In response to ongoing global uncertainty—particularly pressures linked to conflict in the Middle East—the government has outlined a broad package of economic reforms in the 2026–27 Federal Budget.
The update introduces a range of proposed changes spanning capital gains tax (CGT), negative gearing, income tax relief, and broader economic initiatives, alongside targeted investments in housing, healthcare and aged care.
It’s important to note that several of these measures remain proposals at this stage and will only take effect once legislated. As always, we will continue to monitor developments and provide updates as clarity emerges.
1. Taxation Changes
Capital Gains Tax (CGT)
Proposed start: 1 July 2027
One of the most significant proposed changes is the overhaul of how capital gains are taxed. The current 50% CGT discount for individuals is set to be replaced with a system that combines indexation of the cost base with a minimum tax rate of 30% on net capital gains.
These reforms are expected to apply broadly across individuals, trusts and partnerships. However, superannuation funds will be excluded and continue under existing arrangements.
Importantly, transitional rules have been introduced to protect existing investments. Gains accrued prior to 1 July 2027 can still access the current 50% discount, and pre-CGT assets (acquired before 1985) will remain exempt for gains up to that date. From 1 July 2027, assets will effectively be revalued for future tax purposes.
There are also some additional considerations. Investors purchasing new residential property may have the flexibility to choose between the current discount method or the new indexation framework. Individuals receiving government income support, such as the Age Pension, will be exempt from the proposed minimum tax, and the main residence exemption remains unchanged.
Personal Income Tax
From the 2026–27 financial year, modest tax relief will be introduced for lower-income earners. The lowest marginal tax rate will reduce from 16% to 15%, before falling further to 14% from 1 July 2027.
While the impact is relatively small, it does provide incremental relief, particularly for those on lower incomes. Tax brackets otherwise remain broadly consistent, with the tax-free threshold unchanged at $18,200.
Additional Individual Tax Measures
To further support working Australians, the government has proposed the introduction of a Working Australians Tax Offset (WATO) from 2027–28. This provides a $250 non-refundable tax offset for individuals earning income from employment or business activities, effectively increasing the tax-free threshold for working isncome.
In addition, a new $1,000 standard deduction will be available from 2026–27, allowing taxpayers to claim up to this amount without needing to keep receipts. Individuals with higher work-related expenses can still choose to claim actual costs, and other deductions—such as donations or professional memberships—remain unaffected.
Negative Gearing Changes
Proposed from 1 July 2027
Another key area of reform is negative gearing. Under the proposed changes, negative gearing for residential property will be limited to newly constructed homes.
For established properties, losses will no longer be able to offset salary or other income. Instead, they can only be applied against rental income or future capital gains. While these losses are not lost, they will be carried forward for future use.
Grandfathering rules will apply. Properties acquired before 12 May 2026 (7:30pm AEST) will retain the current treatment until they are sold. It’s also worth noting that commercial property, shares and other financial investments are unaffected by these changes, as are certain structures such as superannuation funds and some trust arrangements.
Trust Tax Reform
Proposed from 1 July 2028
The government has also proposed changes to discretionary trusts, introducing a minimum tax rate of 30% at the trustee level.
Under this model, beneficiaries will receive corresponding tax credits, although these credits will be non-refundable. The impact of this change will vary depending on the beneficiary’s personal tax position.
Importantly, the reform applies only to discretionary trusts. Fixed trusts, super funds, charities and estates are excluded.
To support transitions, a three-year rollover relief period from 1 July 2027 is proposed, allowing entities to restructure out of discretionary trusts without immediate tax consequences.
2. Business Tax Measures
For businesses, the budget includes the reintroduction of loss carry-back rules, allowing companies to offset current losses against profits from the previous two financial years.
Additional support is planned for startups, with new loss refund provisions expected from 2028–29. The government has also confirmed that the $20,000 instant asset write-off will become a permanent feature, providing ongoing support for small business investment.
3. Housing Initiatives
Housing remains a central focus, with a number of measures aimed at increasing supply and improving affordability.
A $2 billion infrastructure fund has been allocated to support new housing developments, alongside an extension of the ban on foreign buyers purchasing existing homes until mid-2029.
Further reforms are also expected to improve rental conditions, increase rent assistance, and expand community and Indigenous housing support.
4. Social Security Updates
Changes to pension supplement rules will allow recipients to continue receiving full payments for up to 12 weeks while overseas. Payments will cease beyond this period for extended absences.
5. Aged Care Funding
A significant investment of $3.7 billion has been committed to aged care, focusing on expanding capacity, increasing the number of available beds, and enhancing dementia care services.
The funding also aims to improve in-home support services and remove co-contributions for basic personal care, easing financial pressure on older Australians.
6. Healthcare Changes
From April 2027, the government will remove higher Private Health Insurance rebates for individuals aged 65 and over. The savings generated from this change will be redirected into aged care funding.
7. Other Measures
Electric Vehicle (EV) Tax Concessions
From April 2029, a 25% Fringe Benefits Tax (FBT) concession will be introduced for eligible electric vehicles priced below the luxury car threshold. Standard FBT rules will continue to apply to higher-value vehicles.
Key Takeaway
The 2026–27 Budget outlines a series of significant structural changes, particularly in relation to capital gains tax, negative gearing and trust taxation. Together, these measures signal a shift in how investment activity may be shaped in the years ahead.
However, as many of these changes remain as proposals, it is important not to make major financial decisions until the legislation is finalised and further details are available.
A considered, long-term approach—aligned to your broader financial strategy—remains essential.
General advice disclaimer
The information in this article is general in nature and has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information, you should consider whether it is appropriate for your circumstances and seek personal advice from a qualified financial adviser.