The 2026–27 Federal Budget has delivered a broad range of proposed tax and economic reforms that are likely to affect Australian households, investors and business owners over the coming years. While some announcements focus on providing short-term cost-of-living relief, others signal a major shift in the government’s long-term approach to taxation, investment and business structuring.
For individuals, the budget includes tax cuts, new deduction rules and changes to Medicare levy thresholds. For investors, the proposed reforms to negative gearing and capital gains tax could reshape property investment decisions for years to come. Small business owners are also facing substantial changes, particularly those operating through discretionary trusts.
Importantly, many of these measures are proposed to commence over the next two to three years, meaning there is still time for taxpayers and business owners to review their structures and plan ahead.
This article outlines the key announcements and what they may mean for you.
Tax Changes for Individuals
New $1,000 Instant Work-Related Deduction
From the 2026–27 financial year, employees will be able to claim a standard $1,000 deduction for work-related expenses without needing receipts or substantiation.
This deduction will apply automatically when lodging a tax return and is intended to simplify the process for taxpayers with relatively low work-related expenses.
However, it is important to understand that this is a deduction, not a direct refund. The actual tax benefit depends on your marginal tax rate. For many taxpayers, the saving may equate to approximately $200–$350 in reduced tax.
Taxpayers will still be able to separately claim:
- Union fees
- Professional memberships
- Donations
- Income protection insurance
However, no additional work-related expense claims can be made if the standard deduction is used.
For taxpayers currently claiming more than $1,000 in legitimate deductions, maintaining records and continuing to claim actual expenses will likely remain the better option. Our individual tax return service ensures you claim everything you’re entitled to — not just the standard deduction.
This measure will mainly benefit:
- Employees with limited deductible expenses
- Taxpayers who dislike maintaining receipts
- Individuals whose claims are currently below the $1,000 threshold
Additional Tax Offset for Working Australians
From 1 July 2027, a new permanent $250 Working Australians Tax Offset is proposed for taxpayers earning salary, wages or sole trader business income.
The offset will apply automatically through the tax return process.
Importantly, the offset is only available to taxpayers actively earning employment or business income. Individuals earning solely from:
- Investments
- Rental properties
- Trust distributions
- Passive income sources
will generally not qualify.
While the amount is relatively modest, it represents another attempt to provide cost-of-living support to working Australians.
Further Personal Tax Rate Reductions
The government has confirmed previously announced personal income tax cuts.
From 1 July 2026:
- The tax rate for income between $18,201 and $45,000 will reduce from 16% to 15%
From 1 July 2027:
- The same tax bracket will reduce further to 14%
These changes primarily benefit low and middle-income earners and will slightly improve take-home pay.
Although these cuts are relatively small in isolation, when combined with other relief measures they may assist households currently under pressure from inflation and rising living costs.
Medicare Levy Threshold Increases
The budget also increases the Medicare levy low-income thresholds from 1 July 2025.
Under the proposed changes:
- Singles will not pay the Medicare levy until income exceeds $28,011
- Families will not pay the levy until income exceeds $47,238
- Additional threshold increases apply per dependent child
- Seniors and pensioners will also receive increased thresholds
These changes are designed to provide additional support to lower-income Australians and retirees.
Changes to Private Health Insurance Rebates for Older Australians
From 1 April 2027, the higher private health insurance rebate currently available to Australians aged 65 and over is proposed to be removed.
This means older Australians may experience higher out-of-pocket health insurance costs from that date.
Individuals approaching retirement or already receiving the higher rebate may wish to:
- Review current policies
- Compare alternative insurers
- Assess affordability of future premiums
- Consider long-term healthcare budgeting
This measure may particularly affect retirees on fixed incomes.
Property Investment and Capital Gains Tax Changes
The most significant and controversial measures announced in the budget relate to property investing and capital gains tax.
These changes could substantially alter investment strategies moving forward.
Changes to Negative Gearing on Established Properties
The government has announced restrictions to negative gearing for newly acquired established residential properties.
Importantly, existing property owners are grandfathered under the current rules.
If you:
- Already own an investment property, or
- Entered into a contract before 7:30pm on 12 May 2026
then your current negative gearing arrangements are expected to remain unchanged.
However, from 1 July 2027:
- New purchases of established residential properties will no longer allow losses to offset salary or other non-property income.
- Losses may only be offset against:
- Rental income
- Capital gains from residential property investments
Unused losses may still be carried forward.
This represents a major shift in how residential investment properties are taxed.
New Builds Receive Preferential Treatment
The government has chosen to preserve full negative gearing benefits for newly constructed residential properties.
This effectively creates a two-tier investment system:
- New builds continue receiving existing tax concessions
- Established properties face reduced deductibility
As a result, investors may increasingly shift towards:
- Off-the-plan properties
- Newly completed developments
- House-and-land packages
rather than established dwellings.
Investors considering future property purchases should carefully reassess:
- Cashflow projections
- Borrowing capacity
- Tax outcomes
- Long-term capital growth assumptions
- Exit strategies
before proceeding.
Capital Gains Tax Reforms
The budget also proposes substantial changes to the capital gains tax system from 1 July 2027.
Currently, individuals and trusts generally receive a 50% CGT discount when assets are held for more than 12 months.
Under the proposed reforms, this system may be replaced with:
- Cost base indexation for inflation, and
- A minimum 30% tax rate on net capital gains
Importantly:
- Only gains accruing after 1 July 2027 are expected to be subject to the new rules
- Historical gains accrued before that date should retain the existing treatment
This means taxpayers may effectively have two separate CGT calculation periods:
- Growth before 1 July 2027 under current rules
- Growth after 1 July 2027 under the new system
Impact on Investment Strategies
The proposed changes could significantly affect:
- Property investors
- Share investors
- Family trusts
- Long-term asset holders
- Retirees planning asset disposals
The reduced attractiveness of the current CGT discount may encourage:
- Earlier asset sales before July 2027
- Greater focus on growth assets with lower turnover
- Alternative investment structures
- More active tax planning around disposals
The government has also indicated that investors in newly built residential properties may have the ability to choose between the old discount method and the new indexation approach.
Pre-CGT Assets Now Affected
One of the less publicised but potentially significant changes involves pre-CGT assets.
Assets acquired before 20 September 1985 have historically been fully exempt from capital gains tax.
Under the proposed reforms:
- Any growth occurring after 1 July 2027 may become taxable under the new rules.
This creates an important planning issue for taxpayers holding:
- Long-term family properties
- Shares acquired decades ago
- Legacy investment portfolios
- Inherited assets with pre-CGT status
Why Valuations May Become Critical
Taxpayers holding investment assets should strongly consider obtaining formal valuations as at 30 June 2027.
This valuation may become essential in establishing:
- The asset value immediately before the new rules commence
- The future cost base for CGT purposes
- Separation of pre-reform and post-reform growth
Without reliable valuations, taxpayers may face difficulties substantiating future capital gains calculations.
For property owners in particular, arranging valuations early may become increasingly important as demand for valuers is likely to increase approaching the commencement date.
Superannuation Changes
In contrast to previous years, the budget contained very few changes to superannuation.
The government has announced consultation around strengthening superannuation performance testing, but there are currently:
- No major changes to contribution caps
- No significant alterations to pension rules
- No immediate changes to taxation of superannuation balances
For most Australians, superannuation arrangements remain largely unchanged for now.
This may provide some certainty after several years of ongoing superannuation reform discussions.
Small Business Measures
The budget contains several important measures affecting small businesses and business structures.
$20,000 Instant Asset Write-Off Made Permanent
The instant asset write-off threshold of $20,000 for eligible small businesses has now been made permanent.
Eligible businesses with turnover under $10 million can immediately deduct the full cost of qualifying assets costing less than $20,000.
This provides greater certainty for business planning and capital expenditure decisions.
Eligible assets may include:
- Equipment
- Tools
- Technology purchases
- Office equipment
- Business vehicles under threshold limits
The permanent nature of this measure allows businesses to confidently plan future purchases without waiting for annual budget extensions.
Fuel Excise Reduction
The temporary reduction in fuel excise by 32 cents per litre remains in place as part of broader cost-of-living relief measures.
Although temporary, this measure may provide short-term assistance to:
- Transport businesses
- Tradespeople
- Regional operators
- Businesses heavily reliant on vehicle usage
However, businesses should remain cautious about relying on temporary fuel savings for long-term budgeting.
Major Changes to Discretionary Trusts
One of the most significant business-related announcements is the proposed taxation of discretionary trusts.
From 1 July 2028, discretionary trusts may face a mandatory minimum 30% tax rate on taxable income.
While beneficiaries may receive credits for tax already paid by the trustee, the traditional tax-planning advantages of distributing income to lower-income family members are expected to be substantially reduced.
Potential Impacts on Family Trusts
These proposed rules could affect:
- Family business structures
- Investment holding trusts
- Professional service entities
- Asset protection structures
- Intergenerational wealth planning
The changes may significantly alter the tax effectiveness of many existing trust arrangements.
Restructure Relief Available
To assist businesses transitioning away from discretionary trusts, the government has proposed a three-year restructuring window commencing from 1 July 2027.
Eligible taxpayers may be able to restructure into:
- Companies
- Fixed trusts
- Alternative business structures
with rollover relief available.
This may allow restructuring without triggering immediate capital gains tax consequences.
However, business owners should not delay reviewing their structures. Learn how we can help you set up or review a trust before the 2027 transition window opens.
Restructuring decisions often involve:
- Asset protection considerations
- Succession planning
- Financing arrangements
- Payroll tax implications
- GST consequences
- Estate planning impacts
Early professional advice will be essential.
Company Loss Carry-Back Rules
From 1 July 2026, companies with turnover under $1 billion may be able to carry back tax losses against profits from the prior two years.
This means eligible companies could receive refunds of tax previously paid rather than simply carrying losses forward indefinitely.
This measure may particularly assist:
- Businesses experiencing cyclical downturns
- Companies impacted by economic volatility
- Businesses recovering from temporary disruptions
However, there are limitations:
- Only revenue losses qualify
- Capital losses are excluded
- Refunds are capped by franking account balances
Businesses anticipating fluctuating profitability should review how these rules may affect future cashflow.
Refundable Tax Offsets for Start-Up Companies
From 1 July 2028, eligible start-up companies with turnover under $10 million may be able to convert tax losses from their first two years into refundable tax offsets.
This proposal is designed to improve cashflow support for early-stage businesses.
The refundable amount will generally be limited to:
- PAYG withholding amounts, and
- Fringe benefits tax paid by the company
While not unlimited, this measure may provide meaningful assistance to genuine start-ups during their establishment phase.
Electric Vehicle Fringe Benefits Tax Changes
The current fringe benefits tax exemption for eligible electric vehicles is also being scaled back.
Currently, eligible EVs under the relevant thresholds may receive a full FBT exemption through salary packaging arrangements.
From 1 April 2027:
- New EV arrangements for vehicles above $75,000 will only receive a 25% FBT discount
From 1 April 2029:
- The full exemption will cease entirely
- All eligible EVs will move to a permanent 25% FBT discount model
Existing arrangements are expected to be grandfathered.
Employees and employers considering EV novated lease arrangements may wish to review their timing before these changes commence.
What Should Taxpayers and Businesses Do Now?
While many of these measures are still proposed and may evolve before legislation is finalised, the budget clearly signals the government’s policy direction.
For individuals, investors and business owners, the next two years may represent an important planning window.
Key action points include:
For Individuals
- Review whether the new $1,000 deduction will benefit you
- Consider how future tax cuts may affect cashflow and salary packaging
- Monitor private health insurance costs if approaching retirement age
For Property Investors
- Reassess future investment strategies before purchasing established properties
- Consider the implications of reduced negative gearing benefits
- Obtain professional advice before entering into new property transactions
- Arrange formal valuations of investment assets before 30 June 2027
For Trusts and Business Owners
- Review whether current trust structures remain appropriate
- Consider restructuring opportunities during the proposed transition window
- Assess eligibility for instant asset write-offs and loss carry-back provisions
- Review EV salary packaging arrangements before the concession changes
The Bigger Picture
The 2026–27 Federal Budget represents a significant shift in Australia’s tax and investment landscape.
While some measures are designed to provide cost-of-living relief, others are clearly aimed at reshaping investment behaviour, increasing tax collections and changing how wealth is structured and transferred.
The proposed reforms to negative gearing, capital gains tax and discretionary trusts may have long-term consequences for many Australians, particularly investors and small business owners.
At the same time, opportunities still exist for proactive taxpayers who plan early and structure appropriately.
As always, individual circumstances matter. Tax outcomes can vary significantly depending on income levels, ownership structures, investment goals and future plans.
Unsure how the 2026–27 budget changes affect you? Whether you’re an individual, property investor or business owner, now is the time to review your position. Book a free call with one of our registered tax agents — we’ll walk you through what matters for your situation.
