Federal Budget 2026-27 Unpacked

The 2026-27 Federal Budget has introduced a number of major tax reforms affecting investors, businesses and individual taxpayers.

However, despite the headline announcements, many of the measures may feel more like moving the furniture around rather than addressing the underlying financial pressures faced by Australian households and businesses.

Although there is nothing much to get excited about in this budget, here’s a simplified breakdown of the key measures and what they actually mean for individuals and businesses.

1. The $250 “Working Australians Tax Offset”

The government announced a new $250 tax offset for workers starting from the 2027-28 financial year. The Working Australians Tax Offset (WATO) is designed for individuals earning income primarily through wages or salary rather than investment income, meaning many retirees are unlikely to qualify for the offset.

“Tax relief” sounds great in theory until you break down the numbers. 

In reality, the offset works out to less than $5 per week - not even enough to buy a coffee! 

This measure will sit alongside the already legislated $1,000 instant work-related deduction, which is due to commence on 1 July 2026 and replaces the previous $300 threshold for claims without receipts.

It also complements the previously announced personal income tax cuts, which will reduce the 16% rate to 15% from 1 July 2026, followed by a further reduction to 14% from 1 July 2027 for taxable income between $18,201 and $45,000. 

2. Capital Gains Tax (CGT) Shake-Up

The Budget also proposes major reforms to Capital Gains Tax (CGT). Starting 1 July 2027, the current flat 50% CGT discount will effectively be replaced with a discount based on inflation for assets held for more than 12 months and introduce a minimum 30% tax on net capital gains. However, pensioners and people on income support will be exempt from the minimum 30% tax rate. 

This measure is set to apply to all CGT assets held by individuals, partnerships and trusts, including assets acquired before 1985. However, capital gains accrued prior to 1 July 2027 on pre-CGT assets are expected to remain exempt from CGT, while gains arising before this date for other eligible assets will continue to qualify for the existing 50% CGT discount.

For new residential property investors, there is a specific concession. Investors in newly built residential properties may be able to choose between the existing 50% CGT discount or the new cost base indexation and minimum tax method when the property is sold.

Importantly, the family home exemption is expected to continue, and existing CGT discount arrangements for superannuation funds are not expected to be affected.

A major practical issue will be record-keeping and valuations. Taxpayers may need to establish the value of affected assets as at 30 June 2027, either through an external valuation or an ATO-approved apportionment method. Business owners should also consider whether assets such as goodwill, intellectual property or business premises may require valuation before the new CGT rules commence.

3. Negative Gearing Changes 

One of the biggest announcements in this year’s Budget is the decision to limit negative gearing tax benefit for residential property to new builds only.

From 1 July 2027, investors who purchase established residential properties after Budget night (7:30PM AEST, 12 May 2026) will no longer be able to offset rental losses against other forms of income, such as wages or business income. Instead, those losses can only be used to offset future rental income or capital gains from residential property investments.

Any unused losses will be carried forward to future years, allowing investors to apply them when sufficient rental income or capital gains arise.

The Government has also confirmed that existing property owners will be grandfathered under the current rules. This means investors who owned residential properties before Budget night, including properties under contract but not yet settled, will continue to benefit from the existing negative gearing arrangements until the property is sold.

The Budget papers also outline several exemptions. Widely held trusts, superannuation funds, build-to-rent developments, and certain private investors participating in government-supported housing programs will not be impacted by the new restrictions.

Importantly, the changes are targeted at residential property. Negative gearing is expected to remain available for commercial property, shares and other non-residential investment arrangements.

For property investors, this could become a major shift in how future investment decisions are made, especially when comparing established properties with new developments.

4. New 30% Tax on Discretionary Trusts

Discretionary trusts are also in the firing line, with the Budget announcing a minimum 30% tax rate on some trust distributions from 1 July 2028. 

In practical terms, this does not mean trusts are taxed the same way as companies or individuals. Instead, the trustee will be required to ensure that the total tax paid on trust income is at least 30%.

Beneficiaries will still declare trust distributions in their own tax returns. However, where they are not taxed at or above 30%, they will receive non-refundable tax credits for tax already paid by the trustee. This is designed to prevent double taxation while still enforcing the minimum tax outcome.

Certain structures are excluded from the new rules. These include widely held trusts, complying superannuation funds, special disability trusts, deceased estates, and charitable trusts. 

To support transition, the Government is also expected to provide a three-year rollover period from 1 July 2027, allowing trustees time to restructure if needed. However, rollover relief may not solve everything. State-based transfer duty could still be a major cost when moving assets out of a discretionary trust.

Trusts are commonly used by small business owners and families for asset protection and legitimate tax planning. While the government is positioning this as closing loopholes, many business owners will see it as yet another hit to already stretched cash flow.

5. Support for Small Businesses & Startups

For small businesses, the Budget outlined making the $20,000 instant asset write-off permanent. This is positive, but limited. While businesses will welcome certainty around deductions for equipment purchases, the threshold itself remains fairly modest.

The government has also announced the return of temporary loss carry-back provisions, allowing eligible businesses to offset current losses against previously taxed profits. This may provide additional cash flow support for businesses experiencing fluctuating trading conditions.

In addition, the Budget includes several administrative simplification measures, including the removal of fees of up to $1,600 to access certain Australian construction standards, streamlined electronic record-keeping requirements with regulators, and simplified climate-related financial disclosure obligations.

The Budget also proposes a startup loss refund measure from 1 July 2028. Eligible startup companies with turnover under $10 million may be able to access refunds linked to PAYG withholding and FBT paid during their first two years of trading. 

6. Fringe Benefits Tax (FBT) and Electric Vehicles

From 1 April 2027, eligible electric vehicles will receive a permanent 25% FBT discount, rather than a full exemption, for cars priced over $75,000. This marks a clear step toward winding back the generosity of the current settings.

For more affordable EVs, the existing support continues a little longer. Electric cars priced up to $75,000 will still receive a full FBT exemption, but only where the arrangement starts before 1 April 2029.

From 1 April 2029 onwards, all eligible electric vehicles will move to the 25% FBT discount model, regardless of price.

For employees and employers, the message is simple: there’s still a benefit to going electric, but the window for maximum tax savings is gradually closing.

Final Thoughts

The 2026-27 Federal Budget is heavily focused on tax reform, housing policy and longer-term revenue measures.

While there are some helpful changes for workers and small businesses, the larger reforms around CGT, negative gearing and discretionary trusts could create significant complexity for investors, business owners and families.

The biggest takeaway is that tax planning is going to matter more, not less.

Individuals with investment assets, property investors, business owners using trusts and anyone considering restructuring should review their position before these measures commence.

As always, the detail matters. These measures are proposed changes, and further clarification will be needed as legislation is released and passed.

If you would like to understand how these Budget measures may affect your personal tax position, investment strategy or business structure, reach out to our team either via email info@marginsmargins.au or book a meeting with us to discuss.