The ‘Resilience and Reform’ Budget

The Federal Treasurer, Dr Jim Chalmers, handed down the 2026–27 Federal Budget at 7:30pm (AEST) on 12 May 2026.

The government is proposing a tax reform package with three parts:

1. a “fairer” tax system for workers, first home buyers and future generations
2. a “better” tax system for businesses by encouraging investment and innovation, and
3. a “simpler and more sustainable” tax system.

Details of the highly anticipated initiatives to improve housing affordability have emerged. While negative gearing for residential property will be limited to new builds from 2027–28, all existing investments made before 7:30pm AEST on 12 May 2026 will be grandfathered.

As for capital gains tax (CGT), the 50% discount will be replaced with cost base indexation from 1 July 2027, with a minimum 30% tax rate on realised gains. This will apply to all CGT assets, including pre-CGT assets, except new builds. It will be prospective, with gains accrued on existing investments prior to 1 July 2027 to retain the 50% discount.

Other notable measures include those relating to discretionary trusts, a new tax offset for working Australians and the gradual reduction of the Fringe Benefits Tax (FBT) discount for affordable electric vehicles. In particular, discretionary trusts will be taxed at 30% from 1 July 2028. With trusts historically not being taxed as separate entities, this measure will have significant implications for individuals and businesses alike.

To ease the cost-of-living pressures, an annual working Australian tax offset of $250 is proposed for eligible Australian workers. The current FBT discount for affordable electric vehicles will transition to a permanent 25% discount progressively over 3 phases.

The Budget measures are additional to recent developments, including:

• temporary reduction of excise and excise-equivalent customs duty rates for most fuel products from 1 April 2026 to 30 June 2026
• release of exposure draft legislation for the instant $1,000 tax deduction for work-related expenses
• release of exposure draft legislation for strengthening the foreign CGT regime in Div 855 of ITAA 1997, including the transitional CGT discount for certain renewable energy assets, and
• release of a consultation paper on options to strengthen the annual superannuation performance test.

Business

• Australia will transition to a permanent 25% discount on FBT for certain electric vehicles.
• The instant asset write-off of $20,000 for small businesses applying the simplified depreciation rules has been extended permanently.
• Companies with up to $1 billion in turnover will be eligible to carry back tax losses for up to 2 years from 1 July 2026.
• Small start-ups in their first 2 years of operation will be able to get a refund for tax losses capped to the value of tax remittances relating to employment from 1 July 2028.
• Reforms have been announced to the R&D tax incentive from 1 July 2028 as part of the government’s response to the Ambitious Australia: Strategic Examination of Research and Development Final Report.
• The venture capital limited partnership (VCLP) and early stage venture capital limited partnership (ESVCLP) tax incentives will be expanded from 1 July 2027. The eligible venture capital investor program will be closed to new applications from 12 May 2026 7:30pm (AEST).
• The global and domestic minimum tax legislation will be amended from 1 January 2026 to implement the side-by-side package agreed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting on 5 January 2026.

Income Tax

• The 50% CGT discount will be replaced with cost base indexation for all CGT assets (except new homes) from 1 July 2027, with a 30% minimum tax on realised gains also applying from that date. This proposed measure will also apply to pre-September 1985 assets.
• A minimum tax rate of 30% will be payable by trustees of discretionary trusts from 1 July 2028.
• Negative gearing for residential property will be limited to new builds from 1 July 2027, with no change for existing arrangements. Note these changes also apply to companies and some Trusts.

Individuals

• Each working Australian taxpayer will receive a $250 Working Australians Tax Offset from the 2027–28 income tax year.
• The Medicare levy low‑income thresholds for singles, families, and seniors and pensioners will be increased by 2.9% from 1 July 2025.
• The temporary restrictions on foreign ownership of housing will be extended, and Australia’s foreign investment framework will be strengthened.
• The age-based uplift of private health insurance rebate (the PHI rebate) will be removed from 1 April 2027.
• Payment of the full rate of pension supplement will be extended from 6 weeks to 12 weeks for recipients who are temporarily absent from Australia.
• The pension supplement will cease for those who are residing permanently overseas or who are temporarily absent for more than 12 weeks.

Superannuation

There were no superannuation changes announced in the 2026–27 Federal Budget, with the focus instead on tax measures. Recent updates outside the Budget include changes to the super performance test and pension supplement arrangements for Australians living overseas.

Full Budget papers are available at www.budget.gov.au and the Treasury ministers’ media releases are available at ministers.treasury.gov.au. To discuss how these measures impact you or your business, please contact your Allan Hall Tax or Super Advisor.

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