Federal Budget 2026-27: The Complete Tax and Business Guide
The Federal Budget Context: A Global Oil Shock
The 2026-27 Federal Budget lands against an extraordinary backdrop. The conflict in the Middle East has disrupted roughly one-fifth of the world’s seaborne oil and gas supply — the largest oil supply disruption on record.
The economic consequences are real and immediate. Headline inflation reached 4.6 per cent in the 12 months to March 2026, driven by a 32.8 per cent spike in automotive fuel prices in that month alone. The Federal Budget forecasts inflation peaking at 5 per cent by June 2026 before easing to 2.5 per cent by June 2027.
Real GDP growth is forecast to slow from 2.25 per cent in 2025-26 to 1.75 per cent in 2026-27. The unemployment rate is expected to rise gradually from 4.25 per cent to 4.5 per cent. These are the numbers behind this Federal Budget’s dual purpose: respond to an immediate crisis while pursuing long-term structural reform.
Treasurer Jim Chalmers describes the result as the most significant transformation of Australia’s tax system in more than a quarter of a century.
Fuel Relief and Energy Security
The centrepiece response to the oil shock is the $14.8 billion Strengthening Australia’s Fuel Resilience package. The fuel excise was cut by 32 cents per litre on petrol and diesel, and the heavy vehicle road user charge was reduced to zero for three months.
For a truck travelling 25,000 kilometres in that period and consuming 55 litres per 100 kilometres, that saves approximately $4,500 in road user charges alone.
The package includes three other major components:
- The $7.5 billion Fuel and Fertiliser Security Facility through Export Finance Australia
- The $3.2 billion Australian Fuel Security Reserve to hold at least 50 days of diesel and jet fuel supply
- A 20 per cent domestic gas reservation from 1 July 2027, requiring LNG exporters to direct a share of production to the domestic market
Beyond short-term relief, the Federal Budget commits to building longer-term energy sovereignty. This includes the $1.1 billion Cleaner Fuels Program, continued investment in the Hydrogen Headstart programme, and the transition of the electric vehicle fringe benefits tax exemption toward a permanent 25 per cent discount structure.
Tax Reform: Workers and Income Tax
The Federal Budget delivers what the government describes as the first broad-based tax cuts in Australian history that directly target income from work.
There are three interconnected worker benefits:
The legislated reduction in the 16 per cent marginal rate — applying to income between $18,201 and $45,000 — drops to 15 per cent from 1 July 2026 and to 14 per cent from 1 July 2027. These were already passed into law prior to the Budget.
The new $250 Working Australians Tax Offset (WATO) applies from the 2027-28 income year for income earned from work. It raises the effective tax-free threshold by nearly $1,800 to $19,985, and to $24,985 for workers also receiving the Low Income Tax Offset. More than 13 million workers benefit, including around 6.3 million women. This measure is subject to the passage of legislation.
The $1,000 instant tax deduction applies from the 2026-27 income year. Workers can reduce their taxable income by up to $1,000 without keeping receipts. The ATO estimates this saves individuals $380 million in compliance costs each year. Around 6.2 million workers benefit, with an average tax saving of $205. This measure is subject to the passage of legislation.
On average earnings of $81,245, a worker will receive a combined cut of $1,978 in 2026-27 and $2,496 per year from 2027-28 compared to 2023-24 settings. Over the period from 2024-25 to 2036-37, the same worker is expected to pay up to $38,977 less in tax relative to 2023-24 settings.
Medicare levy low-income thresholds also rise by 2.9 per cent, benefiting more than one million lower-income Australians.
Tax Reform: Capital Gains and Negative Gearing
From 1 July 2027, the 50 per cent capital gains tax (CGT) discount is replaced with cost base indexation for assets held by individuals, trusts and partnerships. A 30 per cent minimum tax on real capital gains also applies. The government’s rationale is straightforward: the existing discount does not accurately compensate for inflation and disproportionately benefits the highest-income Australians. These measures are subject to the passage of legislation.
From 1 July 2027, negative gearing for residential property is limited to new builds. Net rental losses from established residential properties can only offset rental income or capital gains from residential property — not wages and salaries. Excess losses carry forward indefinitely. This measure is subject to the passage of legislation.
Importantly, properties held at 7:30pm AEST on 12 May 2026 are grandfathered until sold. Eligible new residential builds are also exempt, allowing investors to choose either the 50 per cent CGT discount or the new arrangements on new property purchases.
For superannuation funds — including SMSFs — these changes do not apply. Complying superannuation funds retain the one-third CGT discount. However, the removal of the CGT exemption on pre-1985 assets warrants attention. Gains on pre-1985 assets arising before 1 July 2027 remain exempt. Gains arising from that date onwards are subject to the new arrangements upon realisation.
The government projects these combined housing-related reforms will support 75,000 additional first home buyers over the decade, with house price growth temporarily slowing by around 2 per cent over a couple of years compared to a no-change baseline.
Tax Reform: Discretionary Trusts
From 1 July 2028, a 30 per cent minimum tax applies to the taxable income of discretionary trusts. The trustee pays the tax, since it is the trustee who controls distributions. Beneficiaries other than corporate beneficiaries receive non-refundable credits against their income tax liabilities. This measure is subject to the passage of legislation.
The policy rationale is equity. The number of discretionary trusts has more than doubled over the past 20 years to over one million. The wealthiest 10 per cent of households hold over 90 per cent of the value of private trusts. Over 95 per cent of Australians receive no income from a discretionary trust.
The following trusts are excluded from the minimum tax:
- Fixed and widely held trusts
- Complying superannuation funds, including SMSFs
- Special disability trusts
- Deceased estates
- Charitable trusts
- Testamentary discretionary trusts existing at the time of the announcement
Rollover relief is available for three years from 1 July 2027. Small businesses operating through discretionary trusts can restructure into a company or fixed trust without triggering income tax or CGT consequences during this window.
Many small businesses use discretionary trust structures, and the government estimates the measure will raise $4.5 billion over five years. The rollover relief period and access to the 25 per cent small business tax rate through incorporation are important planning considerations for affected business owners.
It is worth noting that discretionary testamentary trusts established after the announcement date appear to fall within the scope of the minimum tax and warrant close attention.
Small Business: Investment and Cash Flow
The $20,000 instant asset write-off is made permanent from 1 July 2026 for businesses with an aggregated annual turnover below $10 million. This applies per asset and ends the annual cycle of temporary extensions that has created ongoing uncertainty for small business owners. The ATO estimates compliance cost savings of around $32 million per year. This measure is subject to the passage of legislation.
Loss carry-back also returns on a permanent basis. Companies with turnover up to $1 billion can carry back losses for two years from the 2026-27 income year, generating a refund of tax paid in earlier profitable years. Up to 85,000 companies a year are expected to benefit. For start-up companies in their first two years, loss refundability is capped at employment-related taxes paid — withholding tax on wages and fringe benefits tax — from 1 July 2028. Up to 25,000 new small companies a year may benefit. This measure is subject to the passage of legislation.
The Research and Development Tax Incentive is also reformed: offset rates rise by approximately 4.5 percentage points, the intensity threshold drops from 2 per cent to 1.5 per cent for non-refundable claims, and the minimum expenditure threshold rises from $20,000 to $50,000. The refundable offset is better targeted to companies operating for less than 10 years, with the turnover threshold for this group rising from $20 million to $50 million. These measures are subject to the passage of legislation.
Venture capital incentives are also updated. Asset and fund size caps, unchanged since 2002 and 2007 respectively, are lifted to account for inflation. The asset cap for VCLP-eligible investments rises from $250 million to $480 million. The ESVCLP fund size cap rises from $200 million to $270 million. These measures are subject to the passage of legislation.
Housing Supply
Beyond the tax changes affecting investors, the Federal Budget allocates $2 billion for the new Local Infrastructure Fund. This fund helps local governments and state utility providers build enabling infrastructure — water, power, sewerage and roads — to unlock new housing. Up to 65,000 homes over a decade are expected to be supported, conditional on states and territories committing to planning and zoning reforms.
The ban on foreign purchases of established dwellings is extended by two years and three months to 30 June 2029.
The Federal Budget also strengthens build-to-rent affordability standards and estimates that up to 80,000 new rental homes will be supported over the next decade, including up to 1,200 affordable homes in the near term.
Healthcare and Social Support
The Federal Budget allocates $25 billion over five years for public hospitals under a new National Health Reform Agreement Addendum.
Medicare Urgent Care Clinics are made permanent, with $1.8 billion over five years to secure their future. There are now 137 clinics nationally, having delivered almost 3 million free visits. By July 2026, four in five Australians will live within a 20-minute drive of one.
New and amended PBS listings receive $5.9 billion in funding, including treatments for cystic fibrosis, chronic kidney disease, various cancers, and the RSV vaccine Arexvy listed on the National Immunisation Programme.
Public dental services for adults receive permanent funding for the first time, with $431 million allocated.
Mental health funding includes $277.5 million for a 12-month extension of the National Mental Health and Suicide Prevention Agreement.
The NDIS: Structural Savings
The Federal Budget’s most significant structural savings come from returning the NDIS to its original intent. Reforms are expected to reduce NDIS payment growth by $37.8 billion over four years.
NDIS nominal growth, which ran above 10 per cent in 2024-25, is projected to average around 2 per cent over the forward estimates before returning to a 5 per cent trajectory from 2030-31 in line with National Cabinet’s agreement.
The government frames this as a sustainability measure, not a cut. Total NDIS spending continues to grow each year.
The Fiscal Position
The underlying cash deficit for 2026-27 is $31.5 billion, or 1.0 per cent of GDP, an improvement of $2.8 billion from the mid-year update. The Budget is projected to return to balance in 2034-35 and reach a surplus of 0.8 per cent of GDP by 2036-37.
Gross debt is forecast to peak at 35.8 per cent of GDP in 2028-29, two years earlier and 1.2 percentage points lower than previously projected. At 30 June 2027, gross debt is $1,051 billion, $18 billion lower than the mid-year estimate. Australia retains its AAA credit rating from all three major ratings agencies.
The government has identified $63.8 billion in savings and reprioritisations in this update, bringing the total to $177.9 billion since the 2022 election. The reforms to negative gearing, CGT and discretionary trusts are broadly designed to fund the worker tax cuts on a revenue-neutral basis over the forward estimates.
Superannuation
From a superannuation perspective, the Federal Budget is a relatively quiet one. Division 296 tax changes on balances above $3 million have already passed. Payday super commences soon. No new superannuation structural changes are introduced in this Budget.
The Paid Parental Leave scheme expands to six months from 1 July 2026, extending the period over which superannuation contributions are paid on Commonwealth-funded parental leave.
The Federal Budget allocates $62 million over two years to explore the use of the Consumer Data Right to enable taxpayers to share ATO-held data, including superannuation data. Financial advisers and SMSF administrators have faced restricted access to client superannuation data held by the ATO since 2016. If a workable solution is developed, this could significantly improve the efficiency of advice and administration.
The government is also strengthening the superannuation performance test to remove unintended barriers to investment by the $4.5 trillion superannuation sector, including potential barriers to venture capital investment.
Defence and National Security
The 2026 National Defence Strategy adds $14 billion over four years and $53 billion over 10 years. Priority investments include autonomous and uncrewed systems, long-range strike capabilities, integrated air and missile defence, nuclear-powered submarines, and Mogami class frigates.
In response to the antisemitic Bondi terrorist attack of December 2025, the Federal Budget allocates $604.2 million. This covers enhanced security for Jewish communities, law enforcement, counter-terrorism capabilities, mental health support, a National Gun Buyback Scheme, and stronger hate crime laws.
This article is based on the Federal Budget 2026-27 as announced on 12 May 2026 and is intended as general information only. It does not constitute financial, tax or legal advice. Several measures outlined above are subject to the passage of legislation and may be subject to change. Please contact us here at MaxGrowth if you have any questions.
