Key proposed tax changes and what they mean for you.

The Federal Government handed down the 2026–27 Budget on 12 May 2026.

The Budget contains significant proposed reforms across individual tax, trusts, capital gains tax (CGT), negative gearing, fringe benefits tax (FBT), electric vehicles and small business, together with a range of integrity and administration measures.

Importantly, many of the measures outlined below are proposals only. They are subject to consultation, legislation being introduced into Parliament and passage through the appropriate Parliamentary processes.

Below is a summary of the key measures most relevant to Australian taxpayers.

Capital gains tax reform (proposed from 1 July 2027)

The Government has announced a fundamental reform to the CGT regime.

Key features include:

  • Replacement of the 50% CGT discount for individuals, trusts and partnerships with cost base indexation and a 30% minimum tax rate on net capital gains. Superfunds are not impacted by these changes.
  • The reforms will apply to CGT assets held for at least 12 months, including property and shares.
  • The 30% minimum tax will only apply where a taxpayer’s effective CGT rate would otherwise be below 30%.

Transitional rules

  • Assets sold before 1 July 2027 will continue under existing rules.
  • For assets acquired before 1 July 2027 and sold after that date, gains accrued up to 30 June 2027 continue to access the 50% discount, and gains accruing from 1 July 2027 will be subject to indexation (based on a revaluation of the asset to its market value as at this date), and the minimum tax.

The Budget materials propose two alternative methods for determining the value of assets on 1 July 2027:

  • Market valuation method – obtaining a valuation of the asset as at 1 July 2027. For listed assets such as shares, quoted market prices may be used. For property and other assets, a formal valuation can be obtained.
  • ATO‑prescribed apportionment method – using a formula that estimates the asset’s value at 1 July 2027 based on its total holding period and overall growth. The ATO is expected to provide tools and guidance to support this calculation.
  • Assets acquired before 20 September 1985 (pre‑CGT assets) will retain their CGT‑free status for gains accrued up to 30 June 2027. However, under the proposed reforms, any increase in value occurring from 1 July 2027 onwards will become subject to capital gains tax when the asset is eventually disposed of. In practical terms, this means pre‑CGT assets are effectively “rebased” at 1 July 2027. Gains arising after that date will be calculated separately and taxed under the new regime, including the application of cost‑base indexation and, where relevant, the 30% minimum tax on capital gains.

New residential property

Investors in qualifying new residential builds will be able to choose between:

  • The existing 50% CGT discount
  • The new indexation/minimum tax regime

Negative gearing changes (proposed from 1 July 2027)

The Budget proposes significant changes to negative gearing, limited strictly to residential property.

Key points:

  • Losses from established residential properties purchased from 7:30pm (AEST) on 12 May 2026 will only be deductible against other residential rental income or capital gains from residential property.
  • Excess losses can be carried forward to offset future residential property income.
  • Properties held (or under contract) at 7:30pm on 12 May 2026 are fully grandfathered and can continue to be negatively geared until sold.

Critical clarification

  • Commercial properties are not affected.
  • Negative gearing for commercial property, shares and other asset classes will continue under existing rules.

Exclusions

  • Superannuation funds (including SMSFs).
  • Widely held trusts (such as most managed investment trusts).
  • Certain affordable housing and government‑supported housing arrangements.

30% minimum tax on discretionary trusts (proposed from 1 July 2028)

A new minimum tax regime is proposed for discretionary (non‑fixed) trusts.

Key features:

  • Trustees will pay a minimum tax of 30% on the taxable income of discretionary trusts.
  • Beneficiaries (other than corporate beneficiaries) will receive non‑refundable tax credits for tax paid by the trustee.
  • Corporate beneficiaries will be taxed on trust distributions without access to credits for trustee‑paid tax.

Exclusions from the minimum tax

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

Testamentary trusts

  • Income from assets of discretionary testamentary trusts in existence at 7:30pm on 12 May 2026 is proposed to be excluded from the minimum tax.
  • The details are not clear whether income from assets of testamentary trusts after Budget night will be subject to the minimum 30% tax or the excepted trust income provisions under 102AG for minors will continue to apply
  • Fixed testamentary trusts are also excluded.

Restructuring relief

To assist taxpayers affected by the proposed 30% minimum tax on discretionary trusts, the Government has announced expanded rollover relief to facilitate restructuring. The relief is proposed to apply for a three‑year period commencing from 1 July 2027, allowing eligible discretionary trusts to restructure into alternative entities such as companies or fixed trusts without triggering immediate tax consequences.

While the detailed legislative design is still subject to consultation, the intent of the measure is to permit restructures that would otherwise give rise to capital gains tax, balancing adjustments or other taxing points to occur on a tax‑deferred basis, provided prescribed conditions are met. This relief is expected to be particularly relevant for family groups and small businesses that currently operate through discretionary trust structures and wish to realign their ownership or operating arrangements in light of the new minimum tax regime.

Further guidance is anticipated on eligibility criteria, permitted restructure pathways and integrity measures once draft legislation is released.

$1,000 standard deduction for work‑related expenses (from 2026–27 income year)

  • Eligible individuals will be able to claim a flat $1,000 deduction for work‑related expenses without substantiation.
  • Taxpayers with higher work‑related expenses can continue to claim actual costs under existing rules.
  • Charitable donations, union fees and professional subscriptions can still be claimed separately.

Working Australians Tax Offset (from 2027–28 income year)

  • A new $250 annual tax offset for income derived from work, including sole traders.
  • The offset increases the effective tax‑free threshold.
  • The offset will be applied automatically when lodging a tax return.

Medicare levy low‑income thresholds

Low‑income thresholds for singles, families, seniors and pensioners have been increased from 1 July 2025, ensuring continued relief for lower‑income taxpayers.

Private health insurance rebate

The age‑based uplift for the private health insurance rebate is proposed to be removed from 1 April 2027.

FBT changes for electric vehicles

  • The existing full FBT exemption for eligible electric vehicles will transition to a permanent 25% FBT discount from 1 April 2029.
  • Eligible EVs provided before 1 April 2029 and costing $75,000 or less will continue to receive a full exemption.
  • EVs above $75,000 (up to the fuel‑efficient luxury car threshold) provided between 1 April 2027 and 1 April 2029 will receive a partial discount.

If an electric vehicle qualified for the full FBT exemption at the time the novated lease was entered into, that full exemption continues for the duration of the lease.

Small business and companies

Key proposed measures include:

  • Permanent $20,000 instant asset write‑off for small businesses with turnover under $10 million from 1 July 2026.
  • Reintroduction of loss carry‑back rules for companies with turnover under $1 billion from 1 July 2026.
  • Loss refundability for small start‑up companies from 1 July 2028.
  • Reforms to the R&D Tax Incentive from 1 July 2028, including changes to offset rates, thresholds and eligibility.
  • Option for eligible businesses to move to monthly PAYG instalments from 1 July 2027.

Final comments

This Budget represents one of the most significant proposed tax resets in recent decades, particularly in relation to property, capital gains and trust structures.

Most measures are not yet law.

Detailed legislation, consultation outcomes and transitional guidance from the ATO will be critical.

The impact will vary significantly depending on individual circumstances.

We will continue to monitor developments closely and provide updates as legislation progresses.

If you are in need of assistance with any of the above matters, please do not hesitate to contact our team.

Published 14 May, 2026