026
During the 2025 federal election campaign the Labor party committed to introduce a $1,000 instant tax deduction for work-related expenses. On 20 April 2026 Treasury released draft legislation on this proposal for public consultation.
The key feature of the proposal is that Australian residents will be able to claim a standard deduction from the 2026-27 income year onwards for work-related expenses, with the deduction being capped at the lower of $1,000 and the individual’s assessable labour income. The normal substantiation rules would not apply when claiming the standard deduction.
Charitable donations, union fees and fees relating to professional association memberships would be claimed on top of the standard deduction.
Taxpayers who have incurred more than $1,000 in qualifying work-related expenses can instead choose to claim their actual expenditure as a deduction, but will need to substantiate these expenses.
We trust this information is a useful resource for you and your business. If you have any questions about the Budget, please email us at info@vatcpa.com.au or call on 03 9584 2277.
It is important to note that some of the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change or further refinement. Any advice in this Federal Budget Analysis has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice, consider whether it is appropriate to your objectives, financial situation and needs.