Last night Treasurer Jim Chalmers handed down the Federal Budget for 2026–27. As expected, the Government used the Budget to respond to cost-of-living pressures while also announcing major structural tax reforms that will reshape advice strategy for investors, property owners and small business.

 

The standout announcements were a re-work of the capital gains tax (CGT) regime (including the replacement of the 50% CGT discount), significant changes to negative gearing, and the introduction of a minimum tax for discretionary trusts. While many measures won’t start until 1 July 2027 or later (and will require legislation), the direction of policy is now clear.

Overview

We have prepared a summary of the key measures for Individuals, Superannuation, Social Security and for Companies below (noting these announcements are proposals and are not yet law).

• Capital gains tax reform – from 1 July 2027, the 50% CGT discount is proposed to be replaced with cost base indexation, alongside a 30% minimum tax on net capital gains (with transitional rules).
• Negative gearing reform – negative gearing for residential property proposed to be limited to new builds (changes announced from 7:30pm AEST 12 May 2026; key rules apply from 1 July 2027).
• Discretionary trusts – proposed 30% minimum tax from 1 July 2028.
• Individual tax simplification – proposed $1,000 instant tax deduction from 2026–27 and a $250 Working Australians Tax Offset from 2027–28.
• Small business support – $20,000 instant asset write-off made permanent from 1 July 2026, plus loss carry-back reforms.
• Health & aged care – removal of the age-based uplift in the private health insurance rebate from 1 April 2027, with significant aged care funding reforms.

Individuals, families and taxation

Reforming capital gains tax (proposed) – from 1 July 2027

• For assets held more than 12 months, the 50% CGT discount is proposed to be replaced by cost base indexation (CPI).
• A 30% minimum tax is proposed to apply to net capital gains.
• The changes are proposed to apply broadly to CGT assets held by individuals, trusts and partnerships (including pre-1985 assets), with transitional arrangements to ensure gains up to 1 July 2027 are treated under current rules.
• Taxpayers will need to establish an asset’s value at 1 July 2027 (via valuation/quoted price or an ATO apportionment method) to apply the transitional rules.
• New build residential property investors are proposed to be able to choose either the 50% CGT discount or indexation/minimum tax settings (to support housing supply).
• Income support payment recipients (including Age Pension recipients) are proposed to be exempt from the minimum tax.

Negative gearing changes (proposed) – announced from 7:30pm (AEST) 12 May 2026; key rules from 1 July 2027

• Negative gearing is proposed to be limited to new build residential property.
• From 1 July 2027, losses from established residential property acquired from 7:30pm (AEST) 12 May 2026 would be deductible only against rental income or capital gains from residential property; excess losses would be carried forward.
• Properties acquired before the announcement time (including contracts entered into but not settled) are proposed to be grandfathered until disposal.
• Exemptions are proposed for widely held trusts and superannuation funds, plus certain targeted housing-related programs.

Discretionary trusts – proposed 30% minimum tax from 1 July 2028

• Trustees are proposed to pay a minimum 30% tax on the taxable income of discretionary trusts.
• Beneficiaries (other than corporate beneficiaries) would receive non-refundable credits for the tax paid by the trustee, which can be used to offset their own tax liabilities (beneficiaries still declare the income).
• Expanded rollover relief is proposed for three years from 1 July 2027 to support restructuring out of discretionary trusts (for example, into companies or fixed trusts).
• Exclusions are proposed for various trust types (including fixed and widely held trusts, complying super funds, special disability trusts, deceased estates and charitable trusts) and certain categories of income.

$1,000 instant tax deduction (proposed) – from 2026–27

• Australian tax residents who earn income from work would be able to claim an instant deduction of up to $1,000 without itemising work-related expenses (if claiming $1,000 or less).
• If work-related expenses exceed $1,000, individuals can continue to claim deductions under the existing rules.
• Other deductions (for example charitable donations, union fees and professional membership fees) can still be claimed separately.

Working Australians Tax Offset (WATO) (proposed) – from 2027–28

• A new $250 annual tax offset is proposed for income derived from work (wages/salary and sole trader business income).
• The offset is proposed to be non-refundable (it can reduce income tax payable to nil but won’t generate a refund).
• By design, WATO increases the effective tax-free threshold for income derived from work.

Medicare levy low-income thresholds – increased from 1 July 2025

• Singles: increase from $27,222 to $28,011.
• Families: increase from $45,907 to $47,238.
• Single seniors and pensioners: increase from $43,020 to $44,268.
• Family seniors and pensioners: increase from $59,886 to $61,623.
• Family thresholds increase by $4,338 for each dependent child or student (up from $4,216).

Superannuation

There were no major new superannuation tax changes announced in this Budget. However, you will need to consider flow-on impacts of the broader tax changes (particularly CGT and property settings) on investment structures and strategy over time.

• Superannuation funds are proposed to be excluded from the CGT changes (they would continue under existing CGT discount settings for super).
• Superannuation funds (including SMSFs) are also proposed to be excluded from the new negative gearing limits for established residential property.
• As previously legislated, Payday Super is due to commence from 1 July 2026 (requiring Super Guarantee contributions to be paid with salary/wages rather than quarterly).
• Also previously legislated, Division 296 is due to commence from 1 July 2026 (additional tax on super earnings for individuals with Total Super Balance over $3 million, with an additional tier above $10 million).

Social security and health

Services Australia – additional resourcing

• $2.2 billion over five years from 2025–26 to improve service delivery, including additional frontline staff, improved centre safety/security, cyber security uplift and enhancements to the myGov platform.

Pension Supplement – overseas recipients (from 1 July 2025)

• The full rate of Pension Supplement would continue for temporary absences from Australia for up to 12 weeks (extended from 6 weeks).
• The Pension Supplement would cease for those residing permanently overseas, or for temporary absences beyond 12 weeks.

Private Health Insurance Rebate – removal of age-based uplift (from 1 April 2027)

• The Government proposes removing the age-based uplift so older policyholders would no longer receive a higher rebate percentage than younger policyholders at the same income level.
• Savings are intended to be reinvested into aged care measures.

Pharmaceutical Benefits Scheme (PBS)

• $5.9 billion over five years from 2025–26 for new and amended listings on the PBS and Repatriation PBS.

Aged care

Residential aged care

• $606.5 million over four years from 2026–27 (plus additional longer-term provision) to respond to the Residential Aged Care Accommodation Pricing Review.
• Capital subsidies for new and expanded homes, including payments per supported resident per day for newly constructed and significantly expanded homes (with multi-year payment periods).
• Funding for dementia care supports, including expansion of the Hospital to Aged Care Dementia Support program and additional Specialist Dementia Care Program units.
• Measures to allow greater flexibility in how room prices are set.

Support at Home program

• $1.4 billion over four years from 2026–27 (and ongoing funding) to improve affordability and access to home care supports.
• Personal care services (including showering) proposed to be fully funded by the Government for all Support at Home recipients.
• Program refinements to assessments, hardship applications and end-of-life pathways, and bringing forward the release of Support at Home places in 2026–27.

Companies and small business

$20,000 instant asset write-off – from 1 July 2026

• The $20,000 instant asset write-off is proposed to be permanently extended for small businesses with turnover up to $10 million.
• Assets valued at $20,000 or more can continue to be placed into the simplified depreciation pool.

Loss reforms for businesses and start-ups

• For tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion are proposed to be able to carry back a tax loss and offset it against tax paid up to two years earlier (subject to franking account limits).
• From 1 July 2028, eligible start-ups with aggregated annual turnover of less than $10 million that generate a tax loss in their first two years are proposed to be able to utilise the loss to generate a refundable tax offset (limited to FBT and withholding on Australian employee wages).

Other measures (regulation and systems)

• Managed investment schemes: $17.8 million over four years from 2026–27 to strengthen governance requirements, supervision and enforcement, including enhanced ASIC data capability.
• Tax and super fraud mitigation: $86.3 million over four years from 1 July 2026 (plus ongoing funding) to modernise fraud prevention/detection in the tax and super systems, including enhanced real-time controls.
• Digital ID: $654.3 million over four years from 2026–27 to maintain security and reliability of the Australian Government Digital ID System (including myID and related systems).
• Boosting productivity – better regulation: $198.1 million over two years from 2026–27 to uplift business registers and extend the Consumer Data Right, including exploring enabling taxpayers to share certain ATO-held data through the Consumer Data Right.
• AUSTRAC: additional funding to continue implementing anti-money laundering and counter-terrorism financing reforms.
• Scams framework: introduction of a user charge to recover the cost of operating the SMS Sender ID Register from 2026–27.

What this may mean for you

• If you own (or are considering buying) investment property, the proposed negative gearing changes and CGT reforms may materially change after-tax outcomes—particularly for established residential property acquired after Budget night.
• If you hold investments personally or via trusts, the proposed shift from the CGT discount to indexation/minimum tax settings may influence timing, record-keeping (valuations at 1 July 2027) and preferred ownership structures.
• If you operate through a discretionary trust, the proposed 30% minimum tax from 1 July 2028 may warrant a review of whether your structure remains fit for purpose.
• For employees and small business owners, the proposed $1,000 instant tax deduction and WATO may provide modest ongoing tax relief.

 

 

As always, Budget announcements are proposals and need to be legislated before becoming law. We’ll continue to monitor the passage of legislation and will update our commentary as details are confirmed.

 

Seek out further advice and start your journey to being free around your money and creating wealth with understanding.

 

Scott Malcolm has been awarded the internationally recognised Certified Financial Planner designation from the Financial Planning Association of Australia and is Director of Money Mechanics.  Money Mechanics is a fee for service financial advice firm who partner with clients in Melbourne, Canberra and Sydney to achieve their life and wealth outcomes. Money Mechanics Pty Ltd (ABN 64 136 066 272) is a Corporate Authorised Representative (No. 336429) of Infocus Securities Australia Pty Ltd (ABN 47 097 797 049) AFSL and Australian Credit Licence No. 236523

 

The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs.  Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.