Federal Budget | May 2026

General information only. This publication provides general information only and does not constitute personal or financial advice.

In this update

• Personal taxation
• Business taxation & FBT
• Discretionary trust tax reforms
• Property & investment taxation

Personal taxation

The Budget did not introduce major structural changes to individual tax rates for the 2026–27 and 2027–28 income years. However, previously legislated tax reductions and threshold adjustments will continue to apply over the coming years.

Key developments

• Reduction in marginal tax rates in lower income brackets from 2026–27.
• The resident personal income tax rate for the taxable income bracket from $18,201 to $45,000 will reduce from 16% to 15% for the 2026–27 income year, and then to 14% for 2027–28 and later income years.
• Ongoing indexation of Medicare levy thresholds.

These changes form part of the Government’s broader objective of delivering incremental tax relief while maintaining stability in the personal tax system.

Standard deduction for work-related expenses

From 1 July 2026, a new $1,000 standard deduction will be introduced for work-related expenses.

Key features:

• No requirement to retain receipts for claims up to $1,000.
• Optional—taxpayers may still claim actual expenses if higher.
• Applies to salary and wage income.

Practical impact: This measure will simplify tax compliance for many taxpayers, particularly those with relatively low deductible expenses. It is expected to reduce administrative burden while delivering modest tax savings.

Working Australians Tax Offset (WATO)

From 1 July 2027, a new $250 annual tax offset will apply.

Applicability:

• Employees and sole traders.
• Automatically applied through the tax return process.

Impact: The offset effectively increases the tax-free threshold and provides targeted cost-of-living support, particularly for low and middle-income earners.

Key facts — personal

• Simplified deduction regime reduces compliance burden.
• Additional relief provided via offsets and threshold changes.
• Continued support for low and middle-income taxpayers.

Business taxation and FBT

The Budget includes several measures aimed at supporting small and medium-sized enterprises (SMEs), improving cash flow, and encouraging investment.

Instant asset write-off

The Government will make the $20,000 instant asset write-off permanent from 1 July 2026.

Key features:

• Applies to businesses with turnover under $10 million.
• Immediate deduction for eligible assets under $20,000.
• No depreciation over multiple years required.

Impact: This provides certainty for business investment decisions and improves short-term cash flow.

Loss carry-back provisions

The Budget reintroduces and enhances the loss carry-back regime:

• Companies can offset current year losses against profits from the previous two years.
• Eligible businesses may receive refunds for previously paid tax.

Impact:

• Strengthens business resilience.
• Improves liquidity for growing businesses.

Innovation and start-up support

The Government has also expanded support for innovation:

• Introduction of loss refundability for start-ups.
• Expanded venture capital incentives.
• Reforms to the Research & Development (R&D) Tax Incentive.

Impact: These measures aim to encourage early-stage investment, support high-growth businesses, and improve access to funding.

Phased changes to the electric vehicle FBT discount

The changes will be implemented in three phases as summarised below.

* Reportable fringe benefits amount (RFBA) to be determined for eligible electric cars as if a 20% FBT statutory formula rate or cost basis method applied. Eligible ZEVs will continue to be exempt from import tariffs on an ongoing basis.

Discretionary trust tax reforms

Minimum 30% tax on discretionary trusts

A significant structural reform is the introduction of a 30% minimum tax on discretionary trusts, effective from 1 July 2028.

How the measure operates

• Trustees will be required to pay a minimum tax of 30% on trust income.
• Individual beneficiaries will receive non-refundable tax credits.
• Corporate beneficiaries will not receive credits, limiting planning through “bucket companies”.

Implications

• Reduces effectiveness of income splitting strategies.
• Increases overall tax burden for certain family groups.
• Aligns trust taxation more closely with company tax rates.

Restructuring opportunity

To support affected taxpayers:

• Rollover relief available from 1 July 2027 (for 3 years).
• Facilitates restructuring into companies or fixed trusts.

Planning consideration: Clients operating through discretionary trusts should review their structure well in advance of the commencement date.

Advisory insight

This reform represents a material shift in how family groups structure income and assets. Early planning will be critical to mitigate tax impacts and ensure optimal structuring.

Property & investment taxation

Significant changes have been announced affecting property investment and capital gains.

Negative gearing reform

From 1 July 2027, negative gearing on residential properties will be restricted to new dwellings only.

• Existing residential properties are grandfathered if held before announcement.
• For established residential properties purchased after 12 May 2026 7:30 PM AEST, losses can only be offset against other income from residential properties, including capital gains.

Implications

• Reduced tax effectiveness for leveraged property investments.
• Increased focus on new property developments.
• Potential impact on investor cash flow.

Capital gains tax (CGT) reform

From 1 July 2027:

• The 50% CGT discount will be removed.
• Introduced: cost base indexation (linked to inflation), and a minimum 30% tax on capital gains.

Transitional rules

For eligible CGT assets other than new residential properties:

• There will be no change in arrangements for assets purchased and sold prior to 1 July 2027.
• Assets purchased after 1 July 2027 will be treated wholly under the new arrangements.
• Assets owned prior to 1 July 2027 and sold after 1 July 2027 will be treated under current arrangements on gains made prior to that date, and under the new arrangements for gains made after that date (with no impact until gains are realised).

Other exemptions

• The main residence will continue to be exempt for CGT purposes.
• The four small business CGT concessions will also be unchanged.
• Investors who buy new builds will be able to choose either the 50% CGT discount or indexation and the minimum tax when they sell the property.

Impact on investors

• Potential increase in effective tax on capital gains.
• Reduced incentives to defer asset disposal.
• Greater importance of long-term investment planning.
• These changes will apply to individuals, partnerships, companies and most trusts. Widely held trusts and superannuation funds (including SMSFs) will be excluded.