In the first Federal Budget of the Government’s second term, Treasurer Jim Chalmers has handed a budget with a renewed focus on tackling intergenerational inequality with a focus on housing and wealth tax reforms.
While continuing to address the cost-of-living pressure with a series of world events in the past 12 months, the focus is turned towards increasing savings and tax revenue collection in the Budget, implementing structural reforms, and reducing growth in public spending to combat inflation.
With the Government now conceding the budget will forecast at least four years of deficits, the Treasurer has promised net savings and bolstering the budget bottom line as part of this year’s renewed focus on reforms and boosting productivity.
The flagship tax policy in this Budget is a reform of Capital Gains Tax (CGT) and negative gearing, with other policies including raising revenue through a minimum 30 per cent tax on trust distributions, and supporting workers and small business owners with one off and ongoing tax breaks.
Other notable announcements include boosting funding for the nation’s defence, increase funding for the housing construction industry, and the already announced significant decrease in NDIS spending through an overhaul of the system.
The tax team at Prosperity bring you the main highlights from the Budget for businesses and individuals.
FOR INDIVIDUALS AND FAMILIES
Capital Gains Tax — Scrapping of 50% CGT Discount
The Government has announced that it will scrap the long‑standing 50% CGT discount for individuals, trusts, and partnerships and replacing it with an inflation‑indexation model from 1 July 2027 similar to the system that applied between 1985 and 1999, as well as a 30% minimum tax on net capital gains, which will apply to all CGT assets.
To maintain incentives for new housing supply, investors in new residential properties will be able to choose either the 50 per cent CGT discount, or cost base indexation and the minimum tax. Superannuation funds appear to be spared from these changes and will continue to retain its 33 ⅓ per cent CGT discount.
Under an indexation model, the cost base of an asset would be increased by CPI over the holding period, and CGT would apply to the real gain only. This would remove the perceived over‑generosity of the current 50% discount during periods of strong asset price growth, particularly in housing.
The big surprise announced in the budget is that these changes will also apply to pre-1985 CGT assets that are otherwise currently tax-exempt.
Transitional arrangements to limit the impact on existing investments include ensuring the changes only apply to gains arising on or after 1 July 2027, and the Government will allow pre-1985 CGT assets to remain exempt from CGT for capital gain arising before 1 July 2027.
If you hold significant investment assets or are considering a sale, now is an important time to review timing and structure. There are strategies that you may be able to implement before 1 July 2027 to reduce the impact of a post-CGT change environment.
Personal Income Tax — Negative Gearing
The Government will move to limit negative gearing from 1 July 2027 for existing residential investment properties, while retaining it for new builds. Losses from established residential properties will only be deductible against rental income or the capital gains from residential properties. Normal loss carry forward rules apply to offset future residential property income.
These changes will apply to established residential properties acquired from 7:30PM on 12 May 2026. Properties acquired prior to this time will be exempt from the changes until disposed of.
Negative gearing currently allows rental losses to reduce other taxable income, with the tax deduction being valued at up to 47% where taxpayers are at the top marginal rate.
There will be exclusions for properties in widely held trusts and superannuation funds, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs.
For individual investors and small business owners using property as a wealth‑building strategy, cash‑flow outcomes could worsen materially. Property investors should reassess portfolio cash flows and debt structures under a no‑negative‑gearing scenario.
Personal Income Tax — Working Australians Tax Offset – WATO
The Government has announced a permanent income tax offset of $250 for wage and salary earners from 1 July 2027. This means all Australian taxpayers who earned wages (and other similar employment/labour income) from the 2027-28 year can expect a slightly smaller tax bill when they lodge their tax return after 1 July 2028.
This measure will increase the effective tax-free threshold for income derived from work up to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset).
Due to the design of the offset, retirees and other taxpayers that do not earn any employment income (i.e. only earn investment or business income) will not benefit from this measure.
Personal Income Tax — $1,000 Instant Deduction for Work-Related Expenses
The Government has announced a $1,000 standard (instant) deduction for work‑related expenses, available from the 2026–27 income year. Eligible taxpayers can choose this instead of claiming and substantiating individual expenses.
The measure is aimed at simplification, particularly for taxpayers with modest deductions. It does not apply to business or investment income and does not replace other deductions such as donations or income protection insurance. Taxpayers who typically claim more than $1,000 will still need to substantiate expenses as normal, as is other deductions such as donations, union and professional association membership fees.
For many employees, the benefit is administrative rather than financial, with the need to maintain detailed records for expenses between $300 to $1,000 now effectively eliminated.
Employers should also take note of possible impact this may have on salary packaging of certain work-related expenses and fringe benefits.
Personal Income Tax – Prior Year Policies
Following on from the implementation of income tax changes in last year’s Budget, the tax rate of the first-tier personal tax bracket ($18,201 to $45,000) will decrease from 16% to 15% from 1 July 2026. Most taxpayers can expect to save up to $450 in income tax during the 2026-27 financial year. The rate will drop further to 14% from 1 July 2027.
Family Trusts — Minimum 30% Trust Tax
The Government announced it will introduce a minimum tax rate of 30% on discretionary trust distributions from 1 July 2028, potentially affecting hundreds of thousands of family and business trusts. However, there will also be exclusions, including other types of trusts such as fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts. Farmers are expected to be exempt as some types of income such as primary production income will be excluded from the minimum trust tax.
Trusts are a cornerstone of SME structuring in Australia. A minimum tax would materially reduce flexibility and could increase effective tax rates for family groups, particularly those with adult children or retired beneficiaries.
Rollover relief will be offered for three years from 1 July 2027 to support affected small businesses that wish to restructure out of discretionary trust into another entity type, such as a company or a fixed trust.
Trust structures should be reviewed well before any commencement date.
Fringe Benefits Tax — Roll-back of the EV FBT Exemption
The Government will implement a gradual roll‑back of the electric vehicle FBT exemption, moving from a full exemption to a 25% discount on FBT. This is to be implemented through a 15% rate in the FBT statutory formula for eligible EVs (currently the standard 20% which continues to apply to all other cars).
Existing arrangements entered into before 1 April 2027 are largely protected, when the $75,000 cap comes into effect. Under this new cap from 1 April 2027, vehicles costing more than the cap will be subject to the new tax, while vehicles under the cap will keep the existing FBT exemption until 1 April 2029 – at which time the new rate will apply to new leasing arrangements for all eligible EVs.
Businesses using EVs as part of remuneration strategies will see reduced tax efficiency over time. However, EVs may remain attractive compared to ICE vehicles, depending on salary levels and lease terms.
It is important to note that reportable fringe benefits will continue to be determined for eligible electric cars as if a 20% FBT statutory formula rate is applied.
FOR BUSINESSES
Loss Carry-Back Reintroduced
The Government announced it will re-introduce the loss carry-back rule, last available in the 2023 financial year, for a period of two years.
The Government is reintroducing loss carry back. From 1 July 2026, eligible companies that make a loss in the current income year will be able to use that loss to get a refund against tax paid in the prior two income years. This will be introduced as a permanent measure and will apply to all companies with up to $1 billion in turnover
Given the current business climate, affected business owners should consider whether they can be eligible to obtain this tax offset.
Loss Refundability for new start-up businesses
The Government is introducing loss refundability to support new start‑up businesses with an aggregated turnover of under $10 million. From 1 July 2028, small start‑ups in their first two years of operation will be able to get a refund for tax losses, up to the value of fringe benefits tax and withholding tax paid on Australian employee wages in the loss year.
$20,000 Instant Asset Write-Off
The Government passed legislation to temporarily expand the instant asset write-off threshold for eligible Small Business Entities to $20,000 until 30 June 2026.
Under the budget the $20,000 instant asset write-off for small businesses will be made permanent from 1 July 2026. Small businesses with turnover up to $10 million will be able to immediately deduct eligible assets costing less than $20,000.
R&D Tax Incentives
The Government announced that it will increase the incentives to companies undertaking R&D.
From 1 July 2028 the following will be introduced:
- Providing greater support to fast‑growing firms by increasing the turnover threshold for the refundable tax offset from $20m to $50m. Refundability will be limited to firms operating less than ten years, with older firms eligible for an equivalent, non‑refundable offset.
- Increasing the offset for R&D activities:
- Entities with turnover of under $50m the R&D tax offset will increase from 18.5%, to 23% for companies that are less then 10 years old.
- For companies that have turnover of under $50m that are 10 years or older, the offset will also increase to 23% but will be non-refundable.
- For companies with turnover over $50m the low R&D intensity non- refundable offset will increase from 8.5% to 13%.
- For companies with turnover over $50m the high R&D intensity non- refundable offset will increase from 16.5% to 21%, and the intensity requirement will also decrease to expenditure above 1.5%, compared to the current 2% of expenditure.
- Increasing the maximum expenditure cap from $150m to $200m
- Increasing the minimum expenditure threshold from $20k to $50k. R&D below this must be undertaken with a Research Service Provider or Cooperative Research Centre.
- Supporting R&D expenditure will no longer be eligible for the R&D tax offset.
NDIS Providers
The NDIS is emerging as the single largest savings and structural reform measure in the 2026–27 Federal Budget. The Albanese Government has made clear that the scheme, now costing approximately $50–52 billion per year and growing at over 10% annually, is considered unsustainable in its current form. Ahead of Budget night, Treasurer Jim Chalmers and NDIS Minister Mark Butler have publicly flagged a major reset of eligibility, funding and provider oversight, with the stated objective of slowing growth to around 5% per year while preserving the scheme for people with permanent and significant disability
The government has announced that it will look to a tightening of eligibility and access to NDIS. As a result:
- eligibility will be narrowed to focus on permanent and significant functional impairment
- participation is projected to fall from around 760,000 people today to approximately 600,000 by 2030
- many children with mild developmental delay will be redirected to new state‑based “foundational supports” programs rather than the NDIS.
For small businesses operating within or adjacent to the NDIS, revenue models may come under pressure as participant numbers and average plan sizes are reduced, compliance and regulatory costs are likely to increase, particularly for providers in personal care, daily living and accommodation supports, and consolidation within the provider market is widely expected, favouring larger or more sophisticated operators.
Superannuation – Division 296
While not a new policy, we remind readers that Division 296, which introduces a new, additional tax on superannuation earnings for individuals with super balances over $3 million, had passed Parliament and received Royal Assent, and will apply from 1 July 2026. This means the first assessments is expected after 30 June 2027.
A key improvement from earlier proposals is that Division 296 now no longer tax unrealised gains. Only realised earnings are captured, including:
- interest, rent and dividends (including franking credits)
- realised capital gains on assets sold
Contributions and rollovers are excluded from the earnings calculation.
Superannuation – Prior Year Policies
A number of policies announced in prior years’ Federal Budget is now legislated at the date of this publication, including:
- Payday Super, to commence 1 July 2026, will require employers having to pay their employees superannuation guarantee amount at the same time as they make their salary payments, instead of the current quarterly cycle. Please read our Payday Super article here: Payday Superannuation Reform
To view our extensive Federal Budget overview, click here.
To view our Tax & Superannuation Federal Budget Report, click here.
For a practical guide to what these proposed changes could mean for individuals and businesses, read our Federal Budget Q&A.
We are available to discuss your specific circumstances with you and to assist with any decisions you might be considering. Don’t hesitate to get in touch with your Prosperity Adviser today or give us a call on 1800 855 844.
