2026 Federal Budget
- 10 hours ago
- 7 min read
Treasurer Jim Chalmers handed down the 2026–27 Federal Budget last night, with a strong focus on tax reform, housing affordability, cost of living relief and small business support.
This year’s Budget is one of the most significant I have seen throughout my entire career. They say they are simplifying tax but as you will read below they are causing more red tape and making it much more difficult for Australians to build wealth.
If you hold investments in any shape or form (property, shares, crypto etc) and / or own a business or family trust this Budget will affect you significantly and we will have some work to do between now and 30 June 2027. Don't stress we have plenty of time and these measures also need to be passed through parliament before they become actual law.
There is not much good news in this budget especially for investors and business owners.
Here’s a breakdown of the key announcements that are related to taxation summarised by date, who is impacted, what it means and the fine print:
1. Removal of Negative Gearing on Residential Property (Investors of property)
From 1 July 2027:
Negative gearing on established (new builds not included) residential properties purchased after Budget night will be removed
Investors will only be able to offset rental losses against future rental income or capital gains
Existing investment properties purchased before the announcement can still continue to be negatively geared.
What this means in practice:
It means that funding an investment property will cost more as the tax incentive received for negative gearing throughout the year is lost. It may now make it harder for younger Australians to purchase property as finance servicability will be impacted.
The fine print:
There is a weird period in the middle that is if you purchase an investment property from 13 May 2026 you can negatively gear it until 30 June 2027. Not sure why they bothered with this one.
Investment properties that are new builds remain eligible for negative gearing.
Removal of 50% Capital Gains Discount (investors of all asset types)
From 1 July 2027:
The current 50% Capital Gains Discount (on all assets and investments owned by individuals not just property) will be removed and replaced with an inflation-indexed system from 1 July 2027.
Indexation was used to calculate capital gains tax pre 1999 and was replaced with the discount to simplify the calculation.
What this means in practice:
It means that when you sell an investment from 1 July 2027 you will pay significantly more tax. This includes selling your business. Small Business's (that are eligible) can still obtain small business concessions to reduce capital gains tax on the sale of their business.
Will need to get assets valued as at 30 June 2027 to have a record of the market value for indexation purposes - ATO said you may be able to use their rates however in the past these have not been equivalent to market values.
3. Assets purchased pre CGT (1985) become taxable again (investors of all asset types)
From 1 July 2027:
For the first time in 40 years, pre-1985 assets are being brought into the tax net and CGT will be calculated on the growth from 1 July 2027.
What this means in practice:
It means that our Government has gone mad and this will cause more compliance and red tape.
Owners of such assets have the choice of selling before 1 July 2027 to crystalise an untaxed gain or to obtain a market valuation of the asset at 1 July 2027 to ensure that there is documentation of how much of the future realised gain is post 1 July 2027.
4. Minimum tax rate on Capital Gains to be 30% (investors of all asset types)
From 1 July 2027:
Taxpayers with marginal rates below 30% such as those with taxable incomes below $45,000 will now face additional tax on capital gains to bring the effective tax rate up to 30%.
What this means in practice:
If you are a low income earner with an effective tax rate under 30% you will pay more tax on your capital gains. Strategies to purchase assets previously in spouses names that have lower tax rates are no longer effective.
If you are a retiree who has no other income and therefore usually pay minimal tax you will now pay tax on the capital gains at a minimum of 30%.
You may want to consider selling any assets now to minimise tax (only if you were thinking of selling in the short term) or restructure.
5. Minimum tax rate on Discretionary Trust Distributions to be 30% (anyone with a discretionary trust)
From 1 July 2028:
Those holding discretionary trusts will be hit with a new 30 per cent minimum tax rate, payable by the trustee. These were previously taxed at the recipient’s marginal tax rate.
Under the changes, the government said it will also provide expanded rollover relief for three years from 1 July 2027 to support small businesses and others that wish to restructure out of discretionary trusts into another entity type, such as a company or a fixed trust.
What this means in practice:
Family trusts are not dead, but the tax planning benefit of distributing income to low-income adult family members is being heavily restricted.
Distributions to companies do not receive a credit for tax paid by the trustee. This creates a potential "double tax" scenario (first 30% at trustee level, then 25% again upon distribution/profit retention) to discourage using companies to bypass the minimum tax. This essentially brings tax on trust distributions to companies to 55% some companies that have a tax rate of 30% will pay 60%.
It may be time to look at a restructure if you have a discretionary trust.
The fine print:
Not all trust income is captured. Primary production income, amounts to which non-resident withhold tax applies, certain income relating to vulnerable minors and income from assets of a discretionary testamentary trust that exist at 12 May 2026 (budget day) will not be subject to the 30% minimum tax.
6. Revival of the loss carry back rules for start up businesses (new companies)
From 1 July 2028:
The government is introducing a brand new, highly targeted tax offset specifically to support small start-up companies through their cash-burning phase.
For tax years commencing on or after 1 July 2028, start-ups with an aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to utilize that loss to generate a refundable tax offset.
What this means in practice:
If you are heavily investing in growth during your first two years and operating at a loss, you can essentially "cash out" that tax loss rather than waiting years to become profitable to use it.
7. New Working Australian Tax Offset (working individuals)
From 1 July 2027:
A new annual $250 tax offset (working Australian Tax Offset) will apply for eligible workers.
The fine print:
This is not a refundable tax offset which means it only reduces your tax liability, if you are under the tax free threshold you will not receive it.
8. Tax Cuts (individuals)
The 16% tax rate for income between $18,201 and $45,000 will reduce:
To 15% from 1 July 2026
To 14% from 1 July 2027
Personal tax rates announced in last year’s budget will come into force with the lowest tax bracket (for those earning between $18,201 and $45,000) dropping from 16 per cent to 15 per cent, saving those earning $45,000 a year $268 in tax. The Medicare levy threshold will also be retrospectively adjusted for the current tax year, from $27,222 to $28,011 for singles and from $45,907 to $47,238 for couples.
9. Instant Tax Deduction (announced prior to budget night) (small businesses)
From 1 July 2027:
A new $1,000 instant deduction will also be introduced for work-related expenses, reducing the need for receipts and detailed substantiation for many employees.
If you already claim more than the $1,000 then the above is of no benefit as you need receipts for everything if you go over the $1,000.
What this means in practice:
You will not get $1,000 in your bank account, you will get the equivalent of your average tax rate (on average 20-30%) as a reduction in your tax payable.
10. Permanent Instant Asset Write-Off for Small Business (small businesses)
The $20,000 instant asset write-off will become permanent for businesses with turnover under $10 million.
This means eligible businesses can continue immediately deducting the cost of qualifying equipment and assets instead of depreciating them over several years.
11. Removal of the Electric Vehicle Fringe Benefit Exemption (businesses)
From 1 April 2027:
The full discount will only apply to electric vehicles costing less than $75,000. Those above that threshold will be taxed at 75 per cent of the usual rate of FBT.
From April 2029, all new electric vehicles purchased will be taxed at that 75 per cent payable FBT rate.
Electric cars costing up to $75,000 will continue to receive a full FBT exemption provided the fringe benefit arrangement commences before 1 April 2029.
12. Changes to the PAYG installment system (businesses) From 1 July 2027
Small to medium businesses can opt into monthly PAYG installments using ATO approved calculations embedded in accounting software.
The idea behind this change is to align instalments more closely with how a business is actually performing throughout the year. But for that to work properly, businesses need reliable software and accurate bookkeeping. Automating this does not take end of year adjustments such as depreciation or carry forward tax losses into account.
For businesses that stay compliant, monthly instalments are expected to remain optional. However, where there’s a history of overdue lodgements, unpaid tax debt or ongoing compliance concerns, the ATO may move a business onto monthly reporting requirements. This means staying on top of lodgements and payments is still incredibly important.
Natalie Lennon
Founder & Director
02 9030 0269
@twosidesaccounting Facebook & Instagram
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