Federal Budget 2026: Key Tax Measures

Federal Government unveils Budget with key tax measures

The Federal Government handed down its annual Budget on 12 May 2026. As expected, this year’s Budget included much speculation around potential tax changes, along with a number of noteworthy announcements.

As always, it is important to remember that these measures are currently only proposals. They have not yet been legislated or approved by Parliament and may change significantly before becoming law, or may not proceed at all.

Here’s a quick summary of the main points: 

From 1^st July 2027 there will be a $250 Working Australians Tax Offset introduced, which will be available to individuals with earned income (e.g. wages or sole traders).

From 1^st July 2026 the previously announced $1,000 standard tax deduction for those who earn labour income will be introduced.

• The $20,000 instant asset write-off for small business will be made permanent, instead of being debated every year. Note that this does not change the amount of depreciation you can claim over time, it just means you can claim it all in the year of purchase, rather than over a number of years.
• Transition to 25% FBT discount for electric vehicles from 1^st April 2029 from the current full exemption

• Negative gearing changes:
  • From 1^st July 2027, you will only be able to negatively gear a new residential property.
  • There will be no changes to residential properties that were already owned prior to 7.30pm on the 12^th May 2026, including properties where the contract was signed, but not yet settled.
  • For established residential properties purchased from now on, the losses can only be deducted against rental income or the capital gain from the sale of residential properties. Any loss can however be carried forward to future years. Note however, the current negative gearing arrangements will continue up to 30 June 2027, it is only after that the changes will apply.

• Capital Gains Tax changes:
  • From 1^st July 2027, the current 50% CGT discount will be replaced by an indexation method for assets held more than 12 months. For assets sold prior to 1^st July 2027, there are no changes.
  • There will be a 30% minimum tax payable on net capital gains. However, there are exemptions for recipients of means tested income support payments, such as Age Pension or JobSeeker.
  • These changes will apply to all CGT assets held by individuals, trusts and partnerships, including assets that are currently considered to be pre-CGT assets (that is, assets held as at 19 September 1985)
  • Investors in new residential property builds however will be able to choose to still use the 50% CGT discount if that is advantageous.

• Taxation of Discretionary Trusts
  • From 1^st July 2028, trustees of discretionary trusts will pay a minimum tax of 30% on the taxable income of discretionary trusts.
  • The trustee of the trust will initially be subject to the tax, then beneficiaries will be entitled to a non-refundable tax offset for the tax already paid. That is, if the beneficiaries tax rate is less than 30%, they won’t pay any more tax on the income, however they won’t get a refund either. If the beneficiary has a tax rate of more than 30%, they will get a credit for the 30% tax already paid and only pay additional tax on the difference between their marginal tax rate and 30%.
  • Certain types of income however will be excluded:
    • Primary Production Income
    • Income relating to vulnerable minors
    • Income from testamentary trusts that existed at 12 May 2026
    • Deceased estates
  • There will be some rollover relief to restructure into a company or fixed trust for 3 years from 1^st July 2027

• From 1^st April 2027 the age-based uplift of the Private Health Insurance Rebate will be removed.
• Small and medium business will be able to opt in to reporting and paying PAYG instalments monthly.
• The loss carry back provisions for companies with turnover of less than $1b will be reintroduced from 1^st July 2026
• R&D tax offset changes from 1^st July 2028, including increasing the offset to 50% for core R&D activity and increasing the minimum expenditure threshold to $50,000.

If you have any queries, please contact your Accountant by emailing admin@patrickrowan.com.au