Australian Federal Budget 2026: What the Proposed Tax Changes Mean
The 2026 Federal Budget includes a number of significant proposed tax reforms, particularly impacting investors, business owners and family groups.
Before diving in, it is important to be clear:
These measures are proposed only. They have not yet passed through Parliament and may change before becoming law.
That said, the direction is clear – and these changes have the potential to reshape how tax planning works in Australia.
Key Themes
Across the proposed changes, several consistent themes emerge:
• Reduced access to traditional tax concessions
• Increased focus on limiting income splitting
• Structural changes to investment taxation
• Greater emphasis on fairness and integrity
For many clients, particularly investors and business owners, these are material shifts worth understanding early.
Changes for Property Investors
Negative Gearing
One of the most widely discussed proposals is the reform to negative gearing.
Under the proposal:
• Negative gearing will be abolished for existing residential properties purchased after 12 May 2026, following a 1-year grace period
• From that point, losses can only be offset against:
• Other rental income, or
• Carried forward to future years
However:
• New builds remain unchanged, meaning losses can still be offset against other income
What this means:
The tax effectiveness of investing in established properties is reduced, while new construction continues to be incentivised.
Capital Gains Tax (CGT) Changes
The proposed CGT changes are some of the most significant in decades.
From 1 July 2027:
• The 50% CGT discount will be removed
• Gains will instead be calculated using indexation (adjusted for inflation)
• A minimum 30% tax rate will apply
There are important transitional rules:
• Gains made before 1 July 2027 will still receive the 50% discount
• Gains made after this date will fall under the new system
In practice:
If an asset is held across both periods, the gain will be split.
Example:
A property purchased on 1 July 2022 and sold on 1 July 2032:
• First 5 years → 50% discount applies
• Second 5 years → indexation method applies
Additional points:
• New builds can choose between the two methods
• Super funds and SMSFs are excluded
• Pensioners and income support recipients are exempt from the minimum tax
What this means:
Timing of asset sales and long-term strategy will become increasingly important.
Tax Changes for Workers
Working Australians Tax Offset (WATO)
From 1 July 2027:
• A $250 annual tax offset will apply
• Covers income from wages, salary and sole trader income
$1,000 Instant Deduction
From 1 July 2026:
• Individuals can claim a $1,000 deduction for work-related expenses
• No substantiation required below this threshold
Higher claims can still be made using existing rules.
What this means:
These changes aim to simplify tax returns rather than provide significant tax savings.
Changes to Family Trusts
A major structural change is proposed for discretionary (family) trusts.
From 1 July 2028:
• A minimum 30% tax will apply to trust income
Key features:
• The trustee pays the tax
• Beneficiaries still declare income
• The measure targets income splitting
To support transition:
• A 3-year restructuring window from 1 July 2027 will apply
• Allows movement into companies or fixed trusts
What this means:
Flexibility in distributing income will reduce, and many structures may need review.
Changes for Companies
Loss Carry Back Rules
The budget proposes:
• Reintroducing a 2-year loss carry back
• Applies to companies with turnover up to $1 billion
• Effective from 1 July 2026
This allows companies to:
• Offset current losses against prior profits
• Potentially receive tax refunds from the ATO
What this means:
Provides short-term cash flow relief for businesses with fluctuating performance.
Small Business Measures
Instant Asset Write-Off
• The $20,000 instant asset write-off will be made permanent
This provides certainty when planning capital purchases.
Support for Start-Ups
• Eligible start-ups will gain access to refundable tax offsets
What this means:
Targeted support for early-stage businesses, rather than broad tax relief.
Electric Vehicle (EV) Tax Changes
The FBT treatment of electric vehicles is proposed to change.
From April 2027:
• Full exemption applies only to EVs under $75,000
• Vehicles above this receive a 25% FBT discount
From April 2029:
• All EVs below the luxury tax threshold receive a 25% discount
What this means:
The current generous exemption will gradually reduce over time.
What This Means Going Forward
While these measures are not yet law, the direction is clear.
Traditional tax strategies are being reduced
Negative gearing, CGT discounts and trust flexibility are all being targeted.
Structure is becoming more important
How income is held and distributed will have a greater impact on outcomes.
Timing will matter more
Particularly for capital gains and investment decisions.
Planning is critical
Waiting until year end will become less effective as options reduce.
Final Thought
These proposed changes are some of the most significant in recent years.
However, they are not yet legislated, and details may change.
The key is not to react immediately – but to stay informed and plan ahead.
PLH Accountants works with growing businesses, investors and family groups to navigate these changes and plan with clarity and confidence.
If you would like to understand how these proposals may impact your situation, it starts with a conversation.