On Tuesday 12 May 2026 the Treasurer Jim Chalmers handed down the 2026-27 Federal Budget, framing some of the more significant announcements as part of a broader plan to help young Australians access the property market.
While acknowledging that the key to housing affordability is supply, the Government clearly sees changes to negative gearing and the capital gains tax (CGT) discount as being important pieces in the housing affordability puzzle.
The Government has called this its most ambitious budget and if the proposed measures are implemented, the impact will be felt directly by a wide cross-section of Australian society, including individual taxpayers, investors, businesses, employers and those suffering from a disability.
The year’s budget has been released against a backdrop of significant economic challenges, including global fuel price shocks, persistent inflation, rising interest rates and growing concerns around housing affordability. These themes are reflected in the measures that have been announced by the Treasurer.
While the Government has announced some significant changes to the tax system, the superannuation system looks to have been left alone this year.
Key initiatives include:
Housing
Changes to the tax system to reduce existing concessions for property investors.
Extending the temporary ban on foreign purchases of established dwellings until 30 June 2029.
An investment of $2 billion to help local governments and state utilities build infrastructure to support new housing.
Health
Medicare Urgent Care Clinics will receive additional funding to ease the pressure on GPs and hospitals. Funds are allocated to list new medicines on the Pharmaceutical Benefits Scheme, including treatments for cystic fibrosis, kidney disease and various cancers. An additional $25 billion in funding for public hospitals. Reforms to the NDIS are expected to save $37.8 billion over the next four years. The scheme will be more focused on those with permanent and severe disabilities.
Private health insurance subsidies for Australians over 65 are being cut, with savings being used to fund aged care and dementia care units.
Defence
The defence budget will be increased by $53 billion over the next ten years.
Fuel
A $14.8 billion package will be used to help Australia strengthen fuel supply.
A reduction in the fuel excise and heavy vehicle road user charge will continue to apply for three months from 1 April 2026. Important: Unless otherwise noted, the measures discussed below are only announcements at this stage. There is no guarantee that they will be implemented as per the Government’s announcements (or at all). We will keep you up to date with key developments as things progress.
A new tax offset
Start date: 1 July 2027
The Government will provide a $250 ‘Working Australians Tax Offset’ from the 2027–28 income year.
The offset will be a permanent feature of the tax system and is aimed at taxpayers who derive income from work, such as employees who receive salary or wages and sole traders who carry on a business. The offset basically operates to increase the effective tax-free threshold for income derived from work by nearly $1,800 to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset).
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New tax cuts for Australian workers
$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. The draft legislation contains some other proposed changes to the tax system including:
- Depreciating assets that are mainly used to generate labour income won’t qualify for the low-value pooling rules.
- Modified rules will apply to determine the tax impact on the sale of assets used in producing labour income.
- An FBT exemption that currently applies when certain work-related items are provided to employees under a salary packaging arrangement will be removed.
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$1,000 instant tax deduction to deliver lower, simpler taxes for 6.2 million workers
Instant tax deduction – exposure draft
Income tax cuts
Start date: 1 July 2026
Legislation has already been passed to ensure that the 16% tax rate on taxable income between $18,201 and $45,000 will drop to 15%. The rate will then drop to 14% from 1 July 2027.
This was announced in the 2025-26 Federal Budget.
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Medicare levy thresholds increased
Start date: 1 July 2025
The Government will increase the Medicare levy low‑income thresholds for singles, families, and seniors and pensioners. The threshold for singles will be increased from $27,222 to $28,011. The family threshold will be increased from $45,907 to $47,238. For single seniors and pensioners, the threshold will be increased from $43,020 to $44,268. The family threshold for seniors and pensioners will be increased from $59,886 to $61,623. The family income thresholds will increase by $4,338 for each dependent child or student, up from $4,216.
Investors
Limits on negative gearing
Start date: 1 July 2027
The term ‘negative gearing’ refers to the situation where a rental property owner claims deductions for expenses associated with holding the property that exceed the rental income that is received in the relevant income year. The loss that is generated from a rental property can typically be offset against other income (including salary, wages and net capital gains) to reduce overall taxable income or create a tax loss that can be carried forward to future years. However, the parameters around negative gearing for residential property are set to change with the Government announcing that existing negative gearing rules will only be available in connection with new builds from 1 July 2027. From this date onwards, losses from established residential properties that are acquired from 7:30pm (AEST) on 12 May 2026 will only be deductible against rental income or capital gains from residential properties. Excess losses will be carried forward to be offset against residential property income in future years.
‘New builds’ are residential properties which genuinely add to supply, such as dwellings constructed on vacant land and situations where existing properties are demolished and replaced with a greater number of dwellings. Knock-down rebuilds or substantial renovations that do not increase supply will not be treated as new builds. Properties acquired before 12 May 2026 will be exempt from the changes and the changes won’t apply to managed investment trusts or superannuation funds. Also, the changes don’t impact on other asset classes such as commercial properties or shares.
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Negative Gearing and Capital Gains Tax Reform
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 the 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.
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Negative Gearing and Capital Gains Tax Reform
Minimum tax on family trust distributions
Start date: 1 July 2028
The Government has announced that a minimum 30% tax rate will apply to distributions made by discretionary trusts. Discretionary trusts (often referred to as family trusts) have become a widely used structure for both investment and business activities. One of the key features of a discretionary trust is that the trustee is typically given the power to decide how to allocate income and capital gains made by the trust across family members and related entities. This flexibility means that discretionary trusts can be used as an effective tax planning tool in many cases. For example, income distributed to an adult child could potentially be tax-free if the child has no other income and distributions are capped at the tax-free threshold for individuals.
However, 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 with 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.
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Minimum tax on discretionary trusts
Foreign resident CGT concession
Start date: The first day of the next quarter after receiving Royal Assent
The Government will provide a concession in the foreign resident CGT regime for investment in the renewables sector. The transitional arrangement will apply to foreign investors disposing of certain renewable energy infrastructure assets from the start date until 30 June 2030.
Venture capital tax incentives
Start date: 1 July 2027
The Government will expand the scope of existing tax incentives which relate to venture capital limited partnerships and early stage venture capital limited partnerships.
Click 2026 Federal Budget for more information.
