Treasurer, Jim Chalmers, handed-down his fifth budget on the evening of 12th May 2026. It was a measured and considered Budget, in response to the growing wealth and generational divide in Australia, driven by historic tax settings that favoured investors over workers.
The key focus of the Budget, housing affordability, was described by the OECD, in their 2026 economic assessment of Australia, as a “critical challenge”. In the same report the OECD advised that urgent structural reforms were required to boost supply of housing and address the tax settings that favoured investors over homeowners. Australia, like most of the developed world, faces a seismic shift in the population age-demographic, such that the divide, driven by these historic tax incentives, needed to be addressed.
The 2026 Federal Budget sought to do just that, but in a thoughtful way, acknowledging the need to give existing investors time to adjust their strategy to the new tax framework, while at the same time giving hope to those who feel excluded from the ability to purchase their own home.
The key points from the budget, impacting our client-base, are detailed below:
Workers
- From 1 July 2026 the current 16% Income Tax rate (on taxable income from $18,201 to $45,000) will drop to 15%, and then to 14% from 1 July 2027:
- This represents a tax cut of $268 for 2026-27 and
- Up to $536 for 2027-28 onwards
- A new instant tax deduction of $1,000 (without the need for supporting receipts) will be available for workers from 1 July 2026
- A new permanent tax offset – the Working Australians Tax Offset (WATO) will, from 1 July 2027, provide an additional tax cut of up to $250
- From 1 July 2025 the Medicare Levy Low-Income thresholds for singles, families and seniors and pensioners will be increased by 2.9%
Investors
CGT Discount
From 1 July 2027 the 50% CGT discount will be replaced by cost-base indexation and a minimum 30% tax rate on Capital Gains:
- For existing assets – the 50% discount will still apply up to 1 July 27, the indexation and minimum tax rate will apply to the post 1 July 27 growth – the split will be via formal valuation of the asset at 1 July 2027 or application of a specified apportionment formula
- Investors buying new builds will still be able to choose the 50% discount
- Income-support recipients and pensioners will be exempted from the minimum CGT rate
Pre-CGT Assets
From 1 July 2027 assets acquired prior to the introduction of CGT to Australia (20 Sept 1985) will be brought within the scope of CGT but only on the growth since 1 July 2027
Negative-Gearing
- Investment properties owned before budget night (including those where contracts exchanged before 7.30pm on 12 May 26) will continue to be able to use current negative-gearing rules until their sale
- New build investment properties acquired after budget night will still be able to offset rental losses against other income
- Investors who buy existing properties after budget night will only be able to deduct rental losses against other rental profits or residential property gains, and unused losses may be carried-forward to offset against property income in later tax years, they will not be deductible against non-property income
Small Business CGT Concessions
The current Small Business CGT Concessions remain unchanged.
Foreign Investor Ban
The current ban on foreign investors buying existing residential properties is extended to 30 June 2029
Discretionary Trusts
From 1 July 2028 discretionary trusts will face a 30% minimum tax:
- The tax will be levied on the trustees, with beneficiaries including distributed income in their income tax returns with a non-refundable tax credit for the tax paid by the trustees
- The change will not apply to fixed trusts or widely-held trusts (including fixed testamentary trusts), complying superannuation funds, special disability trusts, deceased estates or charitable trusts
- Expanded rollover relief provisions will be available from 1 July 2027 for 3 years to support small businesses and investors that wish to restructure out of discretionary trusts int other structures eg companies or fixed trusts
Small Businesses
- From 1 July 2026, the $20,000 instant asset write-off for businesses with turnover up to $10m has been made permanent
- From 1 July 2026, companies with aggregated annual global turnover of less than $1billion will be able to carry tax losses back to offset tax paid in the previous two tax years
Employers: Electric Car FBT Discount
- All electric cars valued up to and including $75,000, provided before 1 April 2029 will retain the current 100% FBT discount
- Electric cars valued at above $75,000 and up to $91,387 (the fuel-efficient luxury car threshold) provided between 1 April 2027 and 1 April 2029 will be eligible for a 25% discount
- From 1 April 2029 all Electric Cars (valued up to and including the fuel-efficient luxury car threshold) will attract a 25% FBT discount
Summary
The key message is that, despite the pre-budget media rhetoric, taxpayers who wish to take action, as a result of these changes, have time to do so in a calm and carefully-planned way; there is no need for knee-jerk reactions!
If you have any queries or need advice, please contact Joanne Lamberth: joanne@fairwaytax.com.au