Federal Budget 2026-27
Written and accurate as at: May 15, 2026 Current Stats & Facts
Budget 2026 by Simon Flowers
I love budget night with the Treasurer standing up delivering a 30 minute speech to Parliament on what his plan is for the coming 12 months in relation to Australia with lots of “here, here” and nods from the same party and lots of laughter off camera from the opposition with an untruth has been told like no additional taxes. Needless to say, the current budget was very much the same. The Treasurer Jim Chalmers (affectionately known as Dr Jim) delivered his 5th budget whilst in power with a clear majority in both the upper and lower house (with the help of the Greens). Dr Jim called it the most ambitious and important budget in decades and clearly identified that the current war was punishing Australians.
The keys items in the budget are as follows (in order of Dr Jim speech):
- Strengthening Oil Fuel Package by $10billion. Due to the biggest oil shock in history the Government will build up a reserve of oil for Australia.
- Legislate that 20% of all gas will be required to be used in Australia
- Halving of fuel excise tax (already done)
- Cutting of taxes for workers with $250 Aust Workers tax offset from 1 July 2027 and $1000 immediate no receipts required tax deduction for employed workers
- Cutting red tape on new house builds and extending the ban on foreigners buying houses
- Packages around improving productivity through cutting regulatory costs, investment in innovation, reducing tariffs, expanding digital ID and simplifying building projects.
- Tax reform to rebalance the system. Capital gains tax changes, 30% tax on discretionary trust distributions and negative gearing changes – more detail below.
- Company tax – 2 year loss carryback rules and loss refundability for new starts up in the first 2 years.
- Small business - $20,000 instant asset writeoff from 1 July 2026
- NDIS cuts - $36billion
The second best part of the night is the commentary from the different bodies that take an interest – the economists, TV commentators, business council, ACTU, disability groups, opposition treasurer, independents, greens and Barnaby Joyce! The ABC was very focused on the policy U Turn and broken election promise of no changes to capital gains tax and negative gearing – the thing that they announced pre election but have automatically changed straight away. Dr Jim stated that it had to happen because they needed to fix the intergenerational inequities that is causing our younger Australians to not be able to afford to buy a house. He stated very clearly this budget was to change the tax system as it currently favours older Australians and not workers. He was very proud of his ambitious budget and stated they had been decisive in the timing of this budget. One commentator asked the question of whether it will actually do anything and stated that accountants and financial advisers will be the winners of the budget.
The final best part of the night – no superannuation changes for once! Not even a change to the 1/3 capital gains tax discount for super assets. Good news!
So, what are the key aspects from the tax changes?
Capital gains tax
From 1 July 2027 individuals, trusts and partnerships will have the 50% discount replaced with indexation system that we had in the 80’s and 90’s for us older accountants and a minimum 30% tax on the capital gain. Those who hold an asset (I say asset because this applies to all capital gains tax assets like shares and even assets which were purchased before capital gains tax came in in 1985) will have the chance to get it valued as at 1 July 2027 by a valuer or through using a ATO tool. However, if you build a new residential property you can choose to use the 50% discount rule or the indexation rule. The main purpose of attaching a 30% minimum tax rate seem to counteract the strategy of selling your asset when you retire and have no income. The only exemption to this will be for those on Centrelink benefits – so best to sell the asset when you qualify for the age pension or don’t sell at all! A word of warning for those young Australians who are investing to build up a deposit for their house – you get taxed at 30% on that so you might have to save a bit longer!
Negative gearing
From 1 July 2027 established residential rental properties losses will only be allowed to be deducted against rental income and capital gains from rental properties – these losses can be carried forward indefinitely until income is made similar to the current non commercial loss rules we have. However new residential properties that are built post this date will be exempt from these rules which limit the negative gearing. All properties which were held at budget night will be grandfathered until sale and will be allowed to negative gear. As Dr Jim points out most properties start off being negative geared but as the debt is paid down they turn positive – so the answer is don’t sell and find a friendly bank who will give you an interest only bank loan.
30% Trust distribution tax
From 1 July 2028 trustees will pay tax on behalf of the beneficiaries. The beneficiaries will need to include the tax in their tax return and will get a credit for the tax paid by the trustee on their distribution. As this is a major change the government is allowing the ability to restructure affairs for a 3 year period from 1 July 2027. Exemptions from these rules include the following trusts - fixed trusts (eg unit trusts), self managed super funds, special disability trusts, deceased estates, charitable trusts – but also type of income being primary production income, vulnerable individuals, income, subject to withholding tax rules and income from an existing discretionary testamentary trust. It will be interesting to continue to see how the idea of trust law continues to be varied dramatically from the contact of tax law for trusts – accountants are already struggling the constant playing in this space. The other item to consider is how the ATO is going to deal with the myriad of tax avoidance regulations and rulings in this area in particular sec 100A where distributions are made to adult children. Also the distributions to corporate beneficiaries will need to be reviewed in the finer detail to ensure the theory and practical application is correct.
Final thoughts
As always the answers are in the finer details and the draft legislation. Don’t over react and change your financial assets immediately – wait for advice.
Dr Jim had an ability this year to make substantive tax reform in this budget but again chose to tinker in a piecemeal way with the tax system which may or may not work in the way he wants it to work. The Government has talked about taking from the top 1% through these tax changes (negative gearing, capital gains, trust distributions) as well as the Div 296 super changes previously announced which some into effect from 1 July 2026 but by not being in the middle of the work he is not seeing that this is an attack on middle Australians as well. People will find ways around rules or make alternative adjustments to pay less tax ie buy a better main residence instead of having an investment property.
Any tax relief that anyone was hoping for was missing from the budget and the small amount all workers get ($250) will be eroded by inflation by the time you get it – July 2028 at the earliest.
The final comment is one that I found extraordinary coming from the Treasurer – he was asked when he came up with the tax changes and he replied late April – Please tell me Treasurer that you have put more than 2 weeks into thinking about the Australin Federal budget. If not maybe I will take Barnaby Joyce advice and move to Singapore where they tax you less!