2026–27 Federal Budget: Key Highlights & Summary

2026–27 Federal Budget — Condensed key highlights

The Federal Treasurer, Dr Jim Chalmers, handed down the 2026-27 Federal Budget at 7:30pm (AEST) on 12 May 2026. The government is proposing a tax reform package with 3 parts: a 'fairer' tax system for workers, first home buyers and future generations; a 'better' tax system for businesses by encouraging investment and innovation; and a 'simpler and more sustainable' tax system. This is not really tax reform. Its simply measures that shifts more of the burden of tax onto middle Australia.

Executive summary

• Purpose: The Budget focuses on a major tax‑reform package aimed at workers, businesses and long‑term sustainability, plus targeted measures on housing affordability, tax administration and regulatory reform.

• Headline tax changes: Replacement of the 50% CGT discount with cost‑base indexation (plus a 30% minimum tax on realised gains) from 1 July 2027; negative gearing limited to new builds from 1 July 2027; and a 30% minimum tax on discretionary trusts from 1 July 2028.

• Business support: Permanent $20,000 instant asset write‑off, permanent 2‑year loss carry‑back for companies up to $1bn turnover (from 1 July 2026), expanded venture capital incentives and R&D reforms (phased from 1 July 2027–2028).

• Administration & integrity: Significant funding to strengthen ATO fraud detection, Digital ID operations, managed investment scheme governance and expanded reporting options for SMEs.

1. Individuals — what changes matter most 

Key measures

• Negative gearing restricted to new builds from 1 July 2027. Existing investments held before 7:30pm AEST on 12 May 2026 are grandfathered; properties acquired between that time and 30 June 2027 may be negatively geared until 1 July 2027.

Losses on established properties will be ring-fenced to residential property income/capital gains and excess losses carried forward.

• Working Australians Tax Offset (WATO): a $250 annual tax offset for each working Australian from the 2027–28 income year; raises the effective tax-free threshold for work income by ~$1,800.

• Medicare levy thresholds indexed up 2.9% from 1 July 2025 (single threshold to $28,011; family and seniors thresholds increased).

• PHI (Private Health Insurance) rebate age uplift removed from 1 April 2027 (simplifies rebate distribution).

• Pension supplement: full rate extended from 6 to 12 weeks for temporary absences; ceased for permanent overseas residents or absences >12 weeks.

• Foreign ownership restrictions: temporary ban on foreign purchases of established dwellings extended to 30 June 2029; funding to strengthen foreign investment

  screening and a 30-day target for low-risk applications from 1 January 2027.

• For the 2026/27 year: Taxpayers will receive an instant $1,000 tax deduction for work related expenses without the need to keep receipts. (Note: its not a refund.)

It excludes Union and professional associations and Donations.

Practical implications for individuals

• Property investors: new-build investors retain full negative gearing; owners of existing properties (and contracts entered before 12 May 2026) are protected until disposal. Investors should review acquisition dates and contracts and seek valuation advice for transitional CGT calculations.

  
  

• Low-to-middle income workers: WATO and other tax cuts increase after-tax income modestly; workers should expect the offset to be applied automatically via tax returns. 

2. Capital gains, trusts and major income-tax reforms 

CGT reform (effective 1 July 2027)

• Replace 50% CGT discount with cost-base indexation for assets held >12 months; apply CPI indexation similar to pre-1999 rules. A 30% minimum tax applies to realised gains accrued from 1 July 2027. New builds are excluded (owners of new builds may choose discount or indexation).

Transitional rules preserve the 50% discount for gains accrued up to 1 July 2027; taxpayers must determine an asset value at that date (valuation or apportionment formula; ATO tools to be provided). Income support recipients are exempt from the 30% minimum tax in the year they realise gains.

Discretionary trusts (effective 1 July 2028)

• Trustees taxed at minimum 30% on taxable income of discretionary trusts; beneficiaries (non-corporate) receive non-refundable credits for trustee tax paid.

Exclusions: unit/widely-held trusts, complying super funds, special disability trusts, deceased estates, charitable trusts. Transitional relief: income from discretionary testamentary trusts existing at 7:30pm AEST on 12 May 2026 is excluded; rollover relief available for 3 years from 1 July 2027 to restructure.

Stakeholder actions

• Tax planning: owners of assets and trustees should model post-reform tax outcomes,

  consider restructuring options (using the 3-year rollover relief window), and prepare for valuation requirements at 1 July 2027.

3. Business measures — incentives, reliefs and reform

Immediate and near-term measures

• Instant asset write-off of $20,000 for small businesses (turnover < $10m) made permanent from 1 July 2026.

• Permanent 2-year loss carry back for companies with turnover up to $1 billion from 1 July 2026 (refundable offset limited by franking account balance).

• Loss refundability for small start-ups: refundable offset for tax losses in first 2 years for start-ups (turnover < $10m) from 1 July 2028, capped to FBT and withholding tax on wages. 

Innovation and venture capital

• R&D tax incentive reforms (from 1 July 2028): increase core R&D offset (net +4.5 percentage points), remove supporting R&D eligibility, lower intensity threshold (2% → 1.5%), raise turnover threshold for highest refundable offset (from $20m → $50m), lift expenditure caps and minimums, and require small projects (<$50k) to partner with recognised research organisations.

• VCLP/ESVCLP expansion (from 1 July 2027): higher investee asset caps and larger fund sizes to encourage VC investment; eligible investor program closed to new applications from 12 May 2026 7:30pm AEST.

International tax / compliance

• OECD Pillar 2 side‑by‑side package implemented from 1 January 2026 (amendments to global and domestic minimum tax rules to align with OECD/G20 Inclusive Framework).

Business implications

• Cash flow & investment: loss carry‑back and instant write‑off improve near‑term cash flow for eligible firms; start‑ups gain limited refundable support for early losses.

• R&D and VC: reforms aim to broaden access and increase incentives for innovation; firms should reassess R&D eligibility, documentation and collaboration strategies.

4. GST, indirect taxes and not‑for‑profit changes

• Indirect Tax Concession Scheme (ITCS): refunds extended to additional diplomatic missions (EU, Italy, Chile) and Tuvalu posts.

• Nuisance tariffs: abolition of a further 497 nuisance tariffs from 1 July 2026 (removes tariffs on many consumer and intermediate goods).

• Duty exemption for Ukraine: extended to 3 July 2028 for Ukrainian‑produced goods (excludes excise‑equivalent items).

• Illicit tobacco: $20.3m over 4 years to strengthen enforcement, data collection and international cooperation; tougher penalties and expanded enforcement powers.

• Not‑for‑profit DGR list updates: several organisations added to the DGR list for gifts received after 30 June 2026 (through to 1 July 2031); ministerial declaration step removed for community charity DGR endorsement.

5. Tax administration, digital ID and regulatory reform

Administration & integrity funding

• Counter Fraud Strategy Phase 2: $86.3m over 4 years (from 1 July 2026) plus ongoing funding to modernise fraud prevention/detection across tax and superannuation systems; expanded powers to protect victims of intermediary fraud and recover from intermediaries.

• Digital ID system: $357.4m to the ATO over 4 years (plus ongoing) to maintain myID and Relationship Authorisation Manager; additional funding to Treasury, Services Australia, ACCC, OAIC and others to support Digital ID governance and operations.

• Managed investment schemes: funding to ASIC and partners to strengthen governance, data use and supervision.

  
  

Reporting & SME support

• Monthly reporting & dynamic PAYG instalments: optional monthly reporting and ATO‑approved dynamic PAYG calculators for SMEs from 1 July 2027; interest relief where ATO‑approved calculators produce errors; mandatory monthly reporting for persistent non‑compliers.

• Regulatory streamlining: funding to modernise business registers, synchronise director information, uplift ABN authentication and extend Consumer Data Right participation; legislative changes to simplify financial sector reporting and reduce low‑value notifications.

  
  

Practical next steps for advisers and businesses

• Systems & software: update accounting and payroll systems to accommodate dynamic PAYG and monthly reporting options; liaise with software providers about ATO‑approved calculators.

• Compliance readiness: prepare for enhanced ATO compliance activity (fraud, R&D claims, trust reporting); review record‑keeping and governance for MIS and trust structures.

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6. Implementation timeline and transitional rules (quick reference)

• Immediate / already effective: OECD Pillar 2 side‑by‑side amendments 1 Jan 2026; some temporary measures (fuel excise relief) already applied earlier in 2026.

• 1 July 2026: instant asset write‑off permanent from 1 July 2026 (administration timing noted).

• 1 July 2027: CGT indexation & 30% minimum tax; negative gearing limited to new builds; WATO begins for 2027–28 year (paid via tax returns). Transitional valuation rules require taxpayers to determine asset values at 1 July 2027.

• 1 July 2028: 30% minimum tax on discretionary trusts; expanded R&D reforms commence 1 July 2028 (phased measures).

• 1 April 2029: permanent 25% FBT discount for eligible EVs fully in place (with transitional phasing from 2027).

7. Key risks, opportunities and recommended actions

Risks

• Valuation complexity at 1 July 2027 for CGT transitional calculations may create disputes and compliance burdens.

• Restructuring costs for trusts and family groups facing the new 30% trust tax; timing and rollover relief windows are critical.

• Increased compliance activity (fraud, R&D, trust reporting) may raise audit risk for aggressive positions.

  
  

Opportunities

• Cash flow improvements for SMEs via permanent instant write‑off and loss carry‑back.

• R&D and VC reforms create stronger incentives and larger caps to attract investment and scale‑ups.

• WATO and tax cuts deliver modest, broad‑based relief to workers and low‑income households.

  
  

Recommended immediate actions (practical checklist)

1. For investors and asset owners: identify assets acquired before 7:30pm AEST 12 May 2026; document acquisition dates and contracts; plan valuations for 1 July 2027.

2. For trustees and advisers: model trust tax outcomes; consider restructuring options using the 3‑year rollover relief; prepare trustee reporting processes for the 30% minimum tax.

3. For businesses: update accounting systems for monthly PAYG options; assess eligibility for loss carry‑back and instant write‑off; review R&D project documentation in light of upcoming reforms.

4. For not‑for‑profits & DGR applicants: check updated DGR list and endorsement process changes; plan fundraising and compliance accordingly.