2026 Federal Budget Summary

Overview

The 2026–27 Federal Budget was delivered by the Treasurer on Tuesday, 12 May 2026. The Budget focuses on cost-of-living relief, tax reform, housing affordability, productivity, fuel security, care services, and long-term fiscal repair.

For individuals, families, business owners, property investors and SMSF members, the key message is that several Budget measures may affect future tax planning, investment decisions, business deductions, and household cash flow.

Many Budget measures are announcements only and may require legislation before they become law.

Reforms to the Capital Gains Tax (CGT) regime

The Government has announced significant proposed reforms to the Capital Gains Tax (CGT) system from 1 July 2027 which could substantially change the taxation of investment assets in Australia.

Under the current rules, individuals and trusts are generally entitled to a 50% CGT discount on assets held for more than 12 months, while complying superannuation funds generally receive a one-third discount.

From 1 July 2027, the Government proposes to replace the 50% CGT discount with a cost base indexation system linked to CPI for eligible assets held longer than 12 months. Rather than automatically reducing capital gains by 50%, the asset’s cost base would instead be indexed for inflation.

In addition, a proposed minimum 30% tax rate would apply to net capital gains accruing after 1 July 2027. This could significantly impact taxpayers on lower marginal tax rates who currently benefit from the CGT discount and tax-free thresholds.

The proposed changes will apply broadly to investment assets including property, shares, trust interests, partnership assets and pre-CGT assets acquired before 20 September 1985.

Importantly, transitional rules are proposed to preserve gains accrued before 1 July 2027 under the current system. The existing 50% CGT discount would continue to apply to gains accrued before that date, while pre-CGT gains accrued before 1 July 2027 would remain exempt.

As a result, many taxpayers may require market valuations of existing assets as at 30 June 2027 to calculate future taxable gains correctly.

Investors in eligible new residential properties will be able to choose between:

•    The existing 50% CGT discount; or
•    CPI cost base indexation together with the proposed 30% minimum tax regime.

Recipients of certain means-tested income support payments, including Age Pension recipients, are expected to be exempt from the proposed minimum tax rules.

Assets disposed of before 1 July 2027 will continue to be taxed under the existing CGT rules.

Reforms to negative gearing  for residential property investments

The Government has announced significant proposed changes to the negative gearing rules for residential investment properties as part of its broader housing affordability reforms.

Under the current rules, rental losses generated from residential investment properties can generally be offset against other forms of income, including salary and wages, business income and capital gains. This has traditionally allowed investors to reduce their overall taxable income where deductible property expenses exceed rental income.

However, from 1 July 2027, losses from established residential properties acquired from 7:30 PM (AEST) on 12 May 2026 will generally no longer be deductible against other forms of income.

Instead, these losses will only be able to be offset against:

•    Rental income derived from residential properties; and
•    Capital gains made from residential properties.

Any excess losses that cannot be utilised in the relevant income year will be carried forward and applied against future residential property income or gains.

Importantly, the proposed changes only apply to established residential properties acquired after the announcement time. Residential properties acquired before 7:30 PM (AEST) on 12 May 2026 will generally be grandfathered under the existing negative gearing rules until disposal, including contracts entered into before that time which settle later. 

The Government has also confirmed that eligible “new builds” will remain exempt from the new restrictions. This is intended to encourage investment in additional housing supply.

For the purposes of the proposed rules, eligible new builds are expected to include:

• Newly constructed dwellings on vacant land;
• Developments that increase housing supply, such as subdivision and multi-dwelling projects.

However, renovations, knock-down rebuilds and improvements that do not increase the number of dwellings are not expected to qualify as exempt new builds.

These reforms may significantly impact investment cash flow, borrowing capacity and after-tax holding costs for future residential property investors, particularly high-income earners who have historically relied on negative gearing benefits to offset salary or business income.

Investors considering residential property acquisitions after 12 May 2026 should carefully review the long-term tax implications, expected rental yields and financing arrangements before proceeding.

Instant asset write-off

The Budget includes several measures intended to reduce tax and compliance pressure for small businesses.

A key announcement is the proposed permanent $20,000 instant asset write-off for eligible small business entities. The Government has also announced broader productivity and business support measures aimed at reducing regulatory burden and encouraging investment.

Business owners considering equipment purchases, vehicles, fit-outs or technology upgrades should review the timing of expenditure and confirm eligibility requirements before committing to purchases.

Taxation of Trusts & Distributions

The Government has announced significant proposed reforms to the taxation of discretionary trusts which are expected to impact many family groups, investors and small businesses operating through trust structures.

From 1 July 2028, trustees of discretionary trusts will generally be required to pay a minimum 30% tax on taxable trust income distributed to beneficiaries.

Currently, discretionary trusts provide flexibility to distribute income between family members and related entities based on their individual tax positions. This has traditionally allowed trustees to distribute income to lower-income beneficiaries or bucket companies to reduce overall family tax outcomes.

Under the proposed rules, this flexibility will be significantly reduced.

Importantly, distributions to low-income adult beneficiaries may no longer deliver the same tax advantages, as trust income would effectively be taxed at a minimum rate of 30% regardless of personal tax-free thresholds or lower marginal tax rates.

The changes are also expected to significantly affect bucket company arrangements. Under current rules, trusts commonly distribute profits to corporate beneficiaries taxed at 25% or 30% to defer further personal tax. However, under the proposed measures, corporate beneficiaries are not expected to receive refundable credits for tax already paid by the trustee, potentially reducing many existing tax deferral strategies.

The Government has indicated that limited restructuring rollover relief may be available from 1 July 2027 for taxpayers wishing to transition from discretionary trusts into companies or fixed trusts before the new rules commence.

While the measures are not yet law and further detail is still required, taxpayers operating through discretionary trusts should begin reviewing their structures, succession plans and long-term tax strategies well before the proposed commencement date.

FBT on electric cars

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 FBT exemption for electric cars was introduced in the 2022–23 income year as part of a broader initiative to reduce the cost of electric vehicles and increase uptake.

Currently, a full FBT exemption generally applies to eligible battery electric vehicles and hydrogen fuel cell electric vehicles provided to employees where the vehicle cost does not exceed the luxury car tax (LCT) threshold for fuel-efficient vehicles when first acquired. For the 2025–26 financial year, this threshold is
$91,387.

While the exemption has been phased out for plug-in hybrid electric vehicles from 1 April 2025 (with pre-existing arrangements still qualifying for the exemption in some cases), a full FBT exemption still applies to battery electric vehicles and hydrogen fuel cell electric vehicles that are provided as fringe benefits to employees if certain conditions can be satisfied.

However, 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 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.

Individuals and families

The Government will provide a $250 ‘Working Australians Tax Offset’ from the 2027–28 income year.

$1,000 instant tax deduction for workers, Australian residents will be able to claim a standard deduction from the 2026-27 income year onwards for work-related expenses - 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.

Income tax cuts - 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.

Medicare levy thresholds increased - The Government will increase the Medicare levy low‑income thresholds for singles, families, and seniors and pensioners.

Summary

Once the Government releases the relevant legislation and greater certainty is available regarding the proposed new rules, we will review and discuss how these reforms will apply to your specific situation and strategies we can implement to minimise the impact of these changes.

Talk to Us

If you would like to discuss how these proposed changes may affect your business, investments or tax planning strategies, please contact Simon Jones & Co on 03 9742 3844 or email accountant@sjc.com.au

Our team is available to provide tailored advice and practical planning strategies suited to your circumstances.

Disclaimer

This guide contains general information only and has been prepared for clients of Simon Jones & Co. It is based on Federal Budget announcements available at the time of preparation and may be subject to legislative change, parliamentary approval, ATO interpretation, administrative guidance, or further clarification.

The information does not take into account your personal objectives, financial situation, business structure, investment position, or specific circumstances. It should not be relied upon as taxation, accounting, financial, legal or investment advice.

Before acting on any information in this guide, you should obtain advice tailored to your circumstances from Simon Jones & Co. Simon Jones & Co accepts no liability for any loss or damage arising from reliance on this guide without further consultation.

Liability limited by a scheme approved under Professional Standards Legislation.