Treasurer Jim Chalmers handed down the 2026-27 Federal Budget on 12 May 2026. The announcements cover significant changes to tax, investment rules, and business incentives. The impact will be felt by a wide cross-section of Australians.
| The 2026-27 Federal Budget introduces income tax cuts, a $1,000 instant work-related expense deduction, major changes to negative gearing and capital gains tax for property investors, a new minimum tax on family trust distributions, and a permanent $20,000 instant asset write-off for small businesses. Most changes take effect from 1 July 2026 or 1 July 2027. Note: all measures are proposals only and subject to legislation. |
Quick Summary: 2026-27 Federal Budget |
| • Income tax rate drops from 16% to 15% on earnings between $18,201 and $45,000 from 1 July 2026 |
| • $1,000 instant tax deduction for work-related expenses from 1 July 2026 |
| • $250 Working Australians Tax Offset introduced from 1 July 2027 |
| • Negative gearing restricted to new builds only for properties acquired after 12 May 2026 (from 1 July 2027) |
| • CGT discount replaced by CPI indexation and a 30% minimum tax rate from 1 July 2027 |
| • Minimum 30% tax on family trust distributions from 1 July 2028 |
| • Instant asset write-off threshold permanently set at $20,000 for small businesses from 1 July 2026 |
| • FBT exemption for electric cars scaled back from 1 April 2027 |
| • Loss carry back for companies with global turnover under $1 billion from 1 July 2026 |
| • All measures are proposals only, not yet law |
This is being called the Government’s most ambitious budget. Below we break down the key measures across individuals, investors, and businesses so you can understand what may apply to you.
Download our full 2026–27 Budget Summary here for a deeper dive:
👉 Paris Financial – Federal Budget 2026 (PDF)
Individuals and Families
Income Tax Cuts
Start date: 1 July 2026
Legislation has already passed to reduce the 16% tax rate on income between $18,201 and $45,000 to 15% from 1 July 2026. The rate will drop further to 14% from 1 July 2027. This was first announced in the 2025-26 Federal Budget.
$1,000 Instant Tax Deduction for Work-Related Expenses
Start date: 1 July 2026
Australian residents will be able to claim a standard $1,000 deduction for work-related expenses from the 2026-27 income year, capped at the lower of $1,000 or their assessable labour income. Importantly, the normal substantiation rules will not apply when claiming this standard deduction.
Taxpayers with more than $1,000 in qualifying expenses can instead choose to claim their actual expenditure, but will need to keep receipts and records to substantiate the claim.
Charitable donations, union fees and professional association membership fees can be claimed on top of the standard deduction.
Note: An FBT exemption that currently applies to certain work-related items provided under salary packaging arrangements will be removed as part of this change.
Working Australians Tax Offset
Start date: 1 July 2027
A new $250 ‘Working Australians Tax Offset’ will be introduced from the 2027-28 income year. The offset applies to taxpayers who earn income from work, such as employees receiving salary or wages and sole traders carrying on a business.
In practical terms, this offset increases the effective tax-free threshold for work income by nearly $1,800 to $19,985, or up to $24,985 for workers who are also eligible for the Low Income Tax Offset.
Medicare Levy Thresholds Increased
Start date: 1 July 2025
The Government has increased Medicare levy low-income thresholds as follows:
- Singles: threshold increased from $27,222 to $28,011
- Families: threshold increased from $45,907 to $47,238
- Single seniors and pensioners: threshold increased from $43,020 to $44,268
- Family threshold for seniors and pensioners: increased from $59,886 to $61,623
- Family income threshold per dependent child or student: increased from $4,216 to $4,338
Investors
Limits on Negative Gearing
Start date: 1 July 2027
This is one of the most significant announcements in the budget. From 1 July 2027, the ability to offset rental property losses against other income (such as wages or salary) will only apply to new residential properties.
For established residential properties acquired from 7:30pm AEST on 12 May 2026, losses will only be deductible against rental income or capital gains from residential properties. Excess losses will be carried forward to future years.
Key points to understand:
- Properties acquired before 12 May 2026 are exempt from the changes
- ‘New builds’ means properties that genuinely add to housing supply, such as construction on vacant land or demolition and replacement with more dwellings
- Knock-down rebuilds or renovations that do not increase supply will not qualify as new builds
- The changes do not apply to managed investment trusts, superannuation funds, commercial properties or shares
CGT Discount Replaced by Indexation and Minimum Tax Rate
Start date: 1 July 2027
The current 50% capital gains tax discount for individuals and trusts (holding assets for more than 12 months) will be replaced from 1 July 2027 with:
- CPI indexation of the cost base, similar to the system that applied from 1985 to 1999
- A minimum tax rate of 30% on capital gains accruing from 1 July 2027
Assets acquired before 20 September 1985 (pre-CGT assets) have historically been exempt from CGT entirely, this exemption will no longer apply from 1 July 2027.
Transitional rules will apply to existing investments. The existing CGT discount and pre-CGT exemption will continue to apply to gains that accrued before 1 July 2027, meaning taxpayers will need to determine asset values as at 1 July 2027.
The CGT changes apply to all asset classes including property and shares, and to individuals, trusts and assets held by partnerships. Notably, investors in new residential properties will be able to choose between the 50% CGT discount or cost base indexation with the minimum tax.
Minimum Tax on Family Trust Distributions
Start date: 1 July 2028
From 1 July 2028, trustees of discretionary trusts (commonly known as family trusts) will pay a minimum 30% tax on the taxable income of the trust. Individual and other non-corporate beneficiaries will receive a non-refundable tax credit for the tax paid by the trustee.
This change significantly limits the tax planning flexibility that family trusts have traditionally offered, particularly the ability to distribute income to lower-income family members at little or no tax.
The minimum tax will not apply to:
- Fixed and widely held trusts
- Complying superannuation funds
- Special disability trusts
- Deceased estates and charitable trusts
- Primary production income and certain income relating to vulnerable minors
The Government has indicated that a limited rollover relief will be available for three years from 1 July 2027 for small businesses and others wishing to restructure out of a discretionary trust into a company or fixed trust. Tax implications and stamp duty considerations will need to be carefully assessed before any restructuring.
Foreign Resident CGT and Venture Capital
A concession will be provided for foreign investors disposing of certain renewable energy infrastructure assets from the commencement date until 30 June 2030. The Government will also expand the scope of existing venture capital tax incentives from 1 July 2027.
Business and Employers
Instant Asset Write-Off Permanently Increased to $20,000
Start date: 1 July 2026
The Government has permanently increased the instant asset write-off threshold to $20,000 for small business entities with aggregated turnover of less than $10 million.
This removes the uncertainty of year-by-year temporary extensions that have been in place since 2015. Key points:
- The threshold applies on an asset-by-asset basis, multiple assets under $20,000 can each qualify, even if the combined cost exceeds $20,000
- The cost must be less than $20,000 after subtracting any GST credits that can be claimed
- Assets costing $20,000 or more can continue to be added to the small business pool
- Note: the $20,000 threshold already applies to the current income year ending 30 June 2026
FBT on Electric Cars Being Scaled Back
Start date: 1 April 2027
The full FBT exemption for battery electric vehicles and hydrogen fuel cell electric vehicles will be progressively reduced:
- Until 31 March 2027: full FBT exemption continues in its current form
- 1 April 2027 to 31 March 2029: full exemption only for electric cars costing $75,000 or less; cars above this threshold but below the luxury car tax threshold receive a 25% FBT discount
- From 1 April 2029: all electric cars below the luxury car tax threshold receive a 25% FBT discount only
Existing lease arrangements will not be impacted. Employers will still need to calculate the reportable fringe benefits amount even when the exemption or discount applies.
Loss Carry Back for Companies
Start date: 1 July 2026
Companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid up to two years earlier. The carry back is limited to tax losses (not capital losses) and is capped by the company’s franking account balance.
Loss Refunds for Small Start-Up Companies
Start date: 1 July 2028
Start-up companies with aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to access a refundable tax offset. The offset is limited to the value of FBT and withholding tax on wages paid to Australian employees in the loss year.
PAYG Instalments: Dynamic Calculations
Start date: 1 July 2027
From 1 July 2027, small and medium businesses will be able to opt in to monthly PAYG instalment reporting and payments, using ATO-approved calculations embedded in accounting software to calculate and vary instalments dynamically.
R&D Tax Incentive Reforms
Start date: 1 July 2028
The Research and Development Tax Incentive will be reformed. While the tax offset rate for core R&D expenditure will increase, supporting R&D expenditure will no longer qualify. The minimum annual expenditure to qualify will also increase from $20,000 to $50,000.
Minimum Tax for Multinationals
Start date: 1 January 2026
The Government will amend Australia’s global and domestic minimum tax legislation as part of broader international corporate tax reforms.
Protecting the Tax System Against Fraud
Start date: 1 July 2026
$86.3 million over four years will be invested to detect and prevent fraud in the tax system. The ATO will receive new powers to pause recovery of tax debts for victims of fraud by tax intermediaries, waive those debts where appropriate, and recover them from the responsible intermediaries.
The Economic Backdrop
The budget has been delivered against a challenging economic environment, shaped by Middle East conflicts, global inflation, and housing affordability pressures. Key economic forecasts:
- GDP growth: slowing from 2.25% in 2025-26 to 1.75% in 2026-27, before recovering to 2.25% in 2027-28
- Budget deficit: $31.5 billion in 2026-27 (an improvement of $2.8 billion on MYEFO)
- Gross debt: forecast to reach over $1 trillion by 30 June 2027 (34% of GDP)
- Unemployment: expected to rise gradually from 4.25% to 4.5% through 2026-27
- Inflation: forecast at 5% through to June 2026, declining to 2.5% by June 2027
- Wages: Wage Price Index forecast to grow by 3.25% to June 2026, rising to 3.5% through 2026-27 and 2027-28
- Real wages forecast to grow again in 2026-27 and 2027-28 as inflationary pressures ease
Frequently Asked Questions: Federal Budget 2026-27
| When do the budget changes take effect? | Most key changes take effect from 1 July 2026 or 1 July 2027. The Medicare levy threshold increase applies from 1 July 2025. The minimum tax on family trust distributions starts 1 July 2028. All measures are proposals only and subject to legislation. |
| Will negative gearing changes affect my existing investment property? | No. Properties acquired before 7:30pm AEST on 12 May 2026 are exempt from the negative gearing changes. The new rules only apply to established residential properties acquired after that date and time. |
| How does the $1,000 instant tax deduction work? | From 1 July 2026, you can claim a standard $1,000 deduction for work-related expenses without needing receipts or substantiation. If your actual work-related expenses exceed $1,000, you can instead claim the higher amount but will need to substantiate all expenses. |
| What do the CGT changes mean for me as an investor? | From 1 July 2027, the 50% CGT discount will be replaced by CPI indexation of your cost base and a minimum 30% tax on gains. Gains that accrued before 1 July 2027 will still qualify for the current rules. You will need to have your assets valued as at 1 July 2027. |
| Does my family trust need to change? | From 1 July 2028, a minimum 30% tax will apply to discretionary trust distributions. Limited rollover relief will be available from 1 July 2027 for those wishing to restructure. We strongly recommend speaking with your adviser before making any changes. |
| Can I still get the instant asset write-off for my small business? | Yes. The instant asset write-off is permanently set at $20,000 from 1 July 2026 for small businesses with aggregated turnover under $10 million. This applies on an asset-by-asset basis. |
| What happens to the electric car FBT exemption? | The full exemption continues until 31 March 2027. From 1 April 2027, the full exemption is limited to electric cars costing $75,000 or less. From 1 April 2029, all eligible electric cars receive only a 25% FBT discount. |
| Are these budget measures guaranteed to happen? | No. Unless otherwise noted, all measures are proposals only and require legislation to be passed before they take effect. Paris Financial will keep clients updated as measures progress through Parliament. |
How Paris Financial Can Help
The 2026-27 Federal Budget introduces significant changes that may affect your tax position, investment strategy, business structure and financial planning. Understanding how these changes apply to your specific situation is critical and the detail matters.
Our team at Paris Financial is across all of the proposed measures and ready to help you:
- Understand how the tax changes affect your personal and business situation
- Review your investment property portfolio in light of the negative gearing and CGT changes
- Assess whether your family trust structure needs to be reviewed before 1 July 2028
- Maximise your small business tax position including the instant asset write-off
- Plan ahead for changes to electric car FBT and salary packaging arrangements
| Important: Unless otherwise noted, the measures discussed below are only announcements at this stage. There is no guarantee that they will be implemented as per the Government’s announcements (or at all). We will keep you up to date with key developments as things progress. |
To speak with one of our specialists, contact us at our East Melbourne or Blackburn offices on 03 8393 1000 or visit www.parisfinancial.com.au.
