Treasurer Jim Chalmers handed down the 2026–27 Federal Budget on 12 May 2026, describing it as “the most important and ambitious Budget in decades.” Delivered against a backdrop of a global oil shock, rising inflation, and ongoing cost of living pressures, the Budget contains significant reforms to tax, housing, superannuation, aged care, and health.
This article provides a factual overview of the key changes and outlines which groups of Australians are likely to be most — and least — affected. It does not constitute financial advice.
Income Tax Cuts
The Government is delivering further income tax reductions for Australian workers:
- A $1,000 instant tax deduction for work-related expenses will apply from the 2026–27 tax year, allowing workers to reduce their taxable income by $1,000 without keeping receipts. Around 6.2 million workers are expected to benefit.
- The tax rate on income between $18,201 and $45,000 will drop from 16% to 15% from 1 July 2026, and then to 14% from 1 July 2027.
- Every Australian taxpayer will receive a tax cut of up to $268 from 1 July 2026, and up to $536 every year from 1 July 2027, compared to 2024–25 settings.
- A new permanent Working Australians Tax Offset (WATO) of up to $250 per year will apply from 1 July 2027, raising the effective tax-free threshold for approximately 13 million eligible workers to $19,985 (or up to $24,985 for those also eligible for the Low Income Tax Offset).
Capital Gains Tax (CGT) Changes
This is one of the most significant structural tax changes in the Budget.
What is changing?
- From 1 July 2027, the existing 50% CGT discount — which has applied since 1999 — will be replaced with a cost base indexation system. This means investors will only pay tax on the real (inflation-adjusted) gain on an asset, rather than half of the total nominal gain.
- A 30% minimum tax rate will also apply to capital gains after indexation has been applied.
What is not changing?
- Small business CGT concessions remain in place.
- Existing assets purchased before Budget night (12 May 2026) will retain access to the 50% discount for gains accrued up to 1 July 2027.
- Investors purchasing new residential builds after the start date will be able to choose between the new indexation method or the existing 50% discount.
- Age Pensioners and income support recipients are exempt from the 30% minimum rate.
- CGT changes do not apply to complying superannuation funds.
Negative Gearing Changes
From 1 July 2027, negative gearing for residential property will be limited to new builds for properties purchased after Budget night (12 May 2026).
- Properties already owned before Budget night are fully grandfathered — existing arrangements remain unchanged.
- Investors who buy established housing after Budget night will still be able to deduct losses against residential property income (such as rent or future capital gains), but not against other income such as wages or salaries.
- Unused losses can be carried forward to offset residential property income in future years.
- Investors in new residential builds will continue to be able to deduct losses from other income.
Discretionary Trust Taxation
From 1 July 2028, a 30% minimum tax will apply to the taxable income of discretionary trusts, paid at the trustee level.
- Beneficiaries receiving distributions from the trust will receive a non-refundable tax credit for the tax already paid.
- The minimum tax will not apply to: fixed and widely held trusts, charitable trusts, special disability trusts, complying superannuation funds, deceased estates, primary production income, or assets of discretionary testamentary trusts existing at the time of announcement.
- Approximately 350,000 active small businesses currently operate under discretionary trust structures.
- Around 40% of those businesses are not expected to face additional tax or require restructuring.
- Rollover relief will be available for three years from 1 July 2027 for businesses that choose to restructure, with no income tax or CGT consequences from moving to a fixed trust or company structure.
Superannuation
- From 1 July 2026, the tax rate on earnings in superannuation funds for balances above $3 million increases from 15% to 30%. For balances above $10 million, an additional 10% tax applies.
- These changes do not affect complying superannuation funds under the CGT reforms.
- The Government announced expanded venture capital tax incentives from 1 July 2027, allowing superannuation funds greater flexibility to invest in start-ups and high-growth companies.
Housing
Beyond the negative gearing and CGT changes, the Budget includes:
- A $47 billion increase in total investment in housing supply.
- The ban on foreign investors purchasing existing homes is extended to 30 June 2029.
- Treasury estimates these combined housing reforms could help an additional 75,000 Australians purchase homes over the next decade.
Cost of Living Relief
- A fuel excise cut has reduced petrol and diesel excise from 52.6 to 20.6 cents per litre for three months from 1 April 2026, as part of a $2.9 billion package responding to the global oil shock.
- The Medicare levy low-income threshold will be raised by 2.9% from the 2025–26 financial year, benefiting more than one million Australians on lower incomes.
- An additional $6 billion has been committed to the Pharmaceutical Benefits Scheme (PBS). The maximum general co-payment will reduce to $25, with the concessional rate frozen at $7.70 until 2030.
- 137 Medicare Urgent Care Clinics will be made permanent, with four in five Australians expected to live within a 20-minute drive of one by July 2026.
- An additional $25 billion in Commonwealth funding for public hospitals over the next agreement period.
Aged Care
- An additional $3.7 billion will be invested in the aged care sector.
- 5,000 extra residential aged care beds per year will be added.
- Personal care services — including showering, dressing, and continence care — will be made free of charge in aged care plans.
- Prices for the Support at Home program (which replaced Home Care Packages in November 2025) will be capped from 1 July 2026 to prevent excessive charges.
- The pension supplement will be paid at the full rate for Australians travelling overseas for up to 12 weeks (up from 6 weeks). However, the supplement will cease for those residing permanently overseas or absent for more than 12 weeks.
- The private health insurance rebate for Australians aged over 65 will be reduced to align with the standard 24% rebate rate.
Small Business
- The $20,000 instant asset write-off for small businesses will be made permanent.
- A two-year tax loss carry-back for companies with turnover up to $1 billion will be permanently reintroduced from 1 July 2026.
- R&D tax incentives will be expanded from 1 July 2028, with increases to the offset for experimental core R&D activity.
The Big Winners
Wage and salary earners — Multiple rounds of income tax cuts, the $1,000 instant deduction, and the new Working Australians Tax Offset all directly benefit workers. An average earner on $81,245 is expected to be around $2,701 better off by 2027–28 compared to 2023–24 settings.
First home buyers — The combination of negative gearing reform (restricting new claims to new builds) and CGT changes is designed to reduce competition from investors in the established property market, with Treasury projecting up to 75,000 additional homeowners over the next decade.
New property investors — Those purchasing newly built residential properties retain access to both negative gearing and the option to choose the existing 50% CGT discount, making new builds relatively more attractive than established properties.
Those on low incomes — The Medicare levy threshold increase, cheaper medicines under the PBS, the pension supplement extension for overseas travel, and bulk billing improvements all benefit Australians on lower incomes.
Existing property owners — All properties purchased before Budget night are fully grandfathered under both the negative gearing and CGT changes. No retrospective changes apply.
Small businesses — The permanent instant asset write-off, loss carry-back provisions, and rollover relief for trust restructuring all provide practical support.
The Big Losers
Investors in established residential property (from Budget night) — Anyone purchasing an established investment property after 12 May 2026 will no longer be able to offset rental losses against wage or salary income. Future CGT gains on such properties will also be subject to the new indexation system and 30% minimum rate.
Low-income investors outside superannuation — The 30% minimum CGT rate may impose additional tax on individuals whose total taxable income falls below $45,000. Because taxpayers in this bracket face a marginal rate below 30%, a capital gain realised above this floor may attract a higher effective tax rate than under the current system.
Discretionary trust holders and small business operators — Families and businesses using discretionary trusts will need to review their arrangements ahead of the 1 July 2028 changes. While rollover relief is available, restructuring involves legal and administrative costs and complexity.
Superannuation members with large balances — Those with balances above $3 million will face a doubling of the earnings tax rate from 1 July 2026. Balances above $10 million will face a further 10% impost.
Older Australians using private health insurance — The reduction of the private health insurance rebate for those aged 65 and over to the standard 24% rate will increase out-of-pocket health costs for many retirees.
NDIS participants — Eligibility criteria for the NDIS will tighten, with the Government planning to reduce the number of participants from 760,000 to 600,000 by 2030 by redirecting many participants to other support programs.
A Note on These Changes
Many of the reforms announced in this Budget will not take effect until 1 July 2027 or later, and several are subject to further consultation and legislation. The details — particularly around CGT implementation, trust taxation, and superannuation — will continue to evolve over the coming months.
If you would like to understand how these changes may apply to your personal circumstances, we encourage you to speak with a qualified financial adviser before making any decisions.
Written by:
MLS Financial
Disclaimer:
This information is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider speaking to a qualified financial planner before making any financial decisions. MLS Financial and Infocus Securities Australia Pty Ltd do not accept responsibility for actions taken based on this