PREDICTED CHANGES FOR THE 2026/27 BUDGET

May 2026

 

2026–27 FEDERAL BUDGET

WHAT PROPERTY INVESTORS, TRUSTEES & SMALL BUSINESSES NEED TO KNOW

Prepared by Allied Accounting Group | May 2026

 

Our Summary

The 2026–27 Budget contains some of the most significant structural changes to the taxation of investment property, capital gains and discretionary trusts in a generation. The changes are deliberately targeted at wealthier taxpayers and investors who have historically benefited from negative gearing, the 50% CGT discount and trust income splitting. Make no mistake — these measures will reshape how many of our clients structure and manage their wealth. However, there is no need to panic. Not a single one of these major reforms takes effect before 1 July 2027 at the earliest, giving us meaningful time to review your situation, model the impact, and where appropriate, adjust your structures and strategy well in advance.

 

1.  PERSONAL TAXATION — THE GOOD NEWS FIRST

Tax Rate Reductions (Already Legislated)

The Government is delivering on previously legislated personal income tax cuts. For resident taxpayers, the rate applying to income between $18,201 and $45,000 is reducing in two steps:

• From 1 July 2026: the rate drops from 16% to 15%
• From 1 July 2027: the rate drops further to 14%

This delivers a saving of up to $268 per year from 2026–27 and up to $536 per year from 2027–28 for those earning above $45,000. All other tax brackets and thresholds remain unchanged.

 

$1,000 Standard Work-Related Expense Deduction (from 2026–27)

From the 2026–27 income year, employees can claim a standard deduction of up to $1,000 for work-related expenses without keeping receipts. This replaces the previous $300 no-receipt threshold. If your actual deductible work expenses exceed $1,000, you simply continue to claim the actual amount in the usual way.

Note: This deduction interacts with salary packaging arrangements and the FBT otherwise deductible rule — please speak with us if you have a salary packaging arrangement in place.

 

$250 Working Australians Tax Offset — from 1 July 2027

A new $250 annual tax offset will be introduced for workers (including sole traders) from the 2027–28 income year. Combined with the rate cuts above, a worker on average earnings could be up to $2,816 better off per year compared to 2023–24 settings. This is the largest permanent increase to the effective tax-free threshold since 2012–13.

 

Medicare Levy Low-Income Thresholds — 2025–26

The Medicare levy low-income threshold for singles has increased to $28,011 for 2025–26. For couples with no children the family threshold is $47,238. Seniors and pensioners eligible for SAPTO have a threshold of $44,268.

 

Private Health Insurance Rebate — Bad News for Over-65s

Watch Out From 1 April 2027, the higher age-based private health insurance rebate tiers for those aged 65–69 and 70+ will be abolished. All policy holders will receive the base-tier rebate regardless of age. Industry estimates suggest those aged 70+ with Gold hospital cover could see effective premiums rise by around $807 (individual) or $1,614 (couple) per year once the rebate reduction flows through. If this affects you, contact us to model the impact ahead of April 2027.

 

 

2.  PROPERTY INVESTORS — MAJOR CHANGES AHEAD

This is where the Budget hits hardest for many of our clients. Two inter-connected reforms — restricting negative gearing and replacing the CGT discount — fundamentally change the economics of investing in established residential property. But the transitional rules are generous, and there is real planning opportunity here.

 

Negative Gearing Restricted to New Builds from 1 July 2027

Under current law, rental losses on any investment property can be offset against your other income (e.g. wages). From 1 July 2027, this will change for established (existing) residential properties purchased after the Budget announcement (7:30pm AEST, 12 May 2026).

 

From that date, rental losses on newly purchased established properties will only be deductible against other residential property income or capital gains. Excess losses will be carried forward to use against future residential property income. You will not lose the deduction — but you lose the ability to use it to reduce your wage income in the year it arises.

 

Grandfathered — No Immediate Action Needed If you already own an investment property, or had a contract on foot at 7:30pm on 12 May 2026, your existing negative gearing arrangements are fully protected. You can continue to deduct rental losses against all income for as long as you hold that property. The change only affects properties acquired after the announcement date.

 

Key distinctions under the new rules:

• New builds: Investors in newly constructed dwellings (those that genuinely add to housing supply) can continue to negatively gear against all income, even after 1 July 2027.
• Established properties purchased after 12 May 2026 but before 1 July 2027: Can be negatively geared during that transitional period, but NOT from 1 July 2027 onwards.
• Established properties purchased from 1 July 2027: Cannot be negatively geared at all against non-property income.
• Commercial property, shares and other asset classes: Unaffected. These changes only apply to residential investment property.

 

What Counts as a ‘New Build’?

A new build must genuinely add to housing supply. This includes newly constructed apartments bought off-the-plan, duplexes on knocked-down sites (where more dwellings replace fewer), and any residential construction on previously vacant land. A simple knock-down rebuild replacing one house with one house does NOT qualify, nor does a granny flat added to an existing property. A new build also cannot have been previously occupied for more than 12 months before first sale.

 

Capital Gains Tax — 50% Discount Replaced from 1 July 2027

The current 50% CGT discount (available for assets held more than 12 months) will be replaced from 1 July 2027 with:

• CPI indexation of the cost base (i.e. you adjust the purchase price for inflation, reducing the taxable gain); and
• A 30% minimum tax rate on the resulting real capital gain.

 

Critical Point — The Change is Prospective Only Gains that have accrued on your existing investments up to 1 July 2027 will still attract the 50% CGT discount. The new rules apply only to gains accruing after that date. This means assets you currently hold are not ‘stranded’ — you receive the 50% discount on the growth that has already occurred, and only the future growth is subject to the new regime. There is no incentive to sell existing assets before 1 July 2027.

 

How the transition works in practice: If you sell an asset after 1 July 2027 that you already own, you will need to establish the asset’s market value as at 1 July 2027. Gains up to that date receive the 50% discount. Gains after that date are calculated using indexed cost base with a 30% minimum tax. The ATO will provide tools to assist with the valuation step.

 

Pre-1985 assets: These assets are currently outside the CGT net entirely. From 1 July 2027, disposals of pre-1985 assets will be subject to CGT — but only on gains accruing after that date. Gains accrued before 1 July 2027 remain exempt.

 

New residential property: Investors in new builds have a choice — they can apply either the 50% CGT discount (old rules) or the CPI indexation plus 30% minimum tax (new rules) when they eventually sell. This flexibility is designed to preserve incentives to invest in new housing.

 

Pensioners and income support recipients: Those receiving means-tested payments (Age Pension, JobSeeker etc.) in the year they realise a capital gain are exempt from the 30% minimum tax.

 

SMSFs: Complying superannuation funds, including SMSFs, are not affected by the removal of the 50% discount. They will continue to apply a CGT discount of 33⅓%.

 

Our View The removal of the 50% discount and the imposition of a 30% minimum tax represents a structural shift in the tax treatment of investment assets. For high-income taxpayers who have relied on the discount to shelter gains, this will significantly increase the tax cost of realising gains on assets acquired from 1 July 2027 onwards, particularly if those assets grow strongly. We are not yet seeing the detail of how the minimum tax will interact with carry-forward capital losses or income losses in the same year — that detail will be critical. Watch this space, and speak with us before making any significant asset acquisition or disposal decisions.

 

3. DISCRETIONARY TRUSTS — A FUNDAMENTAL RESTRUCTURING

 

Discretionary (family) trusts have been a cornerstone of tax planning for Australian small businesses and investors for decades. The Budget’s proposed 30% minimum trust tax is the most significant attack on this structure we have seen. Combined with the CGT and negative gearing changes, those who rely on trusts to accumulate and distribute wealth will need to fundamentally reconsider their approach.

 

30% Minimum Tax on Discretionary Trust Income from 1 July 2028

From 1 July 2028, trustees of discretionary trusts will be liable to pay a minimum tax of 30% on the trust’s taxable income. Beneficiaries (other than corporate beneficiaries) will receive a non-refundable credit for the tax paid by the trustee.

 

The Sting in the Tail The 30% rate is not a flat tax that replaces the marginal rates — it operates as a minimum. For beneficiaries who would otherwise have had trust income taxed at their marginal rate (e.g. a beneficiary with low income taxed at 0% or 16%), the new regime will increase the tax burden substantially. Because the credits are non-refundable, lower-income beneficiaries cannot recover the tax paid by the trustee — they simply lose the benefit of their lower marginal rate. The primary goal of discretionary trusts — distributing income to beneficiaries on lower marginal rates — is directly targeted by this measure.

 

What is excluded from the minimum trust tax:

• Primary production income (e.g. farming income) — excluded
• Certain income relating to vulnerable minors
• Income of fixed and widely held trusts (including fixed testamentary trusts)
• Complying superannuation funds
• Special disability trusts
• Deceased estates
• Charitable trusts
• Non-resident withholding amounts
• Income from assets of discretionary testamentary trusts already in existence at announcement

 

Rollover Relief — A Window to Restructure

To soften the blow, the Government is offering expanded rollover relief for three years from 1 July 2027. This is a valuable but time-limited opportunity.

 

Planning Opportunity — Act Before June 2030 If you operate your business or hold investments through a discretionary trust, you have a three-year window from 1 July 2027 to restructure into another entity type (such as a company or fixed trust) using rollover relief — meaning the restructure itself will not trigger a tax event. Companies offer the 25% small business tax rate, dividend imputation and greater flexibility for retaining earnings as working capital. This window closes. We strongly recommend reviewing all discretionary trust structures before the window opens and planning your restructure strategy well in advance.

 

CGT and Negative Gearing Changes Also Hit Trusts

It is worth noting that the CGT discount changes (Section 2 above) also apply to assets held by trusts. From 1 July 2027, gains accruing in discretionary trusts on new or existing assets will be subject to CPI indexation and the 30% minimum tax — on top of the trustee-level minimum tax on trust income from 2028. This double-layering of tax on trust-held assets underscores the need for urgent planning.

 

4. SMALL BUSINESS — MOSTLY POSITIVE CHANGES

 

In contrast to the reforms targeting investors and trusts, the small business measures are largely welcome — providing greater certainty, improved cash flow and reduced compliance burden.

 

$20,000 Instant Asset Write-Off — Made Permanent

The $20,000 instant asset write-off for small businesses (turnover under $10 million) has been permanently extended from 1 July 2026. Previously subject to annual extensions, this measure now provides certainty for asset purchasing and depreciation planning. Eligible assets under $20,000 are immediately deductible. Assets of $20,000 or more can continue to be allocated to the simplified depreciation pool (15% in year one, 30% thereafter).

 

Loss Carry-Back Regime Reintroduced from 1 July 2026

Companies with global annual turnover under $1 billion can again carry back tax losses and offset them against tax paid in the prior two income years. This is an important cash flow measure — if your company makes a loss in 2026–27, you can claim a refund of tax paid in 2024–25 or 2025–26. The carry-back is limited to revenue losses and capped by the franking account balance. Up to 85,000 companies per year are expected to benefit.

 

Loss Refundability for Start-Up Companies — from 1 July 2028

Small start-up companies (turnover under $10 million) that generate a tax loss in their first two years of operation will be able to convert that loss into a refundable tax offset. The offset is capped at the amount of FBT and PAYG withholding paid on Australian employee wages in the loss year. This is a targeted measure designed to improve cash flow for genuinely new businesses.

 

Dynamic Monthly PAYG Instalments — from 1 July 2027

Small and medium businesses will be able to opt into monthly PAYG instalment reporting and payment from 1 July 2027, with the option to use ATO-embedded calculations in accounting software to vary instalments in real time. This will better align tax payments with actual business performance and reduce the risk of large year-end catch-up payments.

 

Electric Vehicle FBT — Phasing Out the Full Exemption

The current full FBT exemption for eligible EVs (zero or low emission vehicles) will be phased out over the next three years:

• 2026–27 FBT year: No change.
• 2027–28 and 2028–29: Full exemption retained for EVs costing $75,000 or less. EVs costing over $75,000 but below the luxury car tax threshold ($91,387 in 2025–26) receive a 25% discount on payable FBT.
• From 2029–30: All eligible EVs receive only a 25% discount (no full exemption for any vehicle).

If you are considering purchasing an EV through a salary packaging arrangement, doing so before 1 April 2029 will preserve the better outcome — particularly for vehicles under $75,000, where the full exemption remains until that date.

 

5. SUPERANNUATION — EXISTING REFORMS TAKE CENTRE STAGE

 

The Government announced no new major superannuation measures in this Budget. However, two significant previously legislated measures take effect from 1 July 2026 and will demand attention:

 

• Payday Super: Employers will be required to pay superannuation guarantee contributions within seven business days of each employee payday. This is a significant change from the current quarterly regime. Businesses need to review payroll processes now to ensure compliance from 1 July 2026.
• Division 296 Tax: The 15% additional tax on superannuation earnings for individuals with balances above $3 million takes effect from 1 July 2025 (as previously legislated). If you are affected, consider this alongside the CGT changes above when deciding whether to withdraw funds from super — assets taken outside super will now face a less favourable CGT regime from 2027.

 

The good news: Complying superannuation funds (including SMSFs) are not affected by the removal of the 50% CGT discount and will continue to apply a 33⅓% discount to eligible capital gains. Super remains a highly tax-effective investment environment.

 

6. KEY DATES AT A GLANCE

 

Date	Change
1 July 2026 (NOW)	Lower personal tax rate on $18,201–$45,000 income (16% → 15%) $20,000 instant asset write-off made permanent Loss carry-back regime reintroduced Payday super obligations commence
1 April 2027	Private health insurance rebate cut for those aged 65+
1 July 2027	Personal tax rate on $18,201–$45,000 reduces further to 14% $1,000 standard work-related expense deduction commences Negative gearing restricted to new builds only (properties held before 12 May 2026 grandfathered) CGT: 50% discount replaced by CPI indexation + 30% minimum tax on NEW gains only Pre-1985 assets brought into CGT net for disposals from this date
1 July 2027	Three-year restructure rollover relief window opens (for trusts restructuring out of discretionary structure)
1 July 2028	Working Australians Tax Offset ($250) commences 30% minimum tax on discretionary trust income commences Loss refundability for small start-up companies commences
1 April 2029	EV FBT: full exemption replaced by 25% discount for all EVs below luxury car tax threshold

 

7. WHAT SHOULD YOU DO NOW?

 

There is no need to make rushed decisions. All of the major changes above take effect from 1 July 2027 or later, and transitional rules protect existing arrangements. However, the planning required is substantial and the window for some strategies (particularly trust restructures) is time-limited. We recommend the following:

 

• Property investors with existing negatively geared properties: No immediate action required. Your existing arrangements are grandfathered. However, if you are considering acquiring further investment properties, discuss the new rules with us before proceeding.
• Property investors considering selling existing assets: The CGT transitional rules mean there is no tax incentive to sell before 1 July 2027. In fact, selling now forfeits the 50% discount on future gains that have not yet accrued. However, it may be worth obtaining a valuation of key assets as at 1 July 2027 to simplify future CGT calculations.
• Discretionary trust holders: We strongly recommend a review of your trust structure before the rollover relief window opens on 1 July 2027. A restructure to a company or fixed trust may make considerable sense for many clients. Do not wait until 2027 to start this conversation.
• Small business owners running via trusts: The 30% minimum trust tax from 1 July 2028 directly targets income splitting. If your business is currently structured through a discretionary trust for income distribution reasons, that rationale will largely be eliminated. A company structure may offer better outcomes.
• Business owners with EVs in salary packaging: Lock in your EV arrangements before 1 April 2029 to preserve the full FBT exemption (for vehicles under $75,000).
• All clients: Contact us to book a review meeting. We will work through the specific impact of these changes on your situation and develop a tailored response strategy.

 

Disclaimer

This document has been prepared by Allied Accounting Group as a general guide only. It is based on publicly available Budget documents and commentary current at the date of preparation. It does not constitute financial, taxation or legal advice, and should not be relied upon without obtaining specific advice from a qualified professional in relation to your personal circumstances. The proposed measures are subject to enacting legislation and may be amended or withdrawn. Allied Accounting Group accepts no liability for any loss arising from reliance on this document.