Australia Federal Budget 2026-2027 – Key Tax Measures

The key tax measures in the 2026-2027 Australian Federal Budget are:

• The Budget proposes replacing the CGT discount for individuals, trusts, and complying superannuation entities with cost base indexation (for inflation), paired with a 30% minimum tax on capital gains, from 1 July 2027. This measure may require taxpayers to obtain valuations of capital assets on 1 July 2027, and will affect capital allocation decisions made by both taxpayers and fund managers. It is not clear whether the 30% minimum tax is intended to apply to withholding MITs and complying superannuation entities.
• The Budget proposes a major change to negative gearing for residential property. Deductions for net rental losses will be ring-fenced to income from residential property, except in respect of newly built dwellings acquired after Budget night, with grandfathering for existing investments and exclusions for certain widely held trusts, superannuation funds, build-to-rent projects and government-supported housing.
• The Government will introduce a 30% minimum tax on discretionary trusts from 1 July 2028. This is likely to be one of the most significant private group tax reforms in decades, with practical implications for family trusts, private business groups, bucket company arrangements and estate planning.
• Business tax measures are mixed. Companies with aggregated annual global turnover below $1 billion will be able to carry back revenue losses against tax paid up to two years earlier, while eligible small start-up companies will gain access to a limited form of loss refundability. These measures should be welcomed, but the detail will matter.
• The R&D Tax Incentive will be reworked from 1 July 2028. The reforms increase support for core R&D and expand access for some growth companies, but remove support for “supporting R&D expenditure” and impose new limits on refundability. R&D-intensive taxpayers should review the composition of their R&D claims and the potential impact on future cashflows.
• The Government will expand venture capital tax incentives, including by increasing relevant VCLP and ESVCLP asset and fund size thresholds. These changes should assist some start-up and scale-up investment, although they sit alongside broader CGT reforms that may affect founder, angel investor and private capital outcomes.

2026–2027 Federal Budget Update on Tax Measures

Is nothing sacred?

For those members of the Ashurst tax team of a certain age, the 2026 Budget announcement contained some genuinely heart palpitating shocks. The Treasurer has slaughtered several sacred cows such as:

• scrapping the CGT discount for capital gains accruing after 1 July 2027 and introducing a minimum tax of 30% on capital gains accruing after 1 July 2027 (other countries tend to have a maximum rate);
• effectively eliminating "pre-CGT" assets from 1 July 2027;
• abolishing negative gearing for residential investment properties (other than new builds) acquired on or after 1 July 2027; and
• effectively killing off income splitting and the use of "bucket companies" for more than one million family trusts from 1 July 2028.

The package is presented as a rebalancing of the tax system: away from concessions for asset ownership and towards relief for workers, housing affordability and business investment, or away from Boomers (asset owners) in favour of the increasing cohort of Millennial and Gen Z voters (and elite rugby league players prepared to move to PNG, who receive a tax exemption).

From a practical perspective, it will have material impacts on taxpayers with long-held assets, private group structures, family trusts, residential property portfolios, and capital-intensive investment strategies.

This was one of the more consequential and controversial Budgets for many years from a tax perspective and there will no doubt be vigorous public debate prior to implementation of, in particular, the measures around property investments, capital gains tax and trusts. While it has clearly succeeded in paring back the "generous" tax treatment of asset owners, an opportunity has again been missed to meaningfully match this with substantial income tax cuts.

Capital gains tax — Return to Indexation

The Government has proposed material changes to the Australian capital gains tax (CGT) regime. From 1 July 2027, the Government proposes to replace the CGT discount (which can be claimed by individuals, trusts, and complying superannuation entities), and replace it with cost base indexation (to reflect CPI) for assets held for more than 12 months.

In addition, the Government has proposed that net capital gains would be subject to a 30% minimum tax. This 30% minimum tax will apply to "real" gains (i.e., after indexation), will not impact taxpayers whose gains are already subject to this amount of tax (e.g., those on the highest marginal tax rates), and will not apply to taxpayers in receipt of means tested income support (such as the Age Pension or Job Seeker). The announcement states that the 30% minimum tax is designed to prevent taxpayers from disposing of CGT assets in years in which they have low taxable income, allowing them to access lower marginal tax rates. However, it is unclear whether this minimum tax will apply to (for example) complying superannuation entities or withholding MITs.

These changes will have a material impact on the Australian funds management industry. Taxpayers investing in capital assets via Australian unit trusts are able to access the CGT discount, and the change to indexation will alter the profile of post-tax returns from various asset classes. Accordingly, both fund managers and taxpayers will need to consider how these changes impact their preferred capital allocations across asset classes.

As part of transitioning from the CGT discount to indexation, impacted taxpayers will be required to determine the market value of their capital assets as at 1 July 2027. In particular, the transitional rules will operate as follows:

1. For assets that are acquired and disposed of prior to 1 July 2027, the CGT discount will continue to apply (where the taxpayer is eligible for the CGT discount);
2. For assets acquired prior to 1 July 2027 but disposed of on or after 1 July 2027, the CGT discount will (where the taxpayer is eligible) apply to the difference between the asset's cost base and its value at 1 July 2027, whereas indexation will apply from 1 July 2027 (with the asset's cost base set by reference to the asset's value as at 1 July 2027). Gains will only be recognised on disposal (or other relevant CGT event). Taxpayers can either seek a valuation of an asset as at 1 July 2027, or use a specified formula that estimates the asset's value based on its growth rate over the holding period;
3. For assets acquired on or after 1 July 2027, these assets will be subject to indexation (with no CGT discount), but it appears only where the taxpayer would have been eligible for the CGT discount.

Note that this proposed transition stands in stark contrast to the proposed transition for foreign residents impacted by the foreign resident CGT changes – in that context, there is no transition for existing assets, and indeed the retrospective application of elements of the new rules back to 2006. Residents impacted by the CGT changes announced in the Budget may count themselves lucky in this regard.

It is not clear from the announcement how these rules will apply in the context of fund investments – e.g., if a taxpayer has acquired units in a trust prior to 1 July 2027, and that trust subsequently sells all of its assets and acquires post-1 July 2027 assets, how the indexation and CGT discount will interact where the fund sells its post 1 July 2027 assets and subsequently redeems the units in the fund.

Note that assets acquired prior to the announcement of the CGT regime on 20 September 1985 will now be brought within the CGT regime. Gains on assets acquired prior to this time that accrued before 1 July 2027 will continue to be exempt – in other words, the cost base of these assets will be set by reference to their value on 1 July 2027.

Relevant taxpayers who acquire new residential dwellings will be able to choose whether to apply the CGT discount, or indexation and the new minimum tax, when they sell the dwelling. An integrity rule will ensure this only applies where net dwellings are added to the housing stock. Certain other concessions will be retained in full, including the existing 60 per cent CGT discount applying to qualifying affordable housing as well as small business concessions. In addition, the Government will consult with the tech and start up sectors on the CGT reforms and impacts on those sectors.

Tax history buffs will recognise that elements of the reform package reflect the original CGT regime introduced by Labor in the 1980s. However, it is worth noting some key elements of the original regime that are not proposed to be re-introduced:

1. All entities were previously eligible for indexation, including corporate entities and foreign residents. Notwithstanding that recent Governments have been obsessive in their desire to ensure foreign residents pay their fair share of tax, Australia's CGT regime will continue to subject foreign residents (and resident corporations) to tax on illusory gains driven by inflation, as opposed to real capital gains;
2. The original regime had an averaging concept, which sought to limit the effect of capital gains pushing people into higher tax brackets. If anything, the Government has gone in the opposite direction – even though capital gains may be considered to have accrued over a number of years (such that access to marginal tax rates across those years may be considered reasonable), the minimum tax is specifically designed to prevent people utilising lower marginal rates.

Negative gearing reform

In a reversal of its election promise, the Government has announced changes to negative gearing on residential investment properties, effective 1 July 2027. Other asset classes (e.g., shares, commercial property) will remain subject to the existing arrangements.

Broadly, negative gearing arises where the allowable deductions attributable to a residential property (such as interest on borrowings, depreciation and maintenance costs) exceed the assessable income derived from that property. Under the current tax laws, losses made by a taxpayer are generally available to shelter assessable income also made by that taxpayer, such that net rental losses reduce the taxpayer's overall taxable income and tax liability.

Under the proposed changes, losses from established residential properties (i.e., not new builds) acquired from 7:30pm (AEST) on 12 May 2026 will, from 1 July 2027, be ring-fenced such that they are only deductible against:

• rental income from residential properties; or
• capital gains from residential properties.

Excess losses would be capable of being carried forward and offset against residential property income in future years.

Properties acquired prior to the Budget (including those under contract but which have not yet completed) will not be subject to these rules (i.e., may continue to be negatively geared, with losses available to shelter other income). Similarly, properties acquired after the Budget will not be subject to these rules until 1 July 2027. Super funds (including SMSFs) and widely held trusts will be excluded from the changes.

Eligible new builds will be also exempt from these measures. An integrity rule will ensure this only applies where net dwellings are added to the housing stock. It is also anticipated that exemptions would be available for build-to-rent developments and private investors supporting government housing programs.

Minimum tax on discretionary trust distributions

The Government is introducing a 30 per cent minimum tax on discretionary trusts, effective 1 July 2028. This is a significant change to the already complex taxation regime applicable to trusts.

Trustees of in-scope discretionary trusts will pay 30 per cent tax on the taxable income of the trust, unless higher rates already apply. Beneficiaries other than corporates will receive non-refundable credits for the tax paid by the trustee. Corporate beneficiaries will not receive these credits and will be "assessed based on the trust income to which they are entitled". Based on the announcement, distributions by a discretionary trust to a corporate beneficiary will be subject to double taxation, and may be subject to further taxation when the company pays those amounts as dividends. The changes are clearly intended to discourage the utilisation of so-called "bucket companies" in discretionary trust structures.

Fixed and widely held trusts, complying superannuation funds, special disability trusts, deceased estates, and charitable trusts are excluded from these new measures. While these exceptions may apply to managed investment trusts (MITs) and securitisation trusts, they are not specifically excluded. Certain types of income are also excluded from the proposal, including primary production income, amounts subject to non-resident withholding tax and income from assets of existing testamentary trusts.

Rollover relief will be available for three years from 1 July 2027 for "small businesses and others" who choose to restructure into a company or fixed trust. A range of other support will also be available to assist restructuring. However, restructures in response to the new rules could attract stamp duty, and existing corporate restructure exemptions may not be available to restructures involving discretionary trusts.

The proposed rules raise a number of issues, including:

• Interactions with existing regimes including the already complex trust rules and the franking measures.
• The identification of a "discretionary trust" for the purpose of these measures. For example, will a discretionary trust be defined in opposition to the fixed trust concept? It is often uncertain whether any given trust is "fixed", and it remains unclear whether the fixed trust rules or the ATO compliance approach (especially the safe harbours) in PCG 2016/16 will be amended to accommodate these new rules.
• The entities eligible for rollover relief, as well as the nature and administration of such relief.
• The announcements suggest established collection mechanisms will be used. Existing collection regimes have different mechanics, which will impact how these rules are administered in practical terms.

Tax incentives

Research & Development Tax Incentive (R&DTI) changes

The Government is reforming the R&DTI with effect from 1 July 2028. The changes are a mixture of increased support for core R&D and tighter targeting.

The Treasurer states that this will unlock 20% more business R&D for each dollar of tax offset and a further $400 million increase in the annual R&D investment by start up firms.

From 1 July 2028, the Government will:

• Lift the maximum expenditure threshold from $150 million to $200 million;
• Lift the eligibility for refundable offsets from the current turnover threshold for the highest offset rate from $20 million to $50 million;
• For firms below the new $50 million turnover threshold, older firms will retain eligibility for the higher offset rate, but refundability will be limited to firms in their first 10 years;
• Increase the offset for core R&D expenditure by around 25 to 50 per cent, through a 4.5 percentage point increase in core R&D offset rates; and
• Reduce the intensity threshold from 2 per cent to 1.5 per cent, enabling more firms that engage in substantial core R&D to qualify for higher offset rates.

There will also be some tightening of the R&DTI and improved assurance as follows:

• Supporting R&D expenditure will no longer be eligible for the R&DTI;
• The minimum expenditure threshold will increase from $20,000 to $50,000 unless the research activities are undertaken with a registered Research Service Provider or Cooperative Research Centre; and
• The ATO will undertake additional targeted compliance activities over the two years from 2026–27 to further address fraud in the tax system, including in relation to the R&DTI.

Venture capital tax incentives

The Government has proposed to increase the investment thresholds for Australia's venture capital limited partnership and early stage venture capital limited partnership programmes for the first time since their introduction in 2002 and 2007 respectively. The thresholds, which cap the value of the entities in which registered venture capital funds can invest, have not kept pace with inflation, market growth, or the increasing scale of Australian start-ups and growth companies. The proposed increases are long overdue and should allow venture capital funds to continue supporting businesses that have outgrown the original settings.

From 1 July 2027, venture capital limited partnerships (VCLP) will have the investee entity asset size cap (permitted entity value) increased to $480m (from $250m). Early stage venture capital limited partnerships (ESVCLP) will also have the permitted entity value at the time of investment (meaning an investee can grow beyond this threshold post-investment without disqualifying the original investment) increased to $80m (from $50m). The ESVCLP tax incentive cap has also been increased to $420m (from $250m) and the maximum fund size for an ESVCLP increased to $270m (from $200m).

Treasury and the Department of Industry, Science and Resources (DISR) have committed to undertaking impact assessments in 2032–33, a welcome acknowledgement that leaving thresholds static for two decades is a mistake worth not repeating.

Small and medium business measures

Loss Carryback for Small Business

Companies with up to $1b in aggregated annual global turnover will be able to use current year tax losses to claim a refund for tax paid in the prior two years from income years commencing on or after 1 July 2026. This measure will only apply to revenue losses and will be limited by the company's franking account balance. Similar loss carry back rules applied in relation to tax losses incurred in the 2019-20 to 2022-23 income years, although the turnover threshold previously was $5b.

Small start up companies with aggregated annual turnover of up to $10m will be able to utilise the loss to obtain a refundable tax offset for tax losses in their first two years of operations from income years commencing on or after 1 July 2028. The refund will be capped at the amount of FBT and withholding tax on wages paid in respect of Australian employees in the year in which the loss is incurred. We expect that the detailed rules will address integrity matters, including in relation to transfers of business and phoenix activities.

These measures are intended to support cashflow for businesses experiencing temporary losses and those in their start up phase that employ Australians.

Permanent $20,000 Instant Asset Write-Off

The Government has announced that the $20,000 instant asset write-off will be permanently extended from 1 July 2026, continuing to allow small businesses (with a turnover up to $10 million) to immediately deduct the full cost of assets under $20,000. Assets valued over $20,000 can be placed into the small business simplified depreciation pool. While provisions exist to restrict small businesses from re-entering the simplified depreciation regime for five years after 'opting out', the Government announced these provisions will remain suspended until 30 June 2027.

Dynamic PAYG

The Government has also announced the pilot of dynamic pay as you go (PAYG) instalment calculations will be expanded. From 1 July 2027, small and medium businesses will be able to opt in to reporting and paying PAYG instalments monthly, using an ATO-approved calculation embedded in accounting software. This measure is aimed at providing businesses with greater flexibility by allowing businesses to change their PAYG instalments when business conditions change. However, taxpayers with a demonstrated history of non-compliance will be required to report and pay PAYG instalments monthly.

Electric vehicle FBT changes

As previously announced on 5 May 2026, the Government has proposed to change the fringe benefits tax (FBT) arrangements that apply to electric vehicles.

The Government has announced phased changes from a full exemption for eligible electric vehicles to a permanent 25% FBT discount to apply from 1 April 2029.

The changes are proposed to be introduced in phases:

• First phase – the current electric vehicle discount will continue in full for all eligible electric vehicles until 31 March 2027.
• Second phase – between 1 April 2027 and 31 March 2029, the full FBT discount will continue to apply to electric vehicles valued up to and including $75,000. It is proposed that this phase will encourage the production of more affordable electric vehicle options for the Australian market. For those electric vehicles costing more than $75,000 and up to and including the fuel-efficient luxury car tax threshold (which for the 2025-2026 year is $91,387), a 25% FBT discount will be available.
• Third phase – from 1 April 2029, a 25% FBT discount will be available for all electric vehicles below the fuel-efficient luxury car tax threshold.

For all other cars including electric cars above the fuel-efficient luxury car tax threshold, the current arrangements will continue to apply.

Personal tax measures

The Government has announced two personal income tax measures intended to provide cost of living relief and incentivise workforce participation.

Working Australians Tax Offset and Medicare levy low-income thresholds

From 1 July 2027, a permanent $250 tax offset will be available for income derived from work (wages, salaries and sole trader business income). The Government has stated that the offset raises the "effective" tax-free threshold for work-related income by nearly $1,800 to $19,985 (or $24,985 for Low Income Tax Offset recipients).

The Medicare levy low income thresholds for singles, families and seniors and pensioners will also increase by 2.9% from 1 July 2025.

$1,000 Instant Tax Deduction

Workers who derive income from employment will also be entitled to an instant tax deduction of up to $1,000 from 2026–27, removing the need to itemise work-related expenses below that threshold. Charitable donations, union fees and other non-work-related deductions remain separately claimable on top of the instant deduction.

Other measures

Foreign resident CGT rules

Previously announced amendments to Australia's foreign resident CGT regime to "clarify" the meaning of real property (in some cases with retrospective effect to 12 December 2006) and introduce a targeted concession for disposals of certain renewable energy infrastructure assets until 30 June 2030 will be going ahead as planned. There do not appear to be any material changes in policy settings in this regard, based on the Budget announcement.

Pillar 2 "Side-by-Side" package implementation

Amendments will be made to Australia’s global and domestic minimum tax legislation to implement the Pillar 2 "Side-by-Side" (SbS) package. Broadly, the SbS introduces two new Pillar 2 safe harbours, the Side-by-Side Safe Harbour (SbS SH) for MNE Groups headquartered in jurisdictions with both eligible domestic and worldwide tax systems and the Ultimate Parent Entity Safe Harbour (UPE SH) for MNE Groups with a UPE located in a jurisdiction that has an eligible domestic tax system but not an eligible worldwide tax system. The SbS SH, when elected, deems top-up tax to be zero for the purposes of the income inclusion rule (IIR) and undertaxed profits rule (UTPR). The UPE SH, when elected, sets the top up tax under the UTPR with respect to the UPE jurisdiction to zero. The SbS System will not interfere with the application of qualified domestic minimum top up taxes.

The SbS package implements the G7 agreement with the US to exclude US parented multinationals from the main charging provisions in Pillar 2, on the basis that that its tax system already operates as a worldwide minimum tax with policy objectives comparable to Pillar 2. The US is currently the only jurisdiction listed as eligible for the SbS safe harbour. Other jurisdictions may seek SbS treatment in the future by requesting an assessment against the eligibility criteria. The SbS safe harbours apply to fiscal years starting on or after 1 January 2026.

Tax exemption for PNG Chiefs NRL team

For football fans, there will be an amendment to the tax law to provide income tax exemptions for players and staff of the PNG Chiefs National Rugby League team.