Budget 2026 for 2026-27

The Australian Federal Budget for the 2026-27 year was delivered on Tuesday 12 May 2026.

Personal Income Tax & Cost-of-Living Relief

• Working Australians Tax Offset (WATO): Starting in the 2027–28 income year, there will be an annual tax offset of up to $250 for income earned from work, such as wages, salaries, and sole trader business income. This increases the effective tax-free threshold for workers by nearly $1,800 to $19,985 (before other offsets).
• $1,000 Instant Tax Deduction: (Previously announced) From the 2026–27 income year, Australian residents can claim an instant deduction of up to $1,000 for work-related expenses without needing to itemise receipts.
• Income Tax Rate Reductions: Previously legislated tax cuts continue, with the 16% rate (for income between $18,201 and $45,000) reducing to 15% on 1 July 2026, and further to 14% on 1 July 2027.
• Medicare Levy Thresholds: The Medicare levy low-income thresholds for singles, families, seniors, and pensioners will increase by 2.9% from 1 July 2025.
  • Singles: Increased from $27,222 to $28,011
  • Families: Increased from $45,907 to $47,238
  • Single seniors and pensioners: Increased from $43,020 to $44,268
  • Family threshold for seniors and pensioners: Increased from $59,886 to $61,623
  • Dependent children/students: The family income thresholds will increase by $4,338 for each dependent child or student (up from $4,216)

Housing Tax Reforms

• Negative Gearing: From 1 July 2027, negative gearing for residential property will be limited to new builds. Net rental losses from established properties will only be deductible against rental income or capital gains from residential properties, though excess losses can be carried forward. Properties held prior to 7:30pm (AEST) on 12 May 2026 are exempt from these changes until they are sold. See negative gearing pros and cons (with calculator).
• Capital Gains Tax (CGT):
  • Discount Replacement: Effective 1 July 2027, the 50% CGT discount for individuals, trusts, and partnerships will be replaced with cost base indexation for assets held longer than 12 months, ensuring only real gains are taxed. Capital gains tax discount.
  • Minimum Tax Rate: A 30% minimum tax rate will be introduced on real capital gains starting 1 July 2027.
  • Exemptions: New builds will retain the option to use the 50% discount. Pre-1985 assets will now be subject to CGT for gains accruing after 1 July 2027. Capital Gains tax exemptions.
• Foreign Investment: The ban on foreign investors purchasing existing residential homes is extended until 30 June 2029.

Trusts & Superannuation

• Discretionary Trusts: A 30% minimum tax on discretionary trusts will be introduced from 1 July 2028. Primary production income and income from fixed and testamentary trusts is excluded from the minimum 30% tax. To assist those wishing to move out of these structures, expanded rollover relief will be available for three years from 1 July 2027 to restructure into companies or fixed trusts without immediate tax consequences.
• Superannuation: The government is strengthening the superannuation performance test to ensure the $4.5 trillion sector is not discouraged from investing in productive assets like energy and housing.

Business Tax Measures

• Instant Asset Write-Off (IAWO): The $20,000 instant asset write-off for small businesses with an aggregated annual turnover of less than $10 million is being made permanent from 1 July 2026.
• Loss Carry-Back: A permanent two-year loss carry-back will be introduced for all companies with turnover up to $1 billion for income years after 1 July 2026, allowing them to receive refunds for tax paid in profitable prior years.
• Dynamic Monthly PAYG Instalments for SMEs – from 1 July 2027, small and medium businesses (with a good compliance history) will be able to opt-in to reporting and paying their PAYG instalments on a monthly basis. This means, tax payments will rise and fall with a business’s cash flow. To encourage adoption, businesses using ATO-approved calculations can vary their instalments without the risk of interest charges.
• Loss Refundability for Start-ups: From 1 July 2028, small start-up companies (turnover <$10 million) in their first two years can generate a refundable tax offset from losses, capped at the amount of FBT and withholding tax paid on employee wages.
• Research and Development (R&D) Tax Incentive: Reforms effective 1 July 2028 include increasing the offset for experimental ‘core’ R&D by 25 to 50%, reducing the intensity threshold from 2% to 1.5%, and removing eligibility for supporting activities like maintenance. R&D Tax Incentive.
• Venture Capital: Tax incentives for venture capital will be expanded by adjusting asset and fund size caps to compensate for inflation from 1 July 2027.

Energy Relief & Fringe Benefits Tax (FBT)

• Fuel Excise: As part of a $14.8 billion response to the global oil shock, the budget includes measures to more than halve the fuel excise and excise-equivalent customs duties, and reduce the heavy vehicle road user charge to zero for three months.
• Electric Car Discount: The FBT treatment of electric cars is being recalibrated from 1 April 2027. A 25% discount for electric cars up to the fuel-efficient luxury car tax threshold will apply to the 20% statutory formula. The full FBT exemption will continue for electric vehicles valued up to $75,000 until 31 March 2029. See further: Fringe Benefits Tax

Tax Reform Calendar

Other references:

• Australian Federal Budget insights 2026-2027 | PwC Australia
• Federal Budget 2026-27 – HLB Mann Judd
• 2026–27 Federal Budget – Andersen Australia.
• Federal Budget 2026–27: Tax reform key dates – Pitcher Partners
• Federal Budget Report 2026-27 – BDO
• Federal Budget 2026‑27 | Tax, Business & Economic Analysis – BDO

2026–27 Budget speech – Transcript

This page was last modified 2026-05-18