2026-27 Federal Budget report
Last week, the Federal Treasurer handed down the 2026-27 Federal Budget. We’ve taken the time to review the key announcements and put together a summary of the measures most relevant to our clients and our scope of work, noting that these proposals will only take effect if the legislation is passed.
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).
$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.
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 as announced in the 2025-26 Federal Budget.
Limits on negative gearing
Start date: 1 July 2027
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.
It’s important to note that ‘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.
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.
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.
Capital Gains Tax
Start date: 1 July 2027
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.
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.
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.
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.
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 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.
Loss Carry Back for Companies
Start date: 1 July 2026
For income years commencing on or after 1 July 2026 the Government will allow companies with aggregated annual global turnover of less than $1 billion to carry back a tax loss and offset it against tax paid up to two years earlier.
The ability to carry back a loss will only apply to tax losses (not capital losses) and will be limited by the company’s franking account balance.
PAYG Instalments
Start date: 1 July 2027
From 1 July 2027, small and medium businesses will be able to opt in to reporting and paying PAYG instalments monthly and will be able to use an ATC-approved calculation that is embedded in accounting software to calculate and vary instalments.