Federal Budget 2026/27

On Tuesday 12th May 2026, Treasurer Jim Chalmers handed down the Federal Budget 2026-27, noting it to be "the most important and ambitious budget in decades".

Measures designed to deliver intergenerational equity will see an overhaul of negative gearing and the capital gains tax discount plus a 30% tax on discretionary trust distributions.

Small businesses will see the permanent extension of the $20,000 instant asset write-off and the reintroduction of ‘loss carry back’ for companies.

A new $250 tax offset for working Australians will run alongside an instant tax deduction for work-related expenses plus the already announced tax cuts will help individuals.

Budget Highlights

The Figures

·         Higher inflation is expected to impact on growth in real incomes and household consumption. As a result, growth in the Australian economy is forecast to slow from 2.25% in 2025-26 to 1.75% in 2026-27. Growth in the Australian economy is expected to increase to 2.25% in 2027-28.

·         The budget deficit for 2026–27 is forecast to be $31.5 billion. The budget is projected to return to balance in 2034–35 and a surplus of 0.8% of GDP in 2036–37.

·         Gross debt is estimated to reach $1,051 billion (that’s over $1 trillion) at 30 June 2027. This represents 34% of GDP. Net debt in 2026–27 is expected to be 19.9% of GDP.

·         The unemployment rate is expected to rise gradually from 4.25% in the June quarter 2026 to 4.5% in the June quarter 2027.

·         The Wage Price Index is forecast to grow by 3.25% through the year to the June quarter 2026, before increasing to 3.5% through the year to the June quarter 2027 and the June quarter 2028.

·         Headline inflation is forecast to peak at 5% around mid-2026. Headline inflation is forecast to decline to 2.5% by the June quarter 2027.

Individuals and Families

• A $250 Working Australians Tax Offset will be introduced from 1 July 2027

• $1,000 instant tax deduction starting from the 2026-27 income year

  • Taxpayers will be allowed to claim this tax deduction without the need to keep receipts to support this claim (no substantiation necessary)

• Income tax cuts previously announced and legislated will see the 16% tax rate on taxable income between $18,201 and $45,000 drop to 15% in FY27 and 14% in FY28.

Business

Loss carry back for companies

Start date: 1 July 2026

Companies will be allowed to carry back tax losses for up to two years

·         For income years commencing on or after 1 July 2026 the Government will allow companies with aggregated annual global turnover of up to $1 billion to carry back a tax loss and offset it against tax paid up to two years earlier.

·         The ability to carry back a loss will only apply to tax losses (not capital losses) and will be limited by the company’s franking account balance

Instant asset write-off

Start date: 1 July 2026

Permanent extension of the $20,000 instant asset write-off for small businesses with turnover of less than $10 million.

Reducing the FBT concession for electric vehicles

Start date: 1 April 2027

From 1 April 2029, a permanent 25% discount on FBT will be available for all electric cars valued up to and including the fuel-efficient luxury car tax threshold, implemented through a 15% rate in the statutory formula. The following transitional arrangements will apply:

·         All eligible electric cars will retain the FBT discount rate that was in place when the arrangement commenced.

·         All electric cars valued up to and including $75,000 that are provided before 1 April 2029 will continue to be eligible for a 100% discount on FBT, implemented through a 0% rate in the statutory formula.

·         Electric cars valued above $75,000 and up to and including the fuel-efficient luxury car tax threshold that are provided between 1 April 2027 and 1 April 2029 will be eligible for a 25% discount on FBT, implemented through a 15% rate in the FBT statutory formula.

The existing 20% statutory rate will continue to apply for all other cars, including electric cars costing more than the fuel-efficient luxury car tax threshold.

Reportable fringe benefits will continue to be determined for eligible electric cars as if a 20% FBT statutory formula rate or cost basis method applied.

R&D tax incentive

Start date: 1 July 2028

·         The Government will reform the Research and Development (R&D) Tax Incentive which provides a tax offset for eligible companies that undertake R&D activities.

·         While the Government is planning to increase the tax offset rate for core R&D expenditure, supporting R&D expenditure will no longer qualify and the minimum amount of expenditure that must be incurred in an income year to qualify for the offset will be increased from $20,000 to $50,000 (with some limited exceptions).

Investors

Negative gearing reform

Start date: 1 July 2027

The term ‘negative gearing’ refers to the situation where a rental property owner claims deductions for expenses associated with holding the property that exceed the rental income that is received in the relevant income year.

The loss that is generated from a rental property can typically be offset against other income (including salary, wages and net capital gains) to reduce overall taxable income or create a tax loss that can be carried forward to future years.

However, the parameters around negative gearing for residential property are set to change with the Government announcing that existing negative gearing rules will only be available in connection with new builds from 1 July 2027.

·         From this date onwards, losses from established residential properties that are acquired from 7:30pm (AEST) on 12 May 2026 will only be deductible against rental income or capital gains from residential properties. Excess losses will be carried forward to be offset against residential property income in future years.

·         ‘New builds’ are residential properties which genuinely add to supply, such as dwellings constructed on vacant land and situations where existing properties are demolished and replaced with a greater number of dwellings.

·         Knock-down rebuilds or substantial renovations that do not increase supply will not be treated as new builds.

·         Properties acquired before 7:30pm (AEST) on 12 May 2026 will be exempt from the changes and the changes won’t apply to managed investment trusts or superannuation funds. Also, the changes don’t impact on other asset classes such as commercial properties or shares.

Capital gains tax reform

Start date: 1 July 2027

The CGT discount has enabled individuals, trusts and complying superannuation funds to reduce the taxable capital gain made on disposal of an asset that has been held for more than 12 months. The standard discount rate is 50% for trusts and individuals (although lower discount rates can apply to non-residents and temporary residents in some cases), with a 1/3 discount applying to superannuation funds. 

However, from 1 July 2027 the Government is planning to revert to an indexation system based on the Consumer Price Index (CPI), much like the system that applied between 1985 and 1999. Indexation would only be available for assets that have been held for more than 12 months.

·         In addition to this, a minimum tax rate of 30% will apply to capital gains that accrue from 1 July 2027. There will be some exceptions to this for recipients of means-tested income support payments (e.g. Age Pension, JobSeeker).

·         Assets acquired before 20 September 1985 (referred to as pre-CGT assets) have historically been exempt from CGT, but this exemption will no longer apply from 1 July 2027.

·         Transitional rules will limit the impact of these changes for existing investments. The existing CGT discount and exemption for pre-CGT assets will continue to apply the gains that accrued before 1 July 2027.

·         Taxpayers will need to determine the value of existing assets on 1 July 2027 to enable CGT calculations to be undertaken.

·         The CGT changes apply to all asset classes, including property and shares. The changes will apply to individuals, trusts and assets held by partnerships.

·         However, investors in new residential properties will be able to choose to apply either the 50% CGT discount or cost base indexation and the minimum tax.

Minimum tax on family trust distributions

Start date: 1 July 2028

Discretionary Trusts will have a minimum tax of 30% imposed on them from 1 July 2028.

• Tax to be paid by the trustee, which will flow to the beneficiaries as a non-refundable tax offset

• This minimum tax will only affect discretionary trusts – not fixed trusts, deceased estates or superfunds

 

Planning will be key

Aside from the tax cuts previously announced, these changes are not yet legislated. Planning ahead will be important in navigating any potential impact.

As always, our team is here to guide and support you. If you are concerned about the impact of the budget announcements on you, your family or business please contact your McQueen expert for support.

Advice Disclaimer: This article is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).