2026 - 2027 Federal Budget Highlights

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. 

Income Tax

CGT discount to be replaced with cost base indexation for all CGT assets from July 2027

From 1 July 2027, the 50% capital gains discount (CGT discount) will be replaced with cost base indexation for assets held for more than 12 months, with a 30% minimum tax on net capital gains applying from that date.

This will apply to all CGT assets except new homes, including pre-CGT assets, held by individuals, trusts and partnerships.  Cost base indexation, which was replaced in September 1999 with the CGT discount, works by adjusting the cost base of the relevant CGT asset. Broadly, the expenditure incurred for each element of the cost base of the asset (except for the third element dealing with non-capital costs of ownership) is indexed by multiplying it by the relevant indexation factor.

The resulting adjusted cost base is then used to calculate the net capital gain when a CGT event is triggered.  The measure essentially restores the taxation of CGT assets by applying inflation-adjusted indexation based on the Consumer Price Index (CPI) to tax real gains. Indexation will be calculated using CPI similar to the pre-September 1999 method. The ATO will provide guidance and tools to support taxpayers calculating this adjustment.

Importantly, a minimum tax of 30% will be applicable to realised capital gains accrued from 1 July 2027, after indexation has been applied.  Transitional arrangements will apply to existing investments. Existing assets purchased and sold before 1 July 2027 will still be eligible for the CGT discount. The CGT discount will also continue to apply to gains accrued until 1 July 2027 for assets purchased prior to that date, regardless of when the actual CGT event is triggered. The difference will be calculated by reference to the difference in the asset’s cost base and its value as at 1 July 2027. Indexation and the minimum 30% tax will be used to calculate CGT on gains accruing from 1 July 2027 (using the asset’s value at 1 July 2027 as the asset’s cost base).

An asset’s value at 1 July 2027 will be determined by taxpayers as part of their tax return in the year the asset is realised. Taxpayers can either:

• Seek a valuation of the asset as at 1 July 2027, which will include using quoted prices for assets such as shares, or

• Use a specified apportionment formula that estimates the asset’s value on 1 July 2027, based on its growth rate over the asset’s holding period. The ATO will provide tools to estimate this value for taxpayers.

These transitional arrangements also apply to legacy assets, including pre-CGT assets. Capital gains arising on pre-CGT assets before 1 July 2027 will remain exempt from CGT. Owners of new builds will be able to choose either the CGT discount or cost base indexation (with the 30% minimum tax still applicable). New builds include dwellings constructed on vacant land, or where existing properties are demolished and replaced with a greater number of dwellings. Knock down rebuilds or substantial renovations are not considered new builds and therefore will not be eligible. A new build cannot have been previously sold, unless first owned by the builder and not occupied for more than 12 months.

Income support payment recipients (including Age Pension and JobSeeker payment recipients) will be exempt from the 30% minimum tax if they receive payment in the financial year in which they realise the capital gain.

Source: Budget Paper No 2, p 21; Prime Minister, Treasurer and Minister for Finance, Tax reform for workers, businesses and future generations [joint press release], Tax Explainer – Negative gearing and capital gains tax reform, 12 May 2026.

Discretionary Trusts to be taxed at minimum 30%

A minimum tax rate of 30% has been introduced on discretionary trusts from 1 July 2028. 

Currently, under Australian taxation laws, discretionary trusts are not considered separate taxable entities. Broadly, it is the beneficiaries of discretionary trusts who are ultimately entitled to receive and retain trust income that are taxed on the net income of the trust (as defined for income tax purposes). The trustee is then, generally, taxed on the balance (if any) of the net income (subject to certain exceptions). Trustees are also taxed if no beneficiaries are made presently entitled to trust income. 

Under the new measure, trustees will pay a minimum tax of 30% (unless higher rates apply) on the taxable income of discretionary trusts from 1 July 2028. Beneficiaries (other than corporate beneficiaries) will receive non-refundable credits for any tax payable by the trustee.

Trustees will be required to calculate, report and pay the minimum tax, as well as to notify beneficiaries of their entitlements and associated tax credits. The mechanism for collecting the minimum tax will be subject to consultation, but is expected to be consistent with established collection mechanisms. Trustees that receive franked dividends will be required to use their franking credits to pay the minimum tax.

The minimum tax will not be applicable to:

• other types of trusts (eg unit trusts or widely-held trusts)

• complying superannuation funds

• special disability trusts

• deceased estates, and

• charitable trusts.

Importantly, income from assets of discretionary testamentary trusts existing as at 7:30pm (AEST) on 12 May 2026 will be excluded from the minimum tax. Some other types of income such as primary production income, certain income relating to vulnerable minors and amounts to which non-resident withholding tax applies, will also be excluded. 

Expanded rollover relief provisions will be available for 3 years from 1 July 2027 to support taxpayers that wish to restructure out of discretionary trusts to another entity type (such as a company or fixed trust).

Source: Budget Paper No 2, p 22; Prime Minister, Treasurer and Minister for Finance, Tax reform for workers, businesses and future generations, [joint press release]; Tax Explainer – Minimum tax on discretionary trusts, 12 May 2026.

Individuals

Negative gearing restricted to new builds from July 2027

Negative gearing for residential property will be limited to new builds from 1 July 2027. 

Broadly, where net losses arise as a result of deductible expenses associated with income-producing property exceeding the income earned from that property, negative gearing allows for this resulting net loss to be offset against other assessable income of the taxpayer. 

Under the new measures, negative gearing will be limited to eligible new builds only. This means that investors in new builds will still be able to deduct rental losses against other assessable income, such as their salary. New builds include dwellings constructed on vacant land, or where existing properties are demolished and replaced with a greater number of dwellings.

Knock-down rebuilds or substantial renovations are not considered new builds and therefore will not be eligible for negative gearing. A new build cannot have been previously sold, unless first owned by the builder and not occupied for more than 12 months.

The measure will apply to individuals, partnerships and most trusts. Widely-held trusts (eg most managed investment trusts) and superannuation funds (including self-managed superannuation funds) will be excluded. Losses incurred from established residential properties will only be deductible against rental income or capital gains arising from residential properties. Any excess losses will be able to be carried forward and offset against income from residential property in future years. 

These changes will apply to any established residential properties acquired from 7:30pm (AEST) on 12 May 2026. Any residential properties acquired prior to this time (including any contracts entered into but not settled) will be grandfathered, and will therefore be exempt from the changes until disposed of.  Residential properties acquired between 7:30pm (AEST) on 12 May 2026 and 30 June 2027 may be negatively geared during this period, but not from 1 July 2027.

Properties held in widely-held trusts and superannuation funds will be excluded from these measures, with exemptions for build-to-rent developments and private investors supporting government housing programs.

Changes to negative gearing only apply to residential properties. Commercial property and other asset classes, such as shares, will remain eligible for negative gearing. Exemptions to negative gearing will also be available for private investors who support government housing programs (through the provision of affordable housing).

Source: Budget Paper No 2, p 21; Prime Minister, Treasurer and Minister for Finance, Tax reform for workers, businesses and future generations [joint press release], Tax Explainer – Negative gearing and capital gains tax reform, 12 May 2026.

New Working Australians Tax Offset from 2027-28

Each working Australian taxpayer will receive a $250 Working Australians Tax Offset from the 2027–28 income tax year. From 1 July 2027, the Working Australians Tax Offset (WATO) will provide a permanent annual tax offset for Australians for their income derived from work, such as wages and salaries and the business income of sole traders. It will increase the effective tax-free threshold for income derived from work by nearly $1,800 to $19,985 (or up to $24,985 for workers eligible for the low income tax offset (LITO)). It will be paid automatically via workers’ tax returns at the end of the year.  The offset is in addition to the proposed $1,000 instant tax deduction for resident individuals who earn income for work from 1 July 2026 and the legislated 2025–26 Budget measure to reduce the personal income tax rates for individuals from 1 July 2026 and 1 July 2027.

Source: Budget Paper No 2, pp 16–17; Prime Minister, Treasurer and Minister of Finance [joint press release] “Tax reform for workers, businesses and future generations”, 12 May 2026; Tax explainer – New tax cuts for Australian workers.

Medicare Levy Low-income thresholds to be increased

The Medicare levy low‑income thresholds for singles, families, and seniors and pensioners will be increased by 2.9% from 1 July 2025. The threshold for singles will be increased from $27,222 to $28,011. The family threshold will be increased from $45,907 to $47,238. For single seniors and pensioners, the threshold will be increased from $43,020 to $44,268. The family threshold for seniors and pensioners will be increased from $59,886 to $61,623. The family income thresholds will increase by $4,338 for each dependent child or student, up from $4,216.

Source: Budget Paper No 2, p 13.

Restrictions on foreign ownership of housing and the foreign investment framework

The temporary ban on foreign purchases of established residential dwellings will be extended by 2 years and 3 months until 30 June 2029. The ban, which was announced as a measure in the 2025–26 Budget, was originally implemented for 2 years from 1 April 2025. 

Current limited exceptions to the ban for purchases of established dwellings that support housing supply will continue. General exemptions from foreign investment screening will also continue to apply for purchases of established dwellings, including for permanent residents and New Zealand citizens.

Additionally, funding of $47.5 million over 4 years from 2026–27 (and $3.9 million per year ongoing) will be provided for the Treasury and the ATO to strengthen and streamline Australia’s foreign investment framework, including a new performance target to decide all low‑risk applications within 30 days from 1 January 2027, removal of ineffective conditions on existing approvals and reforms to foreign investment laws and the Register of Foreign Ownership of Australian Assets.

Legislation will also be introduced to amend the Foreign Acquisitions and Takeovers Act 1975, the Foreign Acquisitions and Takeovers Regulation 2015 and the Foreign Acquisitions and Takeovers Fees Imposition Regulations 2020 to implement the foreign investment framework reforms.

Source: Budget Paper No 2, pp 12, 58–59.

Age-based uplift of private health insurance rebate to be removed

The age-based uplift of private health insurance rebate (the PHI rebate) will be removed from 1 April 2027. This measure will enable a simplified and more equitable distribution of the PHI rebate. Funding of $3.2 million will be provided over 2 years from 2025–26 for implementation and to undertake consultation on further reforms.

Source: Budget Paper No 2, p 101.

Eligibility for pension supplement to be amended

Eligibility for the pension supplement will be amended, including: extending payment of the full rate of pension supplement from 6 weeks to 12 weeks for recipients who are temporarily absent from Australia ceasing the pension supplement for those recipients who are residing permanently overseas or who are temporarily absent from Australia for longer than 12 weeks.

Source: Budget Paper No 2, p 137.

Business

Transitioning to a permanent 25% FBT discount for certain electric vehicles

Australia will transition to a permanent 25% discount on FBT for certain electric vehicles (EVs).

From 1 April 2029, a permanent 25% discount on FBT will be available for all electric cars valued up to and including the fuel‑efficient luxury car tax (LCT) threshold, implemented through a 15% rate in the FBT statutory formula.

The following transitional arrangements will be adopted:

• All eligible electric cars will retain the FBT discount rate that was in place when the arrangement commenced

• All electric cars valued up to and including $75,000 that are provided before 1 April 2029 will continue to be eligible for a 100% discount on FBT, implemented through a 0% rate in the FBT statutory formula, and

• Electric cars valued above $75,000 and up to and including the fuel‑efficient LCT threshold that are provided between 1 April 2027 and 1 April 2029 will be eligible for a 25% discount on FBT, implemented through a 15% rate in the FBT statutory formula.

The existing 20% statutory rate will continue to apply for all other cars, including electric cars costing more than the fuel‑efficient LCT threshold. Reportable fringe benefits will continue to be determined for eligible electric cars as if a 20% FBT statutory formula rate or cost basis method applied.

Source: Budget Paper No 2, p 11; Treasurer and Minister for Climate Change and Energy, Fairer tax treatment to encourage affordable EVs, press release, 5 May 2026.

Small Business Depreciation - Instant asset write-off a $20,000 made permanent

The instant asset write-off threshold of $20,000 for small businesses applying the simplified depreciation rules has been extended permanently from 1 July 2026. 

Small businesses (aggregated annual turnover less than $10 million) may choose to calculate capital allowances for depreciating assets under a simplified regime in Subdiv 328-D of ITAA 1997. Under these simplified depreciation rules, an immediate write-off applies for low-cost depreciating assets. A $20,000 threshold currently applies for the immediate write-off, applicable to eligible assets costing less than $20,000. 

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter. The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt out will be suspended until 30 June 2027.

The measure follows a 2023–24 Budget measure to increase the instant asset write-off threshold to $20,000 for the 2023–24 income year. The measure was further extended until 30 June 2025 as part of the 2024–25 Budget. Legislation to extend the instant asset write-off for 12 months until 30 June 2026 was passed as part of the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025, which received Royal Assent on 4 December 2025.

Source: Budget Paper No 2, p 20; Treasurer and Minister for Small Business, Backing small businesses with tax relief [joint press release], 12 May 2026.

Permanent 2-year loss carry back rules introduced

From 1 July 2026 companies with aggregated annual global turnover of less than $1 billion will be able to use their current year tax losses to claim a refund for taxes paid in the prior 2 income years. 

The loss carry back tax offset, contained in Div 160 of ITAA 1997, was a temporary measure which applied from the 2019−20 to 2022−23 income years. Broadly, it allowed certain eligible companies to choose to carry back income tax losses incurred in those specific income years and apply them against their taxed profits in a previous income year. The benefit generated by this loss carry back was received in the form of a refundable tax offset (called the loss carry back tax offset). The offset effectively represented the tax that the company would have saved if it had been able to deduct that loss in the earlier year using the loss year tax rate. 

The measure essentially re-introduces the loss carry back offset permanently for eligible companies and allows them to carry back tax losses and offset them against taxes paid up to 2 years earlier.  The previous measure had been available to companies with an aggregated turnover of less than $5 billion.

As with the previous temporary measure, the loss carry back tax offset will apply to revenue losses only and will be limited to the company’s franking account balance.

The ATO will be responsible for implementing and administering this measure.

Source: Budget Paper No 2, pp 19-20; Prime Minister, Treasurer and Minister for Finance, Tax reform for workers, businesses and future generations, [joint press release], 12 May 2026; Australian Government Small Business Statement.

Loss refundability introduced for small start-ups

Small start-up companies that generate a tax loss in their first 2 years of operation will be able to utilise that loss to generate a refundable tax offset. The measure will apply for tax years commencing on or after 1 July 2028 to start-up companies with aggregated annual turnover of less than $10 million.  Importantly, the offset will be limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year. 

The ATO will be responsible for implementing and administering this measure.

Source: Budget Paper No 2, pp 19-20; Prime Minister, Treasurer and Minister for Finance, Tax reform for workers, businesses and future generations [joint press release], 12 May 2026; Australian Government Small Business Statement.

Reforms to R&D Tax Incentive Announced

The Research and Development (R&D) Tax Incentive will be reformed to make it easier to use, increasing the incentive for new businesses to invest in R&D activities. 

From 1 July 2028, the measure proposes to: 

• Increase the offset for experimental “core” R&D expenditure from 25% to 50% through a 4.5 percentage point increase in core R&D offset rates

• remove the eligibility of supporting R&D expenditure for the R&D tax incentive

• reduce the intensity threshold from 2% to 1.5%, enabling more firms to qualify for higher offset rates

• allow greater access to the highest refundable tax offset for businesses younger than 10 years by increasing the turnover threshold from $20 million to $50 million, with an equivalent non-refundable offset available for eligible businesses older than 10 years

• lift the maximum R&D tax incentive expenditure threshold from $150 million to $200 million, and

• lift the minimum expenditure threshold from $20,000 to $50,000, with smaller R&D projects valued below $50,000 required to be undertaken with a recognised research organisation to support quality research outcomes. 

The ATO will be responsible for implementing and administering this measure.

The measure forms part of the first stage of the government’s response to the Ambitious Australia: Strategic Examination of Research and Development Final Report (Report). The Report, which was released on 17 March 2026 by an independent panel and commissioned by the government as part of the 2024–25 Budget, provides 20 recommendations to reform Australia’s R&D system and strengthen national capability.

Source: Budget Paper No 2, p 17-18; Treasurer and Minister for Industry and Innovation, A budget that backs innovation and investment [joint press release], 12 May 2026.

Venture Capital Tax Incentives to be Expanded

The venture capital limited partnership (VCLP) and early stage venture capital limited partnership (ESVCLP) tax incentives will be expanded from 1 July 2027. The eligible venture capital investor program will be closed to new applications from 12 May 2026 7:30pm (AEST). 

From 1 July 2027:

• the VCLP cap on the asset size of the investee business at the time of investment will be increased from $250 million to $480 million 

• the ESVCLP cap on the asset size of the investee business at the time of investment will be increased from $50 million to $80 million

• the ESVCLP tax incentive cap on the asset size of the investee business, at which investment returns can be fully tax exempt, will be increased from $250 million to $420 million, and

• the maximum fund size of ESVCLPs will be increased from $200 million to $270 million.

The increases will apply to new and existing funds and to new investments they make, including where funds make further investments in businesses already held. ESVCLPs must remain in compliance with their existing investment plans or seek approval for a replacement plan.

This measure forms part of the first stage of the government’s response to the Ambitious Australia: Strategic Examination of Research and Development Final Report.

Source: Budget Paper No 2, p 18–19.

Tax Administration

Access to monthly business tax payments and calculations for small and medium businesses

Small and medium businesses will be able to choose to report and make business tax payments monthly from 1 July 2027. These businesses will also be able to use an ATO-approved calculation embedded in accounting software to dynamically calculate and vary their PAYG instalments on a monthly basis.  Interest charges levied on businesses that accidentally get their instalment variation incorrect when using ATO-approved calculators will be removed by the ATO. 

Monthly reporting and payment of PAYG instalments will be mandatory for taxpayers with a demonstrated history of non-compliance.  The ATO will be provided funding by the government to allow for expansion of the dynamic instalment calculation pilot.

Source: Budget Paper No 2, p 20; Prime Minister, Treasurer and Minister for Finance, Tax reform for workers, businesses and future generations, [joint press release], 12 May 2026; Factsheet: Backing small business to grow, compete and build resilience.

Governance of managed investment schemes to be strengthen

Small a Funding will be provided from 2026–27 to strengthen governance requirements, supervision and enforcement in relation to managed investment schemes. 

In particular: 

• $10.3 million will be provided in 2026–27 for ASIC to enhance its ability to utilise data in its supervision of the managed investment scheme (MIS) sector

• $7.6 million will be provided over 4 years from 2026–27 (and $1.4 million per year ongoing) for ASIC, the Office of the Australian Auditing and Assurance Standards Board and the Treasury to strengthen governance requirements for MISs. 

The government will also consult publicly on new data collection powers in relation to MISs.

Source: Budget Paper No 2, pp 143–144.

The Quick Summary - Budget Measures

CGT Discount Replaced

Budget measure:  From 1 July 2027, the 50% CGT discount is replaced with cost base indexation plus a 30% minimum tax on real gains. Applies to all CGT assets including pre-1985 assets, with gains accrued before 1 July 2027 grandfathered. Investors in eligible new builds can elect either system, and income support recipients are exempt from the 30% minimum tax.

How does this work?

In a nutshell: if you buy and sell an asset after 30 June  2027, the new rules apply (ie indexation and minimum 30% tax rate); if you buy and sell an asset before 1 July 2027, the existing 50% discount applies and there is no minimum tax rate; and if you buy an asset before 1 July 2027 but sell it after that date, then you will get the discount up to the asset’s market value on 1 July 2027 and thereafter you will only get indexation plus a minimum 30% tax rate on any gain from that date. Importantly, the new rules apply to all assets (eg shares) and not just real property.

However, for “new builds” (as defined) they will be entitled to choose either the 50% discount or indexation and the minimum 30% tax rate. But it is not clear if this only applies to new builds after 1 July 2027.  One bit of tax planning you may consider: is that if you intend to sell an asset to use a low tax rate, it may be best to try to do this by 1 July 2027 - before the minimum 30% rate kicks in. Also note that if you own a pre-CGT asset (ie one acquired before 20 September 1985), they will no longer be excluded from CGT but will be subject to CGT after 1 July 2027 - but with a cost base equal to its market value at that date.  But the devil will be in the legislative detail – and after a year of consultations and submissions.

Negative Gearing Limited to New Builds

Budget measure:  From 1 July 2027, losses on established residential property acquired after 7:30pm AEST 12 May 2026 can only be deducted against rental or residential property capital gains income. Properties held (or under contract) before that time are grandfathered.

Our Analysis:

This aligns the Australian tax system with other jurisdictions and, together with the CGT indexation changes, should have some impact on the demand side for residential housing. But importantly, note the “grandfathering” of negative gearing arrangements already in place. (How far it shifts the affordability dial for young people trying to get a foothold in the housing market remains to be seen – especially in the light of ongoing supply problems.)

30% Minimum Tax on Discretionary Trusts

Budget measure:  From 1 July 2028, a 30% minimum tax will be applied to the taxable income of discretionary trusts, payable by the trustee, with exemptions for unit and widely-held trusts, complying super funds, special disability trusts, deceased estates and charitable trusts. Primary production income, certain vulnerable minor income, and income from existing testamentary trust assets are also excluded. Three-year rollover relief from 1 July 2027 will be provided to assist restructuring.

What to Watch:

Presumably this new trustee tax only applies to income to which beneficiaries are made presently (or specifically) entitled to during the particular tax year and that the current 47% tax rate will continue to apply to income to which no beneficiary is presently entitled - otherwise trusts might still be a useful accumulation vehicle.  In other words, it is in effect a 30% minimum tax on trust distributions. Also note despite the carve out for deceased estate trusts etc, this does not include testamentary discretionary trusts  (as opposed to testamentary fixed trusts) - which will be subject to the 30% minimum tax rate.  But, again, the devil will be in the legislative detail – and after a year of consultations and submissions.

$20,000 Instant Asset Write-Off Made Permanent

Budget measure: The $20,000 instant asset write-off will be permanently extended for small businesses with aggregated turnover under $10 million. It will apply to eligible assets first used or installed ready for use from 1 July 2026.

Our Analysis:

Three years of annual extensions made permanence almost inevitable but the real win is ending the late-legislation cliffhanger that had become a genuine planning headache. The threshold itself is unchanged and won’t be indexed, meaning its real value continues to erode. The Opposition proposed lifting it to $50,000 in the Budget reply. Worth noting the per-asset basis still applies, so multiple sub-$20,000 purchases can each be written off, and the measure pairs usefully with the reintroduced loss carry-back rules.

Loss Carry-Back Reinstated

Budget measure:  Companies with global turnover under $1 billion can carry losses back two years, from 1 July 2026. Separately, loss refundability for start-ups (turnover under $10 million, first two years of operation) applies from 1 July 2028.

Key Features and What's New:

This is a permanent measure, unlike the temporary loss carry-back rules that applied during the COVID years. Treasury estimates it will reduce receipts by $2.3 billion over five years and benefit around 85,000 companies.

Key features to note:

• Revenue losses only (capital losses don’t qualify)

• Available only to companies — not trusts, partnerships or sole traders

• Delivered as a refundable tax offset, not a deduction

• Capped by the company’s franking account balance at year-end

• Losses can be carried back against tax paid in the prior two income years

The start-up loss refundability measure is new and shouldn’t be confused with carry-back. Because new companies typically have no prior tax to recover, the refund is instead capped at the FBT and PAYG withholding paid on Australian employee wages in the loss year — effectively rewarding early-stage hiring. It applies for the first two years of operation only and starts from 1 July 2028, so there’s a long lead time before it bites.

$1,000 Instant Tax Deduction

Budget measure:  From the 2026–27 income year, individuals can claim a flat $1,000 for work-related expenses without itemising (charitable donations and professional memberships still claimable on top).

Practical Implications:

This is a welcome simplification and replaces the long-standing $300 substantiation threshold, which had been left unchanged for many years and fallen well behind inflation. Treasury expects 6.2 million workers (around 42% of taxpayers) to benefit, with an average saving of about $205. Keep in mind it’s a deduction, not a refund, so the cash benefit depends on your marginal tax rate. This translates into roughly $160 at the bottom rate to $450 at the top (excluding Medicare levy). More deductions are always welcome, especially where they don’t have to be substantiated. But it’s still worth keeping written evidence of work-related expenses for at least one year to confirm which option suits. The $1,000 threshold is easy to exceed. Keep in mind the ATO’s fixed-rate WFH method alone (70c per hour) reaches it at around 27 hours per week of home-based work. This is before adding car use, tools, self-education or professional subscriptions. Charitable donations and union/professional fees remain separately claimable on top, so they don’t need to be weighed against the $1,000 instant tax deduction choice.

Working Australians Tax Offset

Budget measure:  A new $250 permanent tax offset for income from work, from the 2027–28 income year, lifting the effective tax-free threshold to $19,985 (or $24,985 with LITO).

Key Points:

The impact of this measure is to effectively increase the tax-free threshold for work income by to $19,985, or up to $24,985 when combined with the Low Income Tax Offset. The Treasurer has called it the largest permanent increase in the effective tax-free threshold since 2012–13.

A few points worth noting:

• It’s automatic, meaning no claim required on the return.

• Limited to work income (wages, salaries and sole trader business income). Investment income, trust distributions and company dividends don’t qualify. This is consistent with the budget’s broader shift in tax weight from labour toward capital, paired with the negative gearing and CGT reforms.

• It’s a non-refundable offset, so it reduces tax payable but doesn’t generate a cash refund of its own. 97% of the 13 million eligible workers are expected to receive the full $250 and the remaining 3% are very low earners whose tax bill is already below that.

• The first cash impact lands when 2027–28 returns are lodged from mid-2028.

Worth being precise with clients: the WATO stacks with the legislated rate cuts (16% → 15% from July 2026, then 14% from July 2027), the $1,000 instant tax deduction, and the existing LITO. The government’s “five tax cuts” headline figure combines all of these — the WATO alone is a modest $250.

Superannuation - No Changes:

BudgNo super changes were announced in this Budget. Keep in mind that from 1 July already legislated changes such as the Division 296 tax on balances above $3m and Pay day super start. So “no new changes” doesn’t mean that nothing changes on 1 July.

Superannuation funds (including SMSFs) are explicitly excluded from both the new CGT regime and the negative gearing restrictions on residential property. This widens an already meaningful gap:

• SMSFs retain the one-third (33.3%) CGT discount on assets held over 12 months. Combined with the 15% accumulation-phase rate, that’s an effective CGT rate of around 10% on long-held assets and 0% in pension phase. Keep in mind the new Division 296 tax on higher super balances can change this. Outside super, the new regime delivers a minimum 30% on real gains for individuals and most trusts.

• SMSFs can continue to fully deduct losses on both new and established residential property against other fund income. This is a structural advantage now unavailable to individuals buying established property after Budget night.

Need support or advice?

The team at POINTAX are here to help you. Our expert professionals are available and are keeping up to date with the latest announcements. Contact us by calling us at 03 8386 7410 or visiting our website contact page www.pointax.com.au/contact.

Disclaimer

While every care has been taken to ensure the accuracy of the material above, POINTAX, its employees, or any of its representatives will not bear any responsibility or liability for action taken by any person based on the information contained in this blog. The content is for information purposes only. It is recommended that no person make an investment decision until their needs, desires and risk profile have been assessed by a qualified professional.