Federal Budget 2026 – key tax changes for clients

 

The Federal Budget handed down on 12 May 2026 included a number of important tax announcements affecting individuals, property investors, discretionary trusts and small businesses.

While several of the measures are still proposals and will require legislation, they are significant enough that we recommend clients become aware of them now and consider whether any forward planning may be appropriate.

Set out below is a practical summary of the key announced changes we feel are most relevant to our clients.

From 01 July 2026

Personal income tax cuts

The tax rate applying to taxable income between $18,201 and $45,000 is scheduled to reduce from 16% to 15%, saving a maximum of $268 a year. This will then further reduce to 14% from 1 July 2027. These changes will affect PAYG withholding tax tables.

$1,000 instant deduction for work-related expenses

Eligible employees could claim a standard deduction of up to $1,000 for work-related expenses without providing receipts. Those with higher deductions would still be able to claim under the existing rules.

Small business measures

The $20,000 instant asset write-off is proposed to become a permanent feature for eligible small businesses with turnover under $10 million.  Currently the legislated threshold is just $1,000 per asset and the government has been extending the higher threshold every year.  If this becomes law there will be ongoing certainty that small businesses can immediately write-off depreciating assets costing $20,000 or less.

Loss Carry Back

The government will permanently reintroduce the loss carry back provisions for companies. Broadly, if a company makes a tax loss in a financial year, but has been profitable in the past and has paid tax during the previous two years, then it can receive the previous tax paid as a tax refund. However, the amount of tax paid back will be limited by the amount in the company’s franking account balance.

From 01 July 2027

Working Australians Tax Offset

A new permanent annual tax offset of up to $250 is proposed for eligible workers, including sole traders with business income.

Capital gains tax reform

• The 50% CGT discount on capital gains will be replaced with indexation of the cost base. However, investors in ‘New residential’ properties will be able to choose between the 50% discount on a capital gain or indexation of the cost base. It is unclear when the purchase needs to have been made.
• Pre-20 September 1985 assets (pre-CGT assets) will be brought into the CGT system. Gains made by these assets from 1 July 2027 will be subject to CGT.
• There will be a minimum 30% tax on net capital gains. This reduces the benefit of deferring the capital gains realisation until a later time when a taxpayer has a lower marginal tax rate.

Note: Due to the above anyone holding a capital gain asset that wishes to use the 50% discount up until 30/06/2027 will need to obtain a market valuation as at 30/06/2027.

Negative gearing changes for residential property

• The Budget proposes restricting deductions for net rental losses on established residential property. It will continue to be available for ‘New Residential’ properties moving forward.
• Those who currently have negatively geared properties (or entered into contracts before 12 May 2026) will be able to continue to negatively gear the properties until they are sold.
• Properties purchased between 12 May 2026 and 30 June 2027 may be negatively geared during this period, but not from 1 July 2027.
• Moving forward, you will only be able to use the losses from your negatively geared properties against other positively geared properties. The accumulative losses will be carried forward and can be used to reduce the capital gain once the property is sold.

From 01 July 2028

Discretionary trusts

• A 30% minimum tax is proposed to apply at the trustee level for discretionary trusts. This tax would be paid by the Trust to the ATO and will generate a “non-refundable” tax credit in the hands of certain beneficiaries.  Therefore, if the beneficiary’s average tax rate is below 30% the extra tax paid by the Trust will not be refunded.  Based on the marginal tax brackets an Individual’s taxable income needs to be approx. $200k before they have an average tax rate of 30%.
• Distributions made to companies will not receive ANY credit for the tax paid by the Trust, effectively resulting in double taxation.  This appears to be a deliberate measure aimed at eliminating the use of ‘bucket companies’.
• Exemptions are proposed for fixed trusts, widely held trusts, special disability funds and fixed testamentary trusts, complying superannuation funds, deceased estates and charitable trusts.
• Discretionary trusts deriving certain categories of income would also be excluded. This includes primary production income, income subject to non-resident withholding tax, certain income relating to vulnerable minors, and income from assets of a discretionary testamentary trust that were in existence as at 12 May 2026.
• To encourage discretionary trusts to restructure, new temporary rollover relief is proposed to be available for three years from 1 July 2027.  However, the 30% minimum tax would still apply from 1 July 2028.

From 01 April 2029

Electric vehicles and FBT

Electric vehicles that cost $75,000 or less will no longer be exempt from FBT.

Electric vehicles that are under the luxury car limit will receive a 25% discount on the FBT payable on the EV.

 

As mentioned above, the above are announced proposals only and are subject to the release of draft legislation and passage through Parliament. The final form of the law, commencement dates and any transitional rules may change.  However, in practical terms, these announcements may be relevant if you are considering selling assets, purchasing residential investment property, reviewing trust structures, acquiring business equipment, or entering into electric vehicle salary packaging arrangements. Early review may help identify planning opportunities and avoid unexpected outcomes.

If you would like to discuss how these announced Budget measures may affect your personal or business circumstances, please contact don’t hesitate to contact us at our office.