The 2026–27 Federal Budget has introduced a range of significant proposed tax reforms affecting individuals, investors, businesses, and trusts. The Government has described this as one of the most substantial tax reform packages in decades, with major proposed changes to capital gains tax (CGT), negative gearing, discretionary trusts, and small business taxation.
Below is a summary of the key Budget announcements and what they may mean for taxpayers.
Major Changes to Capital Gains Tax (CGT)
One of the most significant announcements is the proposed removal of the current 50% CGT discount from 1 July 2027.
Under the proposal:
- The 50% CGT discount would be replaced with an inflation-adjusted indexation method
- A minimum 30% tax rate on realised capital gains would apply
- The changes are proposed to apply to individuals, trusts, and partnerships
- Transitional rules are expected to apply for gains accrued before 1 July 2027
Importantly, investors in newly built residential properties may still be able to choose between:
- The existing 50% CGT discount, or
- The new indexation method with the minimum tax rules
These proposed reforms are expected to have a substantial impact on long-term investment planning and property ownership structures.
Negative Gearing Changes
The Budget also announced major proposed changes to negative gearing rules.
From 1 July 2027:
- Negative gearing deductions for established residential properties would generally be restricted
- Losses from established residential properties will only be deductible against rental income or capital gains from residential properties. If there are excess losses, these will be carried forward and able to be offset against residential property income in future years.
- Existing investment properties owned at Budget night (12 May 2026) are proposed to be grandfathered until sold
Importantly, newly constructed residential properties are proposed to remain eligible for negative gearing concessions to encourage additional housing supply.
Discretionary Trust Tax Changes
Another significant proposal is the introduction of a minimum 30% tax rate on discretionary trust income from 1 July 2028.
The proposed rules would:
- Apply a minimum 30% tax on discretionary trust taxable income
- Exclude fixed trusts, superannuation funds, charitable trusts, and deceased estates
- Introduce rollover relief for some small businesses wishing to restructure out of discretionary trusts
This measure may significantly impact family groups and businesses currently using discretionary trusts for tax planning and asset protection purposes.
Personal Tax Relief Measures
The Budget included several measures aimed at easing cost-of-living pressures for Australian workers.
New $250 Working Australians Tax Offset (WATO)
From 1 July 2027, eligible workers are proposed to receive a permanent annual $250 tax offset.
The Government estimates that, together with already-legislated tax cuts and the new standard deduction, workers could receive up to $2,816 in combined annual tax relief from 2027–28.
Income Tax Rate Reductions
Previously legislated tax cuts were also confirmed:
| Taxable Income | 2025–26 | 2026–27 | 2027–28 |
|---|---|---|---|
| $18,201 – $45,000 | 16% | 15% | 14% |
$1,000 Standard Work-Related Deduction
From the 2026–27 financial year, eligible taxpayers may claim a standard deduction of up to $1,000 for work-related expenses without needing detailed substantiation.
This measure is designed to simplify individual tax returns and reduce record-keeping requirements for many employees.
Note – only able to claim this from 1 July 2027.
Small Business Measures
Several announcements may provide welcome support for small businesses.
Instant Asset Write-Off Made Permanent
The Government announced the permanent extension of the $20,000 instant asset write-off for eligible small businesses with turnover under $10 million.
This provides greater certainty for businesses planning equipment and asset purchases.
Loss Carry-Back Regime Returns
From 1 July 2026, eligible companies with turnover under $1 billion may once again carry back tax losses to offset previously taxed profits from up to two years earlier.
Research & Development (R&D) Tax Incentive Changes
The Government also announced a significant overhaul of the R&D tax incentive program from 1 July 2028, including:
- Increased offset rates for core R&D activities
- Higher turnover thresholds
- Changes to eligible expenditure categories
Increased ATO Compliance Activity
The Budget provides additional funding to the ATO to strengthen compliance and fraud detection activities.
The ATO’s enhanced focus areas are expected to include:
- Tax agent fraud monitoring
- Real-time compliance activity
- R&D tax incentive claims
- Recovery of unpaid tax debts
Businesses and individuals should expect continued scrutiny and ensure their tax affairs remain accurate and compliant.
What Happens Next?
Many of these announcements are currently proposals only and will still require legislation to pass Parliament before becoming law.
Given the scale and complexity of the proposed reforms, we expect significant consultation and ongoing updates over the coming months.
How We Can Help
The 2026 Federal Budget introduces substantial proposed changes that may affect:
- Investment strategies
- Business structures
- Trust arrangements
- Property ownership
- Tax planning opportunities
If you would like advice on how these proposed measures may impact you or your business, please contact our office to discuss your circumstances with one of our advisers.