Federal Budget 2026–27: Major Tax Changes Set to Reshape Property, Investment & Business in Australia

Federal Treasurer Jim Chalmers handed down the 2026–27 Federal Budget on 12 May 2026, delivering one of the most ambitious and far-reaching budgets in recent years. With housing affordability, cost of living pressures, inflation and economic uncertainty dominating the national conversation, the Budget introduces significant tax and policy reforms that will impact individuals, investors, businesses and employers across Australia.

The Government has framed many of the measures as part of a broader strategy to improve housing affordability and support younger Australians entering the property market. Key proposals include changes to negative gearing, reforms to capital gains tax concessions, and increased investment in housing infrastructure.

At the same time, the Budget includes expanded healthcare funding, increased defence spending, tax relief for workers, support for small businesses, and measures aimed at strengthening the integrity of the tax system.

Importantly, unless otherwise noted, these measures are proposals only at this stage and will require legislation before becoming law.

Key Budget Highlights

Housing

• Changes to negative gearing rules to limit concessions for investors purchasing established residential properties.

• Reforms to capital gains tax concessions.

• Extension of the temporary ban on foreign purchases of established dwellings until 30 June 2029.

• $2 billion allocated to help local governments and state utilities deliver infrastructure supporting new housing developments.

Health

• Additional funding for Medicare Urgent Care Clinics to ease pressure on GPs and hospitals.

• Funding for new medicines to be listed on the Pharmaceutical Benefits Scheme, including treatments for kidney disease, cystic fibrosis and cancer.

• An additional $25 billion allocated to public hospitals.

• Reforms to the NDIS expected to reduce spending growth while tightening eligibility around permanent and severe disabilities.

• Reductions to private health insurance subsidies for Australians over 65, with savings redirected into aged care and dementia care services.

Defence

• Defence spending to increase by $53 billion over the next decade.

Fuel and Energy

• $14.8 billion package aimed at strengthening Australia’s fuel supply.

• Reduction in fuel excise and heavy vehicle road user charges extended for a further three months from 1 April 2026.

Individuals and Families

New Working Australians Tax Offset

Start date: 1 July 2027

The Government will introduce a permanent $250 “Working Australians Tax Offset” from the 2027–28 income year.

The offset is designed for taxpayers earning employment or business income and effectively increases the tax-free threshold for workers by almost $1,800.

For eligible low-income earners who also qualify for the Low Income Tax Offset, the effective tax-free threshold could increase to almost $25,000.

$1,000 Instant Tax Deduction for Workers

Start date: 1 July 2026

The Government plans to introduce a $1,000 standard deduction for work-related expenses.

Under the proposal:

• Australian resident taxpayers can claim a standard deduction of up to $1,000 against labour income.

• Taxpayers will not need receipts or substantiation for claims up to this amount.

• Charitable donations, union fees and professional association memberships can still be claimed separately.

• Taxpayers with work-related expenses exceeding $1,000 may continue to claim actual expenses under existing substantiation rules.

The proposal is designed to simplify tax returns for millions of workers.

The draft legislation also proposes:

• Removal of low-value pooling concessions for assets primarily used to earn labour income.

• Modified rules for taxing gains on disposal of work-related assets.

• Removal of certain FBT exemptions for salary-packaged work-related items.

Income Tax Cuts

Start date: 1 July 2026

Previously announced income tax cuts will proceed.

• The 16% tax rate applying to taxable income between $18,201 and $45,000 will reduce to 15% from 1 July 2026.

• The rate will reduce further to 14% from 1 July 2027.

These changes are intended to provide additional relief for low and middle-income earners.

Medicare Levy Thresholds Increased

Start date: 1 July 2025

The Government will increase the Medicare levy low-income thresholds.

Updated thresholds include:

Category	Current Threshold	New Threshold
Singles	$27,222	$28,011
Families	$45,907	$47,238
Single seniors and pensioners	$43,020	$44,268
Senior and pensioner families	$59,886	$61,623

The family threshold increase for each dependent child or student will also rise from $4,216 to $4,338.

Investors

Limits on Negative Gearing

Start date: 1 July 2027

One of the Budget’s most significant announcements is the proposed restriction of negative gearing concessions for established residential properties.

From 1 July 2027:

• Full negative gearing concessions will generally only apply to newly constructed residential properties.

• Losses from established residential properties acquired after 7:30pm (AEST) on 12 May 2026 will only be deductible against residential rental income or residential capital gains.

• Excess losses will be carried forward for use against future residential property income.

The Government has indicated that “new builds” include:

• Newly constructed dwellings on vacant land.

• Redevelopments that increase overall housing supply.

Importantly:

• Existing property owners will generally be grandfathered.

• Commercial property and share investments are unaffected.

• Managed investment trusts and superannuation funds are excluded from the changes.

CGT Discount Replaced with Indexation and Minimum Tax Rate

Start date: 1 July 2027

The Government proposes major reforms to the capital gains tax system.

Currently:

• Individuals and trusts may reduce eligible capital gains by 50% after holding an asset for more than 12 months.

• Superannuation funds receive a one-third discount.

Under the proposed reforms:

• The CGT discount would be replaced with CPI indexation for assets held longer than 12 months.

• A minimum effective tax rate of 30% would apply to capital gains accruing after 1 July 2027.

• The longstanding exemption for pre-CGT assets acquired before 20 September 1985 would be removed.

Transitional rules are proposed so that gains accrued before 1 July 2027 retain access to the current concessions.

Taxpayers with existing investments may need market valuations as at 1 July 2027 to calculate future gains correctly.

The reforms will apply broadly to property, shares and other investment assets.

However, investors in qualifying new residential properties may continue to choose between the existing 50% CGT discount and the new indexation method.

Minimum Tax on Family Trust Distributions

Start date: 1 July 2028

The Government plans to introduce a minimum 30% tax on distributions from discretionary trusts.

Discretionary trusts are widely used by families and businesses due to their flexibility in distributing income among beneficiaries.

Under the proposal:

• Trustees would pay a minimum 30% tax on trust income.

• Individual beneficiaries would receive a non-refundable tax credit for tax already paid.

• Corporate beneficiaries would not receive this credit.

The changes appear designed to reduce tax planning opportunities involving “bucket companies.”

Some concessions and exclusions will apply, including for:

• Fixed trusts.

• Widely held trusts.

• Superannuation funds.

• Deceased estates.

• Charitable trusts.

• Certain primary production income.

The Government also proposes limited rollover relief for businesses restructuring out of discretionary trusts between 1 July 2027 and 30 June 2030.

Foreign Resident CGT Concession

The Government will introduce a temporary CGT concession for foreign investors disposing of eligible renewable energy infrastructure assets.

The concession will apply until 30 June 2030.

Venture Capital Tax Incentives

Start date: 1 July 2027

The scope of existing venture capital tax concessions will be expanded for venture capital limited partnerships and early-stage venture capital limited partnerships.

Business and Employers

Instant Asset Write-Off Made Permanent

Start date: 1 July 2026

The instant asset write-off threshold for eligible small businesses will permanently increase to $20,000.

Eligible businesses with aggregated turnover below $10 million will continue to be able to immediately deduct the cost of eligible depreciating assets costing less than $20,000.

The threshold applies on a per-asset basis, allowing multiple eligible purchases to qualify.

Assets costing $20,000 or more will continue to be allocated to small business depreciation pools.

This measure provides welcome certainty after years of temporary threshold changes.

FBT Changes for Electric Vehicles

Start date: 1 April 2027

The Government will progressively reduce the current FBT exemption available for electric vehicles.

The changes include:

Until 31 March 2027

• Existing full exemption rules remain unchanged.

From 1 April 2027 to 31 March 2029

• Full exemption available only for EVs costing $75,000 or less.

• EVs above $75,000 but below the luxury car tax threshold receive a 25% FBT discount.

From 1 April 2029

• EVs below the luxury car tax threshold receive only a 25% FBT discount.

Existing lease arrangements are expected to be grandfathered.

Loss Carry Back for Companies

Start date: 1 July 2026

Companies with aggregated annual global turnover below $1 billion will be able to carry back tax losses for up to two years and offset them against previously paid tax.

The measure is intended to support cash flow during economic downturns.

Refundable Tax Offsets for Start-Up Companies

Start date: 1 July 2028

Eligible start-up companies with turnover below $10 million will be able to convert tax losses incurred in their first two years into refundable tax offsets.

The refund will be limited to PAYG withholding and fringe benefits tax liabilities.

PAYG Instalment Reforms

Start date: 1 July 2027

The ATO will expand its dynamic PAYG instalment system.

Small and medium businesses will be able to:

• Report and pay PAYG instalments monthly.

• Use ATO-approved calculations embedded within accounting software.

R&D Tax Incentive Changes

Start date: 1 July 2028

The Government will reform the R&D Tax Incentive.

Key changes include:

• Increased offset rates for core R&D expenditure.

• Removal of support expenditure from eligibility.

• Increase in the minimum expenditure threshold from $20,000 to $50,000.

Minimum Tax for Multinationals

Start date: 1 January 2026

Australia’s global and domestic minimum tax rules will be amended as part of broader international corporate tax reforms.

Government and Regulatory Measures

Protecting the Tax System Against Fraud

Start date: 1 July 2026

The Government will provide $86.3 million over four years to strengthen anti-fraud measures within the tax system.

Key initiatives include:

• Expanded ATO compliance activity.

• Increased powers to combat fraud by tax agents and intermediaries.

• Ability for the ATO to pause or waive debts for taxpayers impacted by intermediary fraud.

• Greater focus on fraud risks within the R&D Tax Incentive system.

Economic Outlook

Global Tensions

The Government acknowledged ongoing geopolitical instability, particularly conflict in the Middle East, as a major contributor to inflationary pressures and global economic uncertainty.

Economic Growth

Australian economic growth is forecast to:

• Slow from 2.25% in 2025–26 to 1.75% in 2026–27.

• Recover to 2.25% in 2027–28.

Budget Deficits

The 2026–27 Budget deficit is forecast at $31.5 billion.

The Government expects the Budget to return to balance in 2034–35.

Government Debt

Gross debt is projected to:

• Reach $1.051 trillion by 30 June 2027.

• Increase to $1.249 trillion by 30 June 2030.

Net debt is forecast at 19.9% of GDP for 2026–27.

Employment and Wages

The unemployment rate is expected to rise gradually to 4.5% by June 2027.

Wage growth is forecast at:

• 3.25% through June 2026.

• 3.5% through June 2027 and June 2028.

Real wages are expected to recover as inflation eases.

Inflation

Headline inflation is forecast at:

• 5% through June 2026.

• 2.5% by June 2027.

These forecasts assume global oil prices stabilise during 2026–27.

Final Thoughts

The 2026–27 Federal Budget introduces substantial proposed changes across the tax and economic landscape.

For investors, the proposed changes to negative gearing, CGT concessions and discretionary trusts could significantly alter long-term investment strategies.

For businesses, permanent increases to the instant asset write-off and proposed cash flow support measures may provide greater certainty and planning opportunities.

For individuals and families, tax relief measures and healthcare spending aim to ease cost-of-living pressures, although broader economic uncertainty remains.

As always, the detail matters.

If you would like to discuss how these proposed measures may affect your personal circumstances, investments or business operations, please contact the team at Headland Business Services.