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 be 5% through the year to the June quarter 2026. Headline inflation is forecast to decline to 2.5% by the June quarter 2027, but this is based on the assumption that global oil prices will ease over 2026-27, which remains to be seen.

Individuals and families

• A $250 ‘Working Australian’s’ tax offset will be introduced from 1 July 2027

• $1,000 instant tax deduction starting from the 2027 financial 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 $45,00 drop to 15% in FY27 and 14% in FY28.

Business

Loss carry back for companies

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 less than $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

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

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

·         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

From 1 July 2027, the government will limit negative gearing for residential property investment to new builds.

o   Existing investment properties can still be negatively geared until sold

o   Properties purchased between 12 May 2026 and 30 June 2027 can only be negatively geared until 30 June 2027

o   Properties purchased after 1 July 2027 will not be allowed to be negatively geared (apart from new builds)

o   However, losses made from investment properties can be carried forward to offset future rental income in later years

Capital Gains Tax Reform

From 1 July 2027 the 50% general discount will be replaced for individuals, trusts and partnerships with cost base indexation and a 30% minimum tax rate on capital gains

• Indexation will be calculated using CPI in a similar manner to arrangements previously in place between 1985 to 1999.

• The ATO will provide further guidance and tools to support calculation of this adjustment

• These changes will apply to all CGT Assets

• Minimum tax of 30% to apply to all capital gains, regardless of marginal rate

• Pre CGT assets will also be taxable from 1 July 2027

• Transitional rules for Capital Gains Tax assets

• For investments apart from property, no changes for assets purchased or sold prior to 1 July 2027.

• Assets purchased after 1 July 2027 will be wholly treated under new arrangements

• For assets owned prior to 1 July 2027 and sold after 1 July 2027 will be treated under current arrangements on gains made prior to this date, and under new arrangements for gains made after this date.

• The 50 per cent CGT discount will apply to the difference between the asset’s cost base and its value at 1 July 2027. Indexation and the minimum tax will be used to calculate the CGT on gains accruing from 1 July 2027 (using the asset’s value at 1 July 2027 as the asset’s cost base).

Taxation of discretionary trusts

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 effect 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).