2026 Federal Budget: Proposed tax changes
The Federal Budget was released on 12 May 2026 and included several significant proposed changes to the Australian tax system. While it is still early days and there are many unknowns on exactly how all the changes may be applied, we’ve prepared a concise summary of these proposed changes to help you stay informed.
Individual Tax Changes
- From 2027/28, a $250 working Australians tax offset will be applied to individuals who earn salaries and wages. This will not include investment income and pension payments at this stage.
- Starting from 1 July 2026, Australians can claim up to $1,000 as a standard deduction for work related expenses without needing to provide receipts.
Capital Gains Tax Changes
The 50% capital gains tax (CGT) discount will be replaced by an inflation-adjusted model. The new rules are expected to come in after 1 July 2027. Instead of a 50% discount being available on the profit made between sale and purchase price of an asset, an inflation formula will be applied to increase the cost base of the original purchase. This will then leave a ‘true or real’ capital gain that has been made over the life of the asset.
A new minimum 30% tax rate on capital gains will also apply, with exemptions for pensioners and income support recipients.
Gains made before 1 July 2027 will continue to qualify for the 50% discount. These changes will also impact assets acquired before 1985 and these will no longer be fully exempt. It appears market valuations at 30 June 2027 will be required as part of the transition to identify any gains made before 30 June 2027, and gains made after this date subject to the new rules.
To incentivise new-build residential property, investors will have the option to use the 50% discount or the new inflation-based formula to report capital gains when selling.
Negative Gearing Changes
Proposed changes will restrict negative gearing to only new residential builds after 12 May 2026. Properties purchased before this date will be grandfathered, allowing investors to continue to claim losses on their properties.
From 12 May 2026, any losses made on purchased existing dwellings will be able to deduct losses against other residential properties or have to carry forward losses to future years, where they will either offset future year profits for the property or may be able to offset future capital gains. You will no longer be able to offset wage and other investment income.
Family Trust Changes
It is proposed from 1 July 2028 that a minimum 30% tax rate for discretionary trust distributions will be applied. The trust will be directly responsible for this payment to the ATO and beneficiaries will receive a non-refundable tax offset in their return to this extent. This is very controversial as anyone with a marginal tax rate under $45,000 will be significantly disadvantaged – this will result in double taxation given the credits are non-refundable, opposed to a company dividend where a refund of franking credits are received (should your marginal tax rate be less than the company rate).
There will be some exemptions for primary production income, deceased estates, fixed trusts, superannuation funds and certain disability/testamentary trusts.
The Government have announced small business roll-over relief will be available between 1 July 2027 and 30 June 2030 to restructure out of discretionary trusts. While this will mitigate some tax issues for restructuring, this will be impractical for numerous entities/assets due to stamp duty issues – for example, in the scenario of transferring land/property.
Please get in touch with us if you have any questions on the proposed changes in the Federal Budget. Please remember, there is still uncertainty whether all the proposed changes in the Budget will be legislated as announced, given there are wide-ranging implications for not only investors but also small businesses.
Find more information about the Australian Federal Budget here.