The budget provides further tax support for workers through a tax offset and standard tax deduction. However, as expected, the most significant changes are to capital gains tax and changes to negative gearing for residential properties.
The budget provides wholesale tax changes to capital gains tax and negative gearing, the scale which have not been seen for many years.
Here we highlight some of the key tax measures affecting Australian individuals and families.
Capital gains tax
From 1 July 2027, the Government proposes to replace the 50% capital gains tax (CGT) discount for individuals, trusts and partnerships with cost base indexation and a 30% minimum tax rate on capital gains.
For eligible CGT assets:
- Assets acquired and disposed of before 1 July 2027 will remain fully subject to current CGT rules
- Assets acquired on or after 1 July 2027 will be taxed entirely under the new regime
- Assets held before 1 July 2027 and sold after that date will be subject to transitional treatment, with gains accrued up to 1 July 2027 taxed under existing rules and gains accruing thereafter taxed under the new rules. There is no tax impact until the asset is disposed of.
For transitional assets, the 50% CGT discount will apply to the gain between the original cost base and the asset’s value at 1 July 2027. Gains accruing from that date will be calculated using indexation, with the asset’s 1 July 2027 value effectively treated as a new cost base. The post 1 July 2027 net gain will be taxed at a minimum of 30%.
The 1 July 2027 value may be determined either by obtaining a valuation or by applying a prescribed apportionment formula. It is not clear on what basis this apportionment will be determined but Treasury information indicates the ATO will be providing a calculator to assist taxpayers looking to use the apportionment formula instead of a valuation. It is also not clear what form of valuation will be accepted. For example, will a director’s valuation be sufficient for an unlisted private company value?
Pre CGT assets will remain exempt for gains accrued before 1 July 2027, with the new rules applying only to gains accrued after that date. This is a fundamental change for the currently completely exempt CGT assets.
It does not appear that companies will get the benefit of any cost base increase on account of indexation. This may create a tension between restructuring to a company in light of some of the other announced Budget changes.
The are some specified exemptions. They are:
Assets exempted
- For new residential premises, the investor can choose between the current CGT 50% discount and the new indexed cost base with a minimum 30% tax. This asset class will be defined as new builds which genuinely add to the supply. This will include dwellings on vacant land and demolished properties where replaced with a greater number of dwellings. New builds cannot have previously been sold, unless first owned by the builder and not occupied for more than 12 months.
- Qualifying affordable housing, which will continue to attract a 60% CGT discount.
Investors exempted
- Superannuation funds including SMSF. Long-term investment gains on assets held for more than 12 months by superfunds will continue to attract a 33% discount.
- Recipients of income support payment recipients, including Age Pension recipients will be exempt from the minimum tax.
Related matters to note
- There will be no change to the Small Business CGT Concessions, perhaps increasing the importance of these concessions where available
- Treasury has indicated that the impact of this for the tech and start up sector has not yet been worked through. Importantly, Treasury has referred to the “unique characteristics” of this industry as a reason to further consult on the interaction of these capital gains tax reforms with incentives for investment in early-stage and start-up businesses. One such area may be in relation to the ESS start-up concessions as these changes may render them redundant.
Negative Gearing Changes
As expected, the budget includes measures to remove negative gearing benefits on residential properties acquired after Budget night (7.30pm AEST 12 May 2026), unless it relates to new builds. The changes will apply to residential properties acquired after Budget night but only come into effect from 1 July 2027.
Currently, investors are allowed to deduct a net rental loss from a negatively geared residential property against other taxable income. Negative gearing will continue to be available for residential properties acquired (or contracted) before Budget night.
From 1 July 2027, for residential properties acquired after budget night, net rental losses will be able to be carried forward to offset residential property income in future years (including future capital gains from residential properties).
Negative gearing will continue to apply to new builds. The exemption for new builds is intended to support investment in new builds to increase housing supply.
These changes will apply to individuals, partnerships, companies and most trusts. Widely held trusts, and superannuation funds (including SMSFs) will be excluded.
The changes are limited to residential property and don’t apply to other negatively geared investments (such as commercial properties or shares).
Further exemptions to the negative gearing changes will be available for private investors who support government housing programs.
$250 Working Australians Tax Offset
The Federal Government has announced a new tax cut for working Australians through the introduction of the $250 Working Australians Tax Offset (WATO), which will apply from the 2027–28 income tax year.
The offset will provide a permanent annual tax offset of up to $250 for eligible taxpayers on income derived from work. This includes wages and salaries, as well as net business income earned by sole traders. The Working Australians Tax Offset 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).
The Working Australians Tax Offset is scheduled to commence on 1 July 2027.
$1,000 instant tax deduction
The government will continue a push to legislate a standard $1,000 deduction for Australian tax residents who earn income from work, starting 1 July 2026. If introduced, eligible Australians will be able to claim the deduction without needing receipts for work-related expenses.
This will still allow some deductions to be claimed in addition to the instant tax deduction, including investment expenses, charitable donations and union and professional association membership fees.
Taxpayers must choose either the $1,000 standard deduction or to claim their actual work‑related expenses. If actual expenses exceed $1,000, they may choose to claim those instead, subject to normal substantiation rules.
Previously announced tax cuts
The income tax cuts announced in last year’s budget have been legislated and will begin to apply from 1 July 2026.
From 1 July 2026, the 16% tax rate (which applies to taxable income between $18,201 and $45,000) will be reduced to 15%. From 1 July 2027, this tax rate will reduce to 14%.
For individuals with taxable income of at least $45,000, this equates to a tax saving of $268 per year in 2026-27 and $536 per year from 2027-28.
The tax brackets and rates, excluding the 2% Medicare levy, for the current financial year and those that will apply up to and from 1 July 2027 are shown below.102550100entries per pageSearch:
| Tax rate | Income |
|---|---|
| 0% | $0 – $18,200 |
| 2026-27: 15% From 2027-28: 14% | $18,201 – $45,000 |
| 30% | $45,001 – $135,000 |
| 37% | $135,001 – $190,000 |
| 45% | >$190,000 |
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Increasing Medicare levy low-income thresholds
The Government will increase the Medicare levy low‑income thresholds by 2.9% for singles, families, and seniors and pensioners from 1 July 2025.
Strengthening Medicare
The budget includes an additional $2.1 billion over 5 years to ensure access to quality primary and specialist healthcare through Medicare Urgent Care Clinics and increased access to bulk billing.
Boosting home ownership
The budget will provide $2 billion over four years from 2027 Housing Support Program – Local Infrastructure Fund which provides support to local governments and utility providers to expedite delivery of housing enabling infrastructure.
Retirement and Superannuation
The 2026 budget has largely left superannuation unchanged, although the confirmation of exclusion from the CGT and negative gearing changes was welcome.
What will affect superannuation in the coming year will be the increase in contribution caps from 1 July 2026, the introduction of Pay Day Super, as well as Division 296 legislation finally being passed earlier this year for those with balances over $3 million.
SMSFs excluded from changes in CGT and negative gearing
The widely discussed and now confirmed changes to the CGT discount and negative gearing have now been announced. It has been confirmed that SMSFs are excluded.
Increase in contribution caps
Although not mentioned in this budget, there are a number of contribution caps set to rise from 1 July 2026.
- The standard concessional contribution cap, which includes employer, salary sacrifice and personal contributions for which an individual can claim a personal tax deduction, will increase from $30,000 (in the 2025 and 2026 financial years) to $32,500 from 1 July 2026.
- The non-concessional contribution (NCC) cap will increase from $120,000 to $130,000 from 1 July 2026. This also means that the maximum non-concessional cap, available under the bring-forward provisions, will increase from $360,000 to $390,000.
- The Super Guarantee rate remains at 12%, from 1 July 2025, with no further change.
Division 296 additional tax on high superannuation balances
Separate to the Budget, the Government passed legislation earlier this year regarding Division 296 to reduce tax concessions to individuals with a Total Superannuation Balance (TSB) exceeding $3 million. This is now set to take effect from 1 July 2026.
To summarise, individuals with a TSB in excess of $3 million and $10 million will be subject to an additional tax on earnings of 15% and 10% respectively. These thresholds will be indexed over time. The tax is calculated by using an updated version of an adjusted earnings calculation (which no longer includes unrealised market movements), multiplied by the percentage of the member’s balance over the relevant threshold.
There will also be the ability to choose to uplift the cost base of your SMSF assets to the market value at 30 June 2026. This will only be for the purpose of calculating Division 296 only, and the standard tax calculation for income tax with apply for capital gains.
Payday Super
Also starting from 1 July 2026, employers must pay superannuation at the same time they pay salary and wages to employees. This will give employees greater visibility and control over their superannuation entitlements and assist the ATO in recovering unpaid superannuation.
Information provided by Bentley’s
