2026/27 Federal Budget – Tax Summary
Amid the major structural changes elsewhere in the Budget, workers and salary earners received a genuinely positive package. The Government has legislated two income tax rate cuts and introduced a new permanent offset and a simplified expense deduction. Most of these benefits are automatic.
The marginal tax rate on income between $18,201 and $45,000 is being reduced in two steps. From 1 July 2026 the rate drops from 16% to 15%, saving up to $268 per year. From 1 July 2027 it drops again to 14%, bringing the total annual saving to up to $536 compared to 2023/24 settings. All other income tax brackets and thresholds remain unchanged. These cuts are already legislated — they take effect automatically and will be reflected in your employer’s payroll withholding from 1 July 2026.
| Taxable income | 2025/26 | 2026/27 (from 1 Jul 2026) | 2027/28 (from 1 Jul 2027) | Max saving vs 2025/26 |
|---|---|---|---|---|
| $0 – $18,200 | Nil | Nil | Nil | — |
| $18,201 – $45,000 | 16% | 15% ↓ | 14% ↓↓ | Up to $536 |
| $45,001 – $135,000 | 30% | 30% | 30% | — |
| $135,001 – $190,000 | 37% | 37% | 37% | — |
| $190,001 and above | 45% | 45% | 45% | — |
From your 2026/27 tax return, eligible workers can choose between two options for work-related expenses — it is an either/or choice, not a combination:
Claim up to $1,000 for work-related expenses without keeping any receipts. This is simpler and benefits workers with smaller claims. If your actual expenses are less than $1,000, this option gives you a larger deduction than you could otherwise prove.
If your actual work-related expenses exceed $1,000, claim the full amount in the usual way with receipts. You cannot take the $1,000 standard deduction on top of your itemised claim — you choose whichever gives you the better result.
This replaces the current $300 no-receipt work expense threshold and the $150 laundry concession. If your actual expenses are between $301 and $1,000, you are better off under the new rules. Regardless of which option you choose, charitable donations, union fees and professional association memberships can still be claimed separately on top. Subject to legislation.
Eligible workers must earn income from work (wages, salary, or sole trader income). Those who earn only investment or rental income are not eligible for this deduction.
From the 2027/28 income year, a new permanent annual tax offset of up to $250 will be automatically applied to every eligible worker’s tax return. Around 13.3 million Australians are expected to qualify, including approximately 1.5 million sole traders — with 97% expected to receive the full $250. The offset applies to income from work (wages, salary, and sole trader business income) and effectively raises the tax-free threshold for workers by nearly $1,800, to $19,985 (or up to $24,985 for those also eligible for the Low Income Tax Offset). You do not need to do anything to claim it — it is applied automatically at tax time. Subject to legislation.
Combining the two legislated rate cuts, the $1,000 instant deduction (at average benefit) and the new WATO, a worker on average earnings will be up to $2,701 better off in 2027/28 compared to 2023/24 tax settings. If they claim the full $1,000 instant deduction, the total benefit rises to $2,816 per year.
The income thresholds below which low-income earners, families, seniors and pensioners pay no Medicare Levy (or a reduced amount) are being increased by 2.9% from the 2025/26 income year. This means more than one million Australians will pay less or no Medicare Levy.
| Category | Previous threshold (2024/25) | New threshold (2025/26) | Increase |
|---|---|---|---|
| Singles | $27,222 | $28,011 | +$789 |
| Families | $45,907 | $47,238 | +$1,331 |
| Single seniors & pensioners | $43,020 | $44,268 | +$1,248 |
| Family — seniors & pensioners | $59,886 | $61,623 | +$1,737 |
| Per dependent child/student | $4,216 | $4,338 | +$122 |
The Budget introduces significant changes to CGT for individuals, trusts and partnerships from 1 July 2027. The 50% CGT discount is being replaced by cost-base indexation and a 30% minimum tax on real capital gains. Assets include investment properties (residential and commercial), holiday homes, vacant land, shares, units, goodwill, and cryptocurrency.
The new rules apply only to gains arising on or after 1 July 2027. Gains accrued before that date are calculated separately and retain access to the 50% discount (or indexation). There is no grandfathering of the discount beyond that date — all assets held after 1 July 2027 will have the post-July 2027 portion of their gain taxed under the new rules.
| Scenario | Subject to CGT? | Discounts available | Tax rate applied | Negative gearing after 1 July 2027? |
|---|---|---|---|---|
| Assets purchased before 20 September 1985 (note 1) | ||||
| Sold before 1 July 2027 | No — fully exempt | N/A | N/A | Yes |
| Sold after 1 July 2027 | Yes — taxed on growth from 1 July 2027 only. Cost base = market value on 1 July 2027. | 50% discount: No Indexation: Yes |
Higher of marginal rate or 30% (plus Medicare Levy) (note 3) | Yes |
| Assets purchased after 21 September 1985 | ||||
| Sold before 1 July 2027 | Yes — full ownership period | 50% discount: Yes (if held >12 months) Indexation: Yes (choice of either) |
Marginal rate (plus Medicare Levy) | Yes |
| Sold after 1 July 2027 | Yes — full ownership period, split into two periods (note 2) | Pre-1 Jul 2027: 50% discount (if >12 months) or indexation Post-1 Jul 2027: No 50% discount; indexation only |
Pre-1 Jul 2027: Marginal rate Post-1 Jul 2027: Higher of marginal rate or 30% (note 3) |
Contract before 12 May 2026: Yes Contract after 12 May 2026: Residential: No Other assets: Yes |
| Exceptions to the above rules | ||||
| New build residential property — held by original owner, sold any time | Yes — full ownership period | 50% discount: Yes (if >12 months) Indexation: Yes (choice of either) |
Marginal rate (plus Medicare Levy) | Yes — regardless of purchase date |
| Main residence exemption | No — fully exempt | N/A | N/A | N/A |
From 1 July 2027, negative gearing on established residential properties will be restricted. Losses on residential properties purchased after Budget night (7:30pm AEST, 12 May 2026) will no longer be deductible against other income such as wages. Instead, losses will be quarantined and can only be offset against future residential property income. Negative gearing on shares, commercial property, and other non-residential assets is unchanged.
Properties held (or under signed contract) at 7:30pm AEST on 12 May 2026 are fully grandfathered. You can continue to negatively gear against all income for as long as you hold the property. There is no time limit on this protection.
Negative gearing remains fully available for newly constructed residential properties (new builds, off-the-plan, knock-down rebuilds), regardless of when purchased. The Government’s intent is to direct the tax incentive toward increasing housing supply.
Losses on newly purchased established residential properties can still be deducted — but only against residential property rental income in the same or future years. They carry forward indefinitely and can also be used against capital gains on the eventual sale of the property. They cannot be offset against wages, salary or other investment income.
These are some of the most significant changes to trust taxation in decades. From 1 July 2028, a 30% minimum tax will apply at the trustee level on the taxable income of discretionary (family) trusts. This fundamentally changes the flow-through nature of trust taxation that has made discretionary trusts such a popular vehicle for small businesses and investors.
From 1 July 2028, the trustee will pay a minimum tax of 30% on the trust’s taxable income, regardless of how that income is distributed. Individual (non-corporate) beneficiaries will receive a non-refundable tax credit for the trustee tax paid on their share of income:
- If a beneficiary’s marginal tax rate is above 30%, they pay top-up tax as usual — the overall tax position is similar to before.
- If a beneficiary’s marginal rate is below 30% (e.g. a non-working spouse, adult child studying), the excess credit is lost — it cannot generate a refund. This is the key change for many families.
- Corporate beneficiaries (bucket companies) will not receive any credit for the trustee tax paid — a deliberate design choice to discourage distributions to bucket companies and which may result in double taxation.
- Trusts distributing to lower-income beneficiaries (non-working spouses, students) — excess credits are lost
- Structures using a corporate beneficiary — no credit, risk of double taxation
- Groups with multiple layers of trusts and companies
- Trusts holding investment assets with lower-income beneficiaries
- Trusts distributing predominantly to beneficiaries already on 30% or higher marginal rates
- Businesses where family members work in and are paid by the business
- Trusts with primary production (farming) income — carved out
- Around 40% of small business trusts not expected to need to pay additional tax or restructure (Treasury estimate)
- Fixed trusts and widely held trusts
- Complying superannuation funds
- Special disability trusts
- Deceased estates
- Charitable trusts
- Fixed testamentary trusts (created by a Will)
- Primary production (farming) income
- Certain income relating to vulnerable minors
- Amounts subject to non-resident withholding tax
- Income from assets of discretionary testamentary trusts that existed on 12 May 2026
The Government has announced a three-year rollover relief window from 1 July 2027 to 30 June 2030, allowing eligible taxpayers to transfer assets out of a discretionary trust into another entity type — such as a company or fixed trust — without triggering income tax or CGT consequences at the time of the transfer. Possible restructuring options include converting to a company structure, a fixed trust, or in some circumstances holding assets directly.
The full details of how the rollover relief will work in practice have not yet been released. Key design questions — including which assets qualify, conditions that apply, and how the relief interacts with state-based stamp duty — remain to be resolved. We will personally contact all of our trust clients once these details become clearer, to help you assess whether restructuring is in your best interests and which structure best suits your circumstances going forward.
Despite the tax changes, discretionary trusts continue to offer significant asset protection and estate planning advantages. The decision to restructure should weigh the tax cost of remaining in the trust against the full cost and complexity of restructuring, including stamp duty, legal costs, and the loss of non-tax benefits. This is a conversation we want to have with each of our trust clients individually.
The Budget delivered several measures aimed directly at supporting small and medium businesses — most of which are genuinely positive for cash flow and compliance. Here is a summary of each.
Small businesses with aggregated annual turnover of less than $10 million can immediately deduct the full cost of any eligible asset costing less than $20,000 in the year of purchase. The threshold applies per asset, so multiple purchases each qualify. From 1 July 2026 this is permanent — ending years of uncertainty caused by one-year-at-a-time extensions.
- New and second-hand plant and equipment
- Tools, machinery and technology
- Office furniture and fit-out items
- Vehicles (subject to the car cost limit)
- Most tangible depreciating assets used in your business
A tradie purchases a new work trailer for $18,500 and a laptop for $2,800 in 2026/27. Both are under $20,000 individually, so the full $21,300 is deducted immediately rather than depreciated over years — reducing taxable income dollar for dollar in the year of purchase.
The total deduction is the same either way — the advantage is timing. Claiming the full deduction in Year 1 reduces your tax bill immediately, improving cash flow when you need it most.
From 1 July 2026, eligible companies that make a tax loss can offset that loss against company income tax paid in either of the two prior income years, and receive the difference back as a cash refund. This applies to companies with aggregated annual global turnover of less than $1 billion, applies to revenue losses only, and is capped by the company’s franking account balance. It does not apply to businesses operating through trusts or sole traders.
A small company paid $12,500 in tax in 2024/25 (on $50,000 profit at 25%). In 2026/27 it invests in new equipment and makes a $20,000 tax loss. It can carry that loss back against the 2024/25 tax paid, generating a cash refund of $5,000 ($20,000 × 25%) — real cash back into the business, not just a future credit.
From 1 July 2028, eligible start-up companies in their first two years of operation with aggregated turnover under $10 million can convert early-stage tax losses into a refundable tax offset. The refund is capped at the amount of FBT and PAYG withholding tax paid on employee wages — so it benefits start-ups that are actually employing people, not founder-only businesses. Up to 25,000 start-up companies per year are expected to benefit.
From 1 July 2027, small and medium businesses will be able to opt in to paying PAYG income tax instalments monthly rather than quarterly. The monthly calculation would be embedded in ATO-approved accounting software, aligning payments with actual business activity. This is entirely optional — quarterly instalments continue for those who prefer them. It is most useful for businesses with seasonal or variable income, where large quarterly lump sums create cash flow pressure.
Since July 2022, eligible battery electric and hydrogen fuel cell vehicles provided through employer arrangements have been fully exempt from FBT. The Government has announced a phased wind-back, replacing the full exemption with a permanent 25% FBT discount from 1 April 2029. Existing lease arrangements are substantially protected.
| Period | EVs up to $75,000 | EVs $75,001 – LCT threshold (~$91,400) | EVs above LCT threshold |
|---|---|---|---|
| Now – 31 March 2027 | Full exemption (0% statutory rate) | Full exemption (0% statutory rate) | No concession |
| 1 Apr 2027 – 31 Mar 2029 | Full exemption continues | 25% discount (15% statutory rate) | No concession |
| From 1 April 2029 | 25% discount (15% statutory rate) | 25% discount (15% statutory rate) | No concession |
| Existing leases | Protected — retain the FBT treatment in place when the arrangement commenced, for the life of that lease | ||
If you or an employee is considering entering a new EV novated lease, the window to lock in the full exemption for new arrangements is before 1 April 2027. After that date, only EVs under $75,000 retain the full exemption for new leases. Please speak to us before committing so we can model the tax impact for your specific situation. Note that PHEVs have already been excluded from the exemption since 1 April 2025 and were not reinstated in this Budget.
Revenue threshold: $50M → $100M. Gross assets: $25M → $50M. Companies falling below the new thresholds will no longer need to lodge annual audited financial reports with ASIC, significantly reducing compliance costs for mid-sized private companies.
From 1 July 2028, the R&D incentive is being reformed to better support high-impact “core” R&D, with an increased offset and simplified access. If your business conducts eligible R&D, the changes are intended to make the incentive more accessible and more generous.
The rule preventing small businesses from re-entering the simplified depreciation regime for five years after opting out remains suspended until 30 June 2027, giving more flexibility around depreciation choices for businesses that previously opted out.
