Australia's 2026-27 Federal Budget: What It Means for You

Budget Overview: Key Initiatives at a Glance

Housing

The Government has moved on two fronts -- reducing tax concessions for property investors, and investing in supply:

• Changes to negative gearing and the CGT discount, aimed at improving affordability for younger Australians.
• The temporary ban on foreign purchases of established dwellings extended to 30 June 2029.
• A $2 billion investment to help local governments and state utilities build infrastructure to support new housing supply.

Health

• Additional funding for Medicare Urgent Care Clinics to ease pressure on GPs and hospitals.
• New medicines to be listed on the Pharmaceutical Benefits Scheme, covering cystic fibrosis, kidney disease and several cancers.
• $25 billion in additional funding for public hospitals.
• NDIS reforms expected to save $37.8 billion over four years, refocusing the scheme on those with permanent and severe disabilities.
• Private health insurance subsidies for Australians over 65 are being cut, with savings redirected to aged care and dementia care units.

Defence

• The defence budget will increase by $53 billion over the next ten years.

Fuel

• A $14.8 billion package to strengthen Australia's fuel supply.
• The reduction in fuel excise and the heavy vehicle road user charge continues for a further three months from 1 April 2026.

Individuals and Families

Income Tax Cuts (From 1 July 2026)

Already legislated: the 16% tax rate on income between $18,201 and $45,000 drops to 15% from 1 July 2026, and falls again to 14% from 1 July 2027.

Read more: https://budget.gov.au/content/02-cost-of-living.htm

$1,000 Instant Work-Related Deduction (From 1 July 2026)

Workers will be able to claim a standard $1,000 deduction for work-related expenses without keeping receipts or substantiating the claim. The deduction is capped at the lower of $1,000 and the individual's assessable labour income. Charitable donations, union fees and professional association memberships can be claimed on top of this.

Those who have spent more than $1,000 on qualifying expenses can still claim the higher amount, but will need to substantiate every dollar.

A few other changes come with the draft legislation:

• Depreciating assets mainly used to generate labour income will no longer qualify for low-value pooling rules.
• Modified rules will apply to the tax treatment on sale of those assets.
• An existing FBT exemption for work-related items provided under salary packaging will be removed.

New Working Australians Tax Offset (From 1 July 2027)

A new permanent $250 tax offset for all working Australians -- employees and sole traders alike -- will apply from the 2027-28 income year. It raises the effective tax-free threshold for work income to just under $20,000, or up to $24,985 for those who also qualify for the Low Income Tax Offset.

Medicare Levy Thresholds (Backdated to 1 July 2025)

Low-income thresholds for the Medicare Levy have been lifted across the board:

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

Investors

Limits on Negative Gearing (From 1 July 2027)

Negative gearing -- where losses from a rental property are offset against other income like wages -- will effectively be restricted to new residential builds from 1 July 2027.

From that date, losses on established residential properties purchased after 7:30pm AEST on 12 May 2026 can only be offset against rental income or capital gains from other residential properties. Any excess losses are carried forward to future years -- they cannot reduce salary or other general income.

"New builds" means properties that genuinely add to housing supply -- dwellings built on vacant land, or existing structures demolished and replaced with more dwellings. Knock-down rebuilds and renovations that don't increase supply do not qualify.

Key points:

• Properties purchased before 12 May 2026 are fully grandfathered.
• The changes don't apply to commercial property, shares, managed investment trusts or superannuation funds.

Read more: https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf

CGT Discount Replaced by Indexation and a Minimum Tax Rate (From 1 July 2027)

The 50% CGT discount for individuals and trusts will be replaced from 1 July 2027 by a CPI-based indexation system, similar to what existed in Australia between 1985 and 1999. Indexation will only apply to assets held for more than 12 months.

On top of that, a minimum 30% tax rate will apply to capital gains accruing from 1 July 2027. There are exceptions for those on means-tested income support such as the Age Pension and JobSeeker.

Assets acquired before 20 September 1985 -- historically exempt from CGT entirely -- will lose that exemption from 1 July 2027.

Transitional rules apply: gains accrued before 1 July 2027 still receive existing treatment. To make this work, taxpayers will need to establish the market value of their assets as at 1 July 2027. The changes apply across all asset classes -- property, shares and more -- affecting individuals, trusts and partnerships.

One carve-out: investors in new residential properties can choose to apply either the old 50% CGT discount or the new indexation and minimum tax approach.

Read more: https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf

Minimum Tax on Family Trust Distributions (From 1 July 2028)

Discretionary trusts -- commonly known as family trusts -- are widely used because the trustee can direct income and capital gains to different family members to minimise tax. From 1 July 2028, trustees will be required to pay a minimum 30% tax on the trust's taxable income. Individual and non-corporate beneficiaries will receive a non-refundable credit for the tax paid by the trustee.

That credit will not be available to corporate beneficiaries -- "bucket companies" -- suggesting the Government is specifically targeting that arrangement.

A three-year rollover relief window from 1 July 2027 will be available for those wanting to restructure out of a discretionary trust into a company or fixed trust. The relief can help minimise CGT consequences, but stamp duty and other costs will still need careful consideration.

The minimum tax will not apply to:

• Fixed and widely held trusts
• Complying superannuation funds
• Special disability trusts
• Deceased estates and charitable trusts

Certain income types are also excluded -- including primary production income, income relating to vulnerable minors, non-resident withholding tax amounts, and income from testamentary trusts existing before 12 May 2026.

Foreign Resident CGT Concession (From the next quarter after Royal Assent)

A concession will be introduced within the foreign resident CGT rules for investment in the renewables sector. The arrangement covers foreign investors disposing of certain renewable energy infrastructure assets through to 30 June 2030.

Venture Capital Tax Incentives (From 1 July 2027)

The Government will broaden existing tax incentives for venture capital limited partnerships and early stage venture capital limited partnerships, updating asset caps that haven't moved in over 20 years.

Business and Employers

Instant Asset Write-Off -- Made Permanent (From 1 July 2026)

The $20,000 instant asset write-off threshold for small businesses is being permanently locked in, ending years of annual uncertainty. Businesses must have aggregated turnover under $10 million to be eligible. The asset must cost less than $20,000 after subtracting any GST credits, and the threshold applies on an asset-by-asset basis -- so multiple assets each under $20,000 can all be written off immediately in the same year.

Assets costing $20,000 or more can still be added to a small business pool.

Note: the current income year ending 30 June 2026 already has the $20,000 threshold in place.

Read more: https://budget.gov.au/content/04-tax-reform.htm

FBT on Electric Vehicles -- Being Wound Back (From 1 April 2027)

The full FBT exemption for battery electric vehicles and hydrogen fuel cell electric vehicles continues until 31 March 2027, then is progressively reduced:

• 1 April 2027 to 31 March 2029: Full exemption only for EVs priced at $75,000 or less. Those above $75,000 but below the luxury car tax threshold for fuel-efficient vehicles receive a 25% FBT discount.
• From 1 April 2029: All eligible EVs below the LCT threshold receive only a 25% FBT discount -- the full exemption ends.

Existing lease arrangements are protected. Employers should note that even where the exemption or discount applies, they must still calculate the reportable fringe benefits amount, which can flow through to other areas of the tax and social security systems.

Read more: https://budget.gov.au/content/04-tax-reform.htm

Loss Carry-Back for Companies (From 1 July 2026)

Companies with aggregated annual global turnover under $1 billion can carry back a tax loss and offset it against tax paid in either of the two prior income years. This applies to income tax losses only (not capital losses) and is capped by the company's franking account balance.

Loss Refunds for Small Start-Up Companies (From 1 July 2028)

Start-up companies with annual turnover under $10 million that make a tax loss in their first two years can convert that loss into a refundable tax offset. The offset is capped at the combined value of FBT and wage withholding taxes paid in relation to Australian employees during the loss year.

PAYG Instalments - Monthly Option (From 1 July 2027)

From 1 July 2027, small and medium businesses can opt into monthly reporting and payment of PAYG instalments, using an ATO-approved calculation built directly into accounting software.

R&D Tax Incentive -- Reformed (From 1 July 2028)

The offset rate for core R&D expenditure will increase, but supporting R&D expenditure will no longer qualify. The minimum annual spend to qualify rises from $20,000 to $50,000, with limited exceptions.

Read more: https://budget.gov.au/content/04-tax-reform.htm

Minimum Tax for Multinationals (From 1 January 2026)

Australia's global and domestic minimum tax legislation will be amended as part of broader international corporate tax reforms, aligned with the OECD's global minimum tax framework.

Government and Regulators

Protecting the Tax System Against Fraud (From 1 July 2026)

The Government will invest $86.3 million over four years to detect and prevent tax fraud. The ATO will receive new powers to:

• Pause recovery of tax debts for taxpayers who are victims of fraud by tax agents or intermediaries.
• Waive those debts in appropriate circumstances.
• Recover debts directly from fraudulent intermediaries.

Targeted compliance activities will increase across the system, with a specific focus on misuse of the R&D Tax Incentive.

The Economy

Global Tensions

Ongoing conflict in the Middle East has caused significant economic and energy disruptions globally, driving up inflation, suppressing growth and adding layers of uncertainty. The ripple effects on the Australian economy are expected to persist for some time.

Growth

Higher inflation is expected to weigh on real incomes and household spending. The economy is forecast to slow from 2.25% growth in 2025-26 to 1.75% in 2026-27, before recovering to 2.25% in 2027-28.

Deficit

The 2026-27 budget deficit is forecast at $31.5 billion -- an improvement of $2.8 billion on the Mid-Year Economic and Fiscal Outlook. The budget is not expected to return to balance until 2034-35, with a modest surplus of 0.8% of GDP projected by 2036-37.

Debt

Gross debt is projected to surpass $1 trillion -- reaching $1,051 billion -- by 30 June 2027, representing 34% of GDP. By 30 June 2030, that figure is expected to climb to $1,249 billion, or 35.6% of GDP. Net debt in 2026-27 is forecast at 19.9% of GDP.

Interest payments on Australian Government Securities are estimated at $27.7 billion in 2026-27, rising to $40.4 billion by 2029-30.

Employment

The unemployment rate has been broadly stable and is expected to remain relatively low by historical standards. It is forecast to rise gradually from 4.25% in the June quarter 2026 to 4.5% by the June quarter 2027. Employment growth is expected at 1.5% through to mid-2027, rising to 1.75% by mid-2028.

Wages

The Wage Price Index is forecast to grow by 3.25% in the year to June 2026, rising to 3.5% for both the 2027 and 2028 June quarters. Real wages are expected to decline in 2025-26 as inflation bites, before recovering from 2026-27 onwards as price pressures ease.

Inflation

Headline inflation is forecast at 5% through the year to June 2026, before falling to 2.5% by June 2027 -- though that improvement depends on global oil prices easing, which is far from guaranteed.

Read the full Budget Paper No. 1: https://budget.gov.au/content/bp1/download/bp1_2026-27.pdf

Need Help Understanding What This Budget Means For You?

At ITP Queensland, our tax professionals can help you navigate these budget changes and identify opportunities to optimise your financial position. Contact us today to discuss how these measures might affect your personal or business tax situation.