Treasurer Jim Chalmers handed down the 2026 Federal Budget on 12 May 2026, and this is one of those Budgets that many Australians should not ignore – especially investors, property owners, people with discretionary trusts, small business owners, and anyone starting to think seriously about tax planning before lodgement time.
At first glance, some of the measures look like cost-of-living relief: tax cuts, a new worker tax offset, and a simpler work-related deduction. But underneath that, the Budget also proposes significant changes to capital gains tax, negative gearing and discretionary trusts.
I’ve spent the morning working through the detail.
These updates matter because it may affect:
- how investment gains are taxed
- how rental property losses are treated
- how discretionary trust income is taxed
- what workers can claim at tax time
- how small businesses deduct asset purchases
- how some superannuation balances are taxed
- support for aged care and disability services
As I noted in my summary, these changes have been described by several experts and stakeholders in financial services as a “generation-defining reset” for investors, with far-reaching consequences.
Download the 2026 Federal Budget key points summary
We’ve prepared a downloadable summary with the key updates that may affect investors, workers, retirees and small business owners.
Use it as a quick reference before speaking with your accountant, adviser or tax professional.
Capital Gains Tax
Capital gains tax is changing – and not just for property
One of the major proposals is a change to how capital gains tax (CGT) is calculated.
From 1 July 2027, the Government proposes to replace the current 50% CGT discount with a discount based on inflation, and introduce a minimum 30% tax on gains. Importantly, these CGT changes apply to all assets, not just property – including assets such as shares and ETFs.
The official Budget tax reform page says that the reforms will only apply to gains arising after 1 July 2027, while investors in new builds will be able to choose between the 50% CGT discount and the new arrangements.
Why this matters
If you own an investment property, shares, ETFs or other growth assets, this may change the tax outcome when you eventually sell.
A few key points:
- The reform is intended to tax “real” capital gains after inflation.
- A minimum 30% tax rate on gains is proposed.
- The changes are not limited to residential property.
- New builds may receive more favourable treatment.
- The timing of when gains arise will matter.
People receiving income support payments, including the Age Pension, will not be subject to the minimum tax.
There is no change to the CGT main residence exemption or to the existing small business CGT concessions.
For investors, this is a strong reminder that tax planning should not happen only when you sell. It should form part of your broader investment strategy.
Negative Gearing
Negative gearing: established residential property is the focus
The Budget proposes major changes to negative gearing for residential property.
From 1 July 2027, negative gearing will be unavailable for established residential properties acquired from 7.30 pm AEST on 12 May 2026. Any residential property acquired between these dates may be negatively geared up to 30 June 2027, but not after that date. Any losses from those rental properties will not be able to reduce other forms of taxable income, but may be carried forward to offset future residential property income, including capital gains.
Why this matters
For many Australians, negative gearing has been a familiar part of property investing.
The change does not necessarily mean property investing becomes irrelevant. But it does mean the numbers may need to be reviewed more carefully, especially if you were relying on rental losses to reduce salary or business income tax.
This may affect:
- first-time property investors
- existing investors planning to buy another property
- people comparing property vs shares or ETFs
- families using investment property as part of retirement planning
- small business owners using property investment as part of wealth creation
The practical question becomes: does the investment still stand up without the same tax treatment?
Taxation on Trusts
Discretionary trusts: proposed 30% minimum tax
Discretionary trusts are also set for a significant shake-up.
From 1 July 2028, the Government proposes to introduce a 30% minimum tax on discretionary trust income, paid by trustees given they control distributions.
Beneficiaries will still need to declare income in their tax returns, and beneficiaries other than corporate beneficiaries will receive non-refundable credits for tax payable by the trustee, which can be used to offset current year income tax liabilities.
“The minimum tax will mean a fairer rate of tax is paid on income from discretionary trusts, more closely aligning the tax rates for trusts with the rates paid by workers who earn a living from wages,” Chalmers explained.
Not every trust or every type of income is covered, and there will also be a three-year window from 1 July 2027 for people who want to move out of a discretionary trust structure.
Why this matters
Trusts are often used for legitimate reasons, including asset protection, succession planning and family wealth management. But the proposed change may alter the tax benefits or planning outcomes for some families and businesses.
If you operate through a discretionary trust, or hold investments in one, this is the time to review:
- how income is distributed
- who the beneficiaries are
- whether the trust still suits your structure
- whether restructuring should be considered
- how the changes may affect future tax planning
This is not a “panic” issue.
But it is a “don’t leave it until 2028” issue.
Tax Offsets
Tax relief for workers: WATO and the $1,000 instant deduction
The Budget also includes tax relief measures aimed at workers.
From 1 July 2027, a non-refundable tax offset of $250 is proposed for working income, known as the Working Australians tax offset (WATO). The tax offset is not means tested and only applies to income from working, such as salary or business income of sole traders.
The tax offset is available regardless of age and is permanent. This is in addition to the modest tax cuts from 1 July 2026 for all taxpayers. The tax cuts are already law and were reaffirmed in the Budget.
The lowest marginal tax rate (MTR) of 16% on taxable income between $18,201 and $45,000 will reduce to 15% from 1 July 2026, and 14% from 1 July 2027. There will be no changes to the other MTRs and thresholds.
From 1 July 2026, the Budget also proposes a $1,000 instant tax deduction for eligible taxpayers for work-related expenses, without needing to provide receipts.
Individuals can still claim work-related expenses above this limit, but evidence will be required to support the full deduction. Eligible taxpayers must be a tax resident and receive ‘labour income’. Certain expenses do not count towards the $1,000 limit and continue to be deductible. Examples include charitable giving, union or other trade expenses, business or professional association memberships and other non-work related deductions.
The proposed deduction covers work-related expenses, including working-from-home expenses, so a person cannot claim the instant deduction and also claim work-from-home expenses using the ATO fixed-rate or actual-cost method.
Why this matters
The key point is simple: the $1,000 instant deduction may make tax time easier, but it does not mean every deduction strategy becomes automatic. If you claim more than the instant amount, evidence will still matter.
This is important to those of you who are searching to answer questions like:
- “Can I claim $1,000 without receipts?”
- “What work expenses can I claim in 2026?”
- “Can I still claim working from home expenses?”
- “What is the Working Australians Tax Offset?”
Personal income tax cuts already legislated commencing 1 July 2026
From 1 July 2026 Tax cuts for all taxpayers commence 1 July 2026, by reducing the lowest marginal tax rate for taxable income between $18,201 and $45,000 as follows:
**From 1 July 2026, the 16% rate will be reduced to 15%.
**From 1 July 2027, the 15% rate will be reduced further to 14%.
This will provide a tax cut of up to $268 in 2026–27 and up to $536 in 2027-28, relative to current tax settings.
New marginal tax rates for individuals:
Why this matters
For most working Australians, these changes may not feel dramatic week to week. But combined with the WATO and instant deduction, they can form part of household cashflow planning.
The practical question is: will the extra tax relief be absorbed into everyday spending, or can some of it be directed toward debt reduction, super, savings or investment goals?
Small business: permanent $20,000 instant asset write-off
From 1 July 2026, small businesses with turnover up to $10 million will be able to immediately deduct eligible assets costing less than $20,000, with the aim of improving cashflow and helping businesses invest with confidence.
Why this matters
This will be especially relevant for businesses considering equipment, tools, technology, vehicles, fit-out items or other eligible assets.
But it is still important to remember: a deduction is not free money. It reduces taxable income, but the business still has to fund the purchase.
Before buying assets for tax reasons, ask yourself:
- Does the business actually need the asset?
- Will it improve productivity or revenue?
- Is cashflow strong enough?
- Should the purchase happen this financial year or next?
- Are there better uses for that money?
Good tax planning should support business strategy, not replace it.
Private health insurance rebate change for older Australians
From 1 April 2027, the higher rates of private health insurance rebate for older Australians will reduce to the standard rate, regardless of age. Income tiers will still apply.
Why this matters
For retirees and pre-retirees, health insurance costs can be a meaningful part of household spending.
If you are planning retirement income, this is worth factoring into your future budget – especially if private health cover is important to you.
Medicare levy low income thresholds increased
For the 2025/26 financial year, the Medicare levy low-income thresholds will increase by 2.9% for singles, families and pensioners.
Why this matters
More low-income individuals and families may continue to pay no Medicare levy, or pay a reduced amount, which may help with cost of living pressures.
Superannuation
Superannuation: no new key measures, but important legislated changes
There were no new key superannuation measures announced in the Budget, but there was acknowledgement of measures already legislated.
Division 296 tax
From 1 July 2026, Division 296 tax is an additional personal tax levied on the proportion of taxable super earnings above the individual’s large super balance thresholds and commences from 1 July 2026. Existing tax arrangements on super earnings remain unchanged.
It’s levied on the proportion of earnings above the large super balance thresholds as follows:
The ATO says the measure is intended to reduce concessions for individuals with total super balances above $3 million from 1 July 2026.
Low Income Superannuation Tax Offset increase
From 1 July 2027, the maximum amount of the Low Income Superannuation Tax Offset and income eligibility threshold will increase from 1 July 2027 as follows:
LISTO is automatically determined by the ATO and paid directly into the recipient’s superannuation fund.
Payday Super already legislated commencing 1 July 2026
From 1 July 2026, Payday Super rules will generally require employers to pay Super Guarantee (SG) contributions at the same time as salary and wages, rather than quarterly. This change is intended to make it easier for employees to monitor the payment of their SG entitlements and to reduce the incidence of some employers not complying with their obligations.
Why this matters
For most people, super remains one of the biggest long-term financial assets they will ever have.
The key Budget message is not that everyone needs a new super strategy immediately. It is that the rules keep evolving, and people with higher balances, low incomes, irregular employment, business ownership structures or retirement planning needs should review their settings.
High Level Items
Aged care and NDIS: support and tightening
The aged care sector will receive a $3.7 billion boost to increase the supply of residential aged care accommodation, accelerate the release of Support at Home packages, and enhance the quality and affordability of services.
The Government will also tighten NDIS eligibility and compliance, saying it will return the scheme to its “original intent” by delivering quality services, clarifying eligibility requirements, slowing rapid cost increases and addressing fraud.
Why this matters
For families supporting older parents or loved ones with disability, these areas may affect planning conversations.
Aged care and disability support are not just policy issues. They often become family cashflow, estate planning and decision-making issues.
What should you do now?
This Budget contains a lot of dates.
But the most important action is not to panic – it is to get organised.
If you are an investor
Review how the CGT and negative gearing proposals may affect your future investment strategy, especially if you are considering buying or selling property, shares, ETFs or other assets.
If you use a discretionary trust
Speak with your accountant and adviser about whether the proposed 30% minimum tax may change your structure, distributions or long-term planning.
If you are a worker preparing for tax time
Understand the difference between the proposed $1,000 instant deduction and claiming actual expenses above that amount.
If you run a small business
Consider whether the permanent $20,000 instant asset write-off supports real business needs, not just tax-driven purchasing.
If you have a large super balance
Review whether Division 296 may affect you from 1 July 2026, particularly if your total super balance is above $3 million.
FAQs: 2026 Federal Budget tax changes
What are the main tax changes in the 2026 Federal Budget?
The main tax changes include reforms to capital gains tax, negative gearing, discretionary trusts, worker tax offsets, a $1,000 instant work-related deduction, permanent $20,000 instant asset write-off for small businesses, and already legislated personal income tax cuts and superannuation changes.
How is capital gains tax changing in Australia from 1 July 2027?
From 1 July 2027, the Government proposes to replace the 50% CGT discount with an inflation-based discount and introduce a minimum 30% tax on gains. The Budget material says the reforms will apply only to gains arising after 1 July 2027, and new-build investors may be able to choose between the current 50% discount and the new arrangements.
Does the CGT change only affect property?
No. The CGT changes apply to all assets, not just property. This may include shares, ETFs and other investments.
What is changing with negative gearing?
Negative gearing will be limited to new builds from 1 July 2027. Existing arrangements remain unchanged for properties held before Budget night, but investors who buy established housing after Budget night will not be able to deduct losses against other income such as wages after the transition period.
What is the new discretionary trust tax?
From 1 July 2028, the Government proposes a 30% minimum tax on discretionary trust income, paid by trustees, with beneficiaries receiving non-refundable credits in many cases.
What is the $1,000 instant tax deduction?
From 1 July 2026, eligible workers will be able to claim a $1,000 instant tax deduction for work-related expenses without keeping receipts. However, if they claim more than that, evidence will still be required. The deduction covers work-related expenses, including working from home expenses.
What is the Working Australians Tax Offset?
The Working Australians Tax Offset, or WATO, is a proposed non-refundable $250 tax offset for working income from 1 July 2027. It is not means tested and applies to working income such as salary and sole trader business income.
Is the $20,000 instant asset write-off continuing?
Yes. From 1 July 2026, the Budget proposes to make the $20,000 instant asset write-off permanent. The official Budget page says this applies to small businesses with turnover up to $10 million for eligible assets costing less than $20,000.
Is Division 296 tax starting in 2026?
Yes. From 1 July 2026, Division 296 tax applies to certain individuals with total super balances above $3 million, with higher treatment for balances above $10 million.
Should I change my investment strategy because of the Budget?
Not automatically. Budget changes may affect tax outcomes, but investment decisions should still be based on your goals, timeframe, cashflow, risk tolerance and overall financial plan. This is a good time to review your strategy rather than make rushed decisions.
A final note from me
For most people, the honest answer is: nothing today. These changes don’t take effect for over a year, and some are further out. There’s time to plan properly.
But for some, the timing of decisions over the next 12 to 18 months will matter – particularly if you’re thinking about selling assets, restructuring trusts, or buying an investment property.
If any of that sounds like you, that’s exactly the conversation we should be having now, not in 2027.
The biggest risk is not necessarily the change itself. It is assuming the old rules still apply when making future decisions.
If you would like help understanding how the Budget may affect your broader financial plan, our financial advisers at Pride Advice can help you work through the key issues with clarity.
Pride is knowing what’s coming – and having a plan for it.
Book a chat with us to review what these changes may mean for your situation.
Disclaimer: This article is general in nature and doesn’t take into account your objectives, financial situation, or needs. Tax laws are complex and subject to change. Speak with a qualified tax adviser or accountant about your specific tax circumstances.