The Federal Treasurer, Dr Jim Chalmers, handed down the 2026–27 Federal Budget at 7:30pm (AEST) on 12 May 2026.
The government is proposing a tax reform package with 3 parts:
– a “fairer” tax system for workers, first home buyers and future generations
– a “better” tax system for businesses by encouraging investment and innovation, and
– a “simpler and more sustainable” tax system.
Details of the highly anticipated initiatives to improve housing affordability have emerged. While negative gearing for residential property will be limited to new builds from 2027–28, all existing investments made before 7:30pm AEST on 12 May 2026 will be grandfathered. As for capital gains tax (CGT), the 50% discount will be replaced with cost base indexation from 1 July 2027, with a minimum 30% tax rate on realised gains. This will apply to all CGT assets, including pre-CGT assets, except new builds. It will be prospective, with gains accrued on existing investments prior to 1 July 2027 to retain the 50% discount.
Other notable measures include those relating to discretionary trusts, a new tax offset for working Australians and the gradual reduction of the Fringe Benefits Tax (FBT) discount for affordable electric vehicles. In particular, discretionary trusts will be taxed at 30% from 1 July 2028. With trusts historically not being taxed as separate entities, this measure will have significant implications for individuals and businesses alike. To ease the cost-of-living pressures, an annual working Australian tax offset of $250 is proposed for eligible Australian workers. The current FBT discount for affordable electric vehicles will transition to a permanent 25% discount progressively over 3 phases.
The Budget measures are additional to recent developments, including:
– the temporary reduction of excise and excise-equivalent customs duty rates for most fuel products from 1 April 2026 to 30 June 2026
– the release of exposure draft legislation for the instant $1,000 tax deduction for work-related expenses
– the release of exposure draft legislation for strengthening the foreign CGT regime in Div 855 of ITAA 1997, including the transitional CGT discount for certain renewable energy assets, and
– the release of a consultation paper on options to strengthen the annual superannuation performance test.
The full Budget papers are available at www.budget.gov.au and the Treasury ministers’ media releases are available at ministers.treasury.gov.au. For a detailed overview of the tax and superannuation highlights, please click here.