Australia's 2026-27 Federal Budget Tax Alert

At a glance

• 2026-27 Federal Budget delivered 12 May 2026
• 50% CGT discount replaced with indexation method and new 30% minimum tax on net capital gains
• Negatively gearing property losses limited to new builds
• Minimum 30% tax on discretionary trust income
• Loss refundability reforms for businesses and start-ups
• $20,000 instant asset write-off for small businesses made permanent
• Venture capital tax incentives expansion
• Research and development tax Incentive reforms
• New Working Australians Tax Offset for individuals
• Other business tax, tax administration and indirect tax changes

On Tuesday the 12th of May 2026, Federal Treasurer Jim Chalmers handed down his fifth budget being the 2026-27 Federal Budget.

The below focuses on the key announced tax measures that impact your business tax planning and compliance processes and business incentives. The broader economic and policy issues in the 26-27 Federal Budget will be published on the EY Australia website here.

The 2026-27 Federal Budget, contains a substantial package of tax measures, primarily taking effect from 1 July 2027, with some transitional adjustments. While these changes are significant in both number and reach, they do not constitute the comprehensive, long-awaited tax reform that many stakeholders have sought for decades. Rather, they comprise a series of adjustments aimed generally at individuals and trusts and mainly in respect of property and private asset holdings, but which do little to strengthen economy-wide productivity-enhancing incentives.

The economic setting for these reforms features an inflation rate of approximately 5%, an unemployment rate of around 4.5%, global growth at circa 3% compared to Australian growth of 1.75%, a budget deficit of around $28 billion for 2025-26 with worsening deficits in later years, and projected gross Commonwealth debt rising beyond $1 trillion.

The main tax highlights include the quarantining of negatively geared losses by individuals, partnerships, companies and most trusts for acquisitions of residential properties after budget night (with one transitional year of grace) while preserving the current treatment for new dwellings, with full grandfathering for existing properties.

The government also intends to replace the 50% capital gains tax discount for all assets (excluding newly built residential housing) with a return to a consumer price index (CPI)-indexed cost-base treatment, broadly replicating the pre-1999 rules, but subject to transitional arrangements, but with no income averaging as was the case in the original rules. Moreover, gains accruing from 1 July 2027 on pre-CGT assets will become taxable under transitional valuation rules. In addition, a 30% minimum tax will be introduced on discretionary trusts from 1 July 2028 to combat using such trusts for tax planning purposes, including income splitting and the use of 30% “bucket” corporate beneficiaries. A further integrity measure will impose a 30% minimum effective tax rate on all capital gains, applying from 1 July 2027 regardless of the individual’s marginal tax rate. 

Complementing these measures are several productivity-oriented initiatives, including an improved relaxation of the research and development tax incentive rules, the permanent extension of the $20,000 small-business instant asset write-off, the reintroduction of loss carry-back rules and selected red-tape reductions.

Full details are in our Budget Tax Alert.