TAX UPDATE  |  12 May 2026

Federal Budget 2026-27: What the Key Tax Changes Mean for You

Last night, the Federal Government handed down the 2026-27 Budget — and for individuals, investors and businesses alike, the changes are significant. From a fundamental overhaul of capital gains tax to new negative gearing restrictions, reforms to discretionary trusts and a raft of small business incentives, this Budget reshapes the tax landscape in ways not seen for a generation.

Here at Pace Advisory Group, we have reviewed the key measures and set out what they mean for you. If any of these changes affect your situation, we encourage you to reach out to our team to discuss your options before key dates arrive.

 

1. Capital Gains Tax — A Fundamental Overhaul

Replacing the 50% CGT Discount with Indexation

One of the most significant changes in this Budget is the replacement of the 50% CGT discount with cost base indexation for assets held for more than 12 months. This will apply from 1 July 2027 to all assets — including pre-CGT assets — held by individuals, trusts and partnerships.

A 30% minimum tax on net capital gains will also apply. Importantly, the transitional rules are structured so that gains accrued before 1 July 2027 continue to benefit from the existing 50% discount.

Key Dates at a Glance Assets sold before 1 July 2027 remain under current rules. The new indexation regime and 30% minimum tax apply only to gains accruing from 1 July 2027 onwards.

 

There are some carve-outs worth noting:

• Investors in new residential properties can choose between the 50% CGT discount OR indexation plus the 30% minimum tax — whichever is more favourable.
• Income support and Age Pension recipients are exempt from the 30% minimum tax.
• Capital gains on pre-CGT assets that accrued before 1 July 2027 remain exempt from CGT entirely.

 

What this means in practice: for long-held assets with large unrealised gains, selling before 1 July 2027 may be worth considering. We recommend a review of your investment portfolio and any assets held in trust to model the impact under the new regime.

 

Foreign Resident CGT — Renewables Concession

A targeted, time-limited concession has been announced for foreign investors in renewable energy infrastructure. The concession applies from the first day of the next quarter after Royal Assent through to 30 June 2030.

 

2. Negative Gearing — The Rules Are Changing

From 1 July 2027, losses from established residential properties will only be deductible against rental income or capital gains from residential properties. Excess losses can be carried forward and offset against future residential property income — but they cannot reduce other taxable income, as is currently the case.

These changes apply to established residential properties acquired from 7:30 PM (AEST) on 12 May 2026 (Budget night). Properties acquired before this time — including contracts exchanged but not yet settled — are grandfathered until disposal.

The following are exempt from these changes:

• Eligible new builds
• Properties in superannuation funds and widely held trusts
• Build-to-rent developments
• Private investors supporting government housing programs

 

If you are actively looking to purchase residential investment property, your timing now matters significantly. Properties contracted before Budget night retain full negative gearing treatment.

 

3. Discretionary Trusts — A New 30% Minimum Tax

From the 2028-29 income year (commencing 1 July 2028), a new 30% minimum tax will apply to the taxable income of discretionary trusts. The trustee will pay the minimum tax, with non-refundable credits flowing to beneficiaries (other than corporate beneficiaries).

Corporate beneficiaries will be assessed on trust income directly, without access to credits for trustee-level tax — an important consideration for trust distribution planning.

The minimum tax does not apply to:

• Fixed trusts and fixed testamentary trusts
• Complying superannuation funds
• Special disability trusts and deceased estates
• Primary production income and certain income relating to vulnerable minors

 

To ease the transition, the Government will provide expanded rollover relief for three years from 1 July 2027 for small businesses that want to restructure out of discretionary trusts into a company or fixed trust. If you are considering restructuring, the next 12–18 months represent a critical planning window.

 

4. Measures Impacting Individuals

Personal Income Tax Rates — Already Legislated Cuts

A reminder of the already-legislated personal tax rate changes now confirmed in this Budget:

 

Threshold	2025-26	2026-27 (FY27)	2027-28 (FY28)
$0 – $18,200	Nil	Nil	Nil
$18,201 – $45,000	16%	15%	14%
$45,001 – $135,000	30%	30%	30%
$135,001 – $190,000	37%	37%	37%
$190,001+	45%	45%	45%

 

The second tax bracket rate falls from 16% to 15% from 1 July 2026, and to 14% from 1 July 2027. This is a meaningful saving for those earning between $18,201 and $45,000.

 

$1,000 Standard Deduction for Work-Related Expenses

From 1 July 2026 (the 2027 income year), Australian tax residents earning income from work can claim a standard deduction of up to $1,000 for work-related expenses without the need to itemise or retain receipts. This applies where total work-related claims do not exceed $1,000.

Those with higher work-related expenses can still claim the full amount in the usual way. Charitable donations, union fees and professional memberships can be claimed in addition to the standard deduction.

 

Working Australians Tax Offset — $250 Annual Benefit

A new $250 Working Australians Tax Offset will apply from the 2028 income year for income derived from salary, wages and sole trader business income.

 

Medicare Levy Low-Income Thresholds Increased

The Medicare levy low-income thresholds are increasing by 2.9% from 1 July 2025:

• Singles: $27,222 → $28,011
• Families: $45,907 → $47,238
• Single seniors and pensioners: $43,020 → $44,268
• Senior/pensioner families: $59,886 → $61,623

 

Private Health Insurance Rebate — Age Uplift Removed

From 1 April 2027, the age-based uplift to the Private Health Insurance Rebate will be removed. Australians aged 65 and over currently receive a higher rebate percentage — this concession will no longer apply after that date.

 

5. Business Measures

$20,000 Instant Asset Write-Off — Made Permanent

The $20,000 instant asset write-off for small businesses (turnover under $10 million) has been made permanent from 1 July 2026. Assets of $20,000 or more can continue to be placed into the small business depreciation pool.

 

Loss Carry-Back for Companies

For income years commencing on or after 1 July 2026, companies with aggregated annual global turnover below $1 billion can carry back a tax loss and offset it against tax paid in the previous two years. Loss carry-back is limited to revenue losses and capped at the company’s franking account balance.

 

Loss Refundability for Small Start-Up Companies

From 1 July 2028, start-up companies with turnover under $10 million that generate a tax loss in their first two years of operation can convert that loss into a refundable tax offset, capped at the amount of FBT and payroll withholding paid in respect of Australian employees.

 

Dynamic PAYG Instalment Calculations

From 1 July 2027, small and medium businesses can opt into monthly PAYG instalment reporting and payment using ATO-approved calculations embedded in accounting software — better aligning instalments with real-time cash flow. Non-compliant taxpayers will be required to use monthly reporting.

 

Fuel Excise — Temporary Reduction

From 1 April 2026 for three months, the Government has reduced fuel excise by approximately 32 cents per litre for petrol and diesel. The heavy vehicle road user charge has been reduced to zero for the same period.

 

R&D Tax Incentives — Expanded From 2028

Significant changes to the R&D Tax Incentive apply from 1 July 2028, including a ~25% increase in the core R&D offset rate, a lower intensity threshold (2% → 1.5%), an expanded refundable offset turnover threshold ($20M → $50M), and a higher maximum expenditure cap ($150M → $200M).

 

6. Electric Vehicles — FBT Concession Scaled Back

The current FBT exemption for eligible electric cars (valued up to $75,000 provided before 1 April 2029) will remain intact under transitional rules. However, from 1 April 2029, a permanent 25% FBT discount (implemented through a 15% statutory rate) will apply for electric cars valued up to the fuel-efficient luxury car tax threshold.

Electric cars above $75,000 provided between 1 April 2027 and 1 April 2029 will attract the 25% discount from that date. If you are considering a novated lease or employer-provided electric vehicle arrangement, timing matters.

 

7. Other Measures

Foreign Purchases of Established Dwellings

The temporary ban on foreign purchases of established residential dwellings has been extended by a further two years and three months to 30 June 2029.

 

Protecting the Tax System Against Fraud

The Government is investing $86.3 million over four years in Phase 2 of its Counter Fraud Strategy, including real-time fraud detection, expanded monitoring for tax agents, and new ATO powers to pause debt recovery for victims of agent fraud and recover debts from the fraudulent intermediaries.

 

Need to review your position? These are sweeping changes — and many of them carry critical planning deadlines. Our team at Pace Advisory Group is available to help you assess the impact on your personal finances, investment portfolio, trust structures and business operations. Contact us: info@paceadvisorygroup.com.au  |  Ascot Vale & Mount Waverley, Melbourne