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Budget 2026: Broken promises and a rebalancing act

The 2026 Federal Budget is predominantly about rebalancing how tax concessions in the tax system are accessed and by who. The Government having gone to the last election with a commitment on no new taxes and no changes in CGT, trusts or negative gearing have had a change of view. These structural changes are likely to significantly change how investors and family trusts move forward.

Listen: Budget 2026 The Rebalancing Act
7:58


Despite the estimated $3.6 billion in savings over 5 years from the structural tax measures, the Federal Budget won’t be balanced; Australia faces a deficit of $31.5 billion and the debt drag created by it - but it is $2.5 billion better than the estimate 6 months ago.

Outside of structural reform to investment property ownership and family trusts, there are a series of cost of living sweeteners including the $250 tax offset for workers from 1 July 2027 to reduce their tax payable, and the 1% tax cut announced in the previous Budget coming into effect in 2026-27 and 2027-28.

Here’s a summary of the key measures:

 

50% blanket CGT discount will end for all asset types

From 1 July 2027, the 50% CGT discount will be replaced with a cost base indexation method that reduces any gains by inflation, and applies a minimum 30% tax on gains. This includes gains on pre-CGT assets. See The end of the general 50% CGT discount.

 

Negative gearing abolished for all but new builds

From 1 July 2027, the ability to negatively gear an investment property will be limited to new builds and existing investment properties purchased prior to Budget night. See Negative gearing abolished for all but new builds.

 

Minimum 30% tax on discretionary trusts

From 1 July 2028, trustees will pay a minimum tax of 30% on the taxable income of discretionary trusts. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee. The policy ends practical use of ‘bucket companies’ by denying them access to trust credits, causing potential double taxation of the same amount. See Tax on family trusts: not what you want to hear.

 

Ban on foreign ownership of existing residential property extended

The Government will extend the temporary ban on foreign purchases of established residential property by two years and three months until 30 June 2029. Foreign residents are able to buy new or near new properties, established properties for redevelopment, off the plan property, and vacant land.

 

Small business measures

Instant asset write-off

The $20,000 instant asset write-off will be made a permanent, replacing the existing $1,000 write-off threshold that is amended upwards almost every budget.

Two year tax loss carry back

For tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid in the two prior years. Loss carry back will apply to revenue losses only and will be limited by a company’s franking account balance.

Loss refunds for start-ups

From 1 July 2028, start‑up companies with aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to utilise the loss to generate a refundable tax offset. The offset will be limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year.

Monthly PAYG and ATO approved calculations

An to assist with cashflow, from 1 July 2027, SMEs will be able to opt in to reporting and paying PAYG instalments monthly and to using an ATO approved calculation embedded in accounting software to calculate to vary their instalments.

 

R&D tax incentive changes

A series of changes will be made to the R&D tax incentive from 1 July 2028. These include:

  • Increasing the offset for core R&D expenditure by around 25 to 50%, through a 4.5 percentage point increase in core R&D offset rates
  • Reduce the intensity threshold from 2% to 1.5%, enabling more firms that engage in substantial core R&D to qualify for higher offset rates;
  • Remove eligibility of supporting R&D expenditure for the R&DTI;
  • Enable growing firms to retain access to the refundable tax offset for longer by increasing the turnover threshold for the highest offset rate from $20 million to $50 million;
  • For firms below the $50 million turnover threshold, maintain older firms’ eligibility for the higher offset rate while limiting refundability to firms under 10 years of age;
  • Lift the maximum R&DTI expenditure threshold from $150 million to $200 million; and
  • Improve assurance on smaller claims by lifting the minimum expenditure threshold from $20,000 to $50,000, with research activities valued below this amount required to be undertaken with a registered Research Service Provider or Cooperative Research Centre to be eligible for the R&DTI.

 

New permanent $250 working Australians standard tax offset

Every working taxpayer will receive a $250 tax offset each year from 2027-28 onwards, reducing their taxable income.

 

1% tax cuts from 1 July 2026 and 1 July 2027

Announced in the 2025 Federal Budget, the tax cuts reduce the $18,201 to $45,000 tax bracket from a 16% tax rate to 15% from 1 July 2026, and from 15% to 14% from 1 July 2027.

 

FBT exemption scaled back for electric vehicles

The full Fringe Benefits Tax exemption for electric vehicles will be limited to EVs costing $75,000 or less from 1 April 2027. See Electric vehicle FBT exemption scaled back.

 

Private health insurance subsidy scrapped for over 65s

The private health insurance subsidy for the over 65s will revert to the same rates as other Australians from 1 April 2027.

 

Increase in Medicare levy low-income thresholds

The Medicare Levy threshold – the rate at which taxpayers pay the Medicare rebate – will increase for singles, families, and seniors and pensioners by 2.9% from 1 July 2025. The family threshold will be increased from $45,907 to $47,238. For single seniors and pensioners, the threshold will be increased from $43,020 to $44,268. The family threshold for seniors and pensioners will be increased from $59,886 to $61,623. The family income thresholds will increase by $4,338 for each dependent child or student, up from $4,216.

 

$1,000 standard work related deduction

As previously announced, taxpayers will be able to opt to take a standard $1,000 work related tax deduction in instead of claiming individual expenses on their tax return. See Swapping receipts for a $1k instant tax deduction.

 

This is a budget with clear winners and losers. Small business and investors will be confronted with some decisions over the next year on how to best position themselves going forward. For many, change will be necessary.

Over the coming months out team will be happy to assist you with a review of your position and forward direction.

Please contact us if we can assist.

Greg-Hayes-ProfileR_Velpic

Greg Hayes
Managing Director, Hayes Knight

 

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