The 2026–27 Federal Budget introduces some of the most significant proposed personal tax reforms in recent years. The changes affect capital gains tax (CGT), negative gearing, discretionary trusts, work-related deductions and tax offsets.

While no major superannuation changes were announced in this section of the Budget, the proposed reforms may significantly influence investment, property ownership and tax planning strategies for individuals, families and small business owners.

Below is a summary of the key personal taxation measures announced in the Federal Budget 2026–27 and what they may mean for Australians.

Capital Gains Tax (CGT) Reform

Changes from 1 July 2027

The Government has proposed replacing the current 50% CGT discount with a CPI-based indexation method for assets held longer than 12 months.

In addition, a minimum 30% tax rate will apply to realised capital gains accruing from 1 July 2027.

The changes are expected to apply to:

• Investment properties
• Shares
• Trust assets
• Partnership assets
• Pre-CGT assets held before September 1985

The Government confirmed that indexation will operate similarly to the old CPI indexation rules that applied before 1999.

Transitional Rules

The Budget proposes different treatment depending on when assets are acquired and sold:

Assets purchased and sold before 1 July 2027

Current CGT rules will continue to apply.

Assets purchased after 1 July 2027

These assets will be fully subject to the new indexation system.

Assets owned before 1 July 2027 and sold afterwards

The gain will effectively be split into two periods:

• Growth up to 1 July 2027 will continue under the current 50% CGT discount rules.
• Growth after 1 July 2027 will use CPI indexation and the new minimum tax rate.

Taxpayers will need to determine the market value of assets as at 1 July 2027.

The Government stated taxpayers may:

• Obtain a formal valuation, or
• Use an ATO-approved apportionment formula.

Potential Impact on Investors

The proposed reforms could substantially increase the tax payable on long-term investments where asset growth exceeds inflation.

Strategies commonly used by retirees and investors — such as selling assets during low-income years to reduce CGT — may become less effective due to the proposed 30% minimum tax.

New Build Property Exemption

To encourage housing supply, investors purchasing eligible new-build residential properties may still choose between:

• The existing 50% CGT discount, or
• The new CPI indexation method.

Eligible new-build properties include:

• Newly constructed homes on vacant land
• Developments replacing existing dwellings with multiple new dwellings

However, the exemption will generally not apply to:

• Standard renovations
• Knock-down rebuilds that do not increase housing supply
• Subsequent purchasers of the property

Superannuation Funds Not Affected

Importantly, superannuation funds are not impacted by these proposed CGT changes and will continue to receive the existing one-third CGT discount for assets held longer than 12 months.

This may increase the attractiveness of investment structures within superannuation over time.

Negative Gearing Changes

From 1 July 2027

The Government announced major changes to negative gearing arrangements for residential property.

Under the proposal, negative gearing will be restricted to new-build residential properties.

For established residential properties purchased after the announcement date:

• Rental losses will no longer offset salary or other income from 1 July 2027.
• Losses may only offset residential property income or future capital gains.
• Unused losses can be carried forward.

Transitional Arrangements

Existing properties held at announcement

Properties already owned at Budget announcement will generally be grandfathered.

Properties purchased before 30 June 2027

Investors can continue using negative gearing until 30 June 2027.

Properties purchased after 1 July 2027

Negative gearing will no longer apply to established residential properties.

Exemptions

The restrictions will not apply to:

• Eligible new-build properties
• Superannuation funds, including SMSFs
• Widely held trusts and managed investment trusts

Potential Planning Considerations

The exemption for SMSFs may encourage greater interest in holding residential property within superannuation structures.

There may also be increased investor demand for new developments due to the ongoing tax concessions available for new-build properties.

New 30% Minimum Tax on Discretionary Trusts

Commencing 1 July 2028

The Government proposes introducing a 30% minimum tax rate on discretionary trust income.

The trustee will pay the tax, while beneficiaries will generally receive a non-refundable tax credit.

The rules are designed to limit income splitting opportunities commonly used through discretionary trusts.

Trusts Exempt from the New Tax

The following trusts are expected to remain exempt:

• Fixed trusts
• Widely held trusts
• Superannuation funds
• Charitable trusts
• Deceased estates
• Special disability trusts

Some income types will also remain exempt, including:

• Certain primary production income
• Some testamentary trust income
• Certain non-resident withholding tax income

Rollover Relief for Restructuring

To assist affected business owners and investors, the Government will provide temporary rollover relief from 1 July 2027 for those restructuring out of discretionary trusts into other entities such as:

• Companies
• Fixed trusts

This relief will be available for three years.

Impact on Family Trust Planning

The proposed rules may significantly reduce the tax effectiveness of discretionary trusts, particularly where income is distributed to low-income adult family members or minors.

Clients with existing trust structures may need to review whether their current arrangements remain appropriate under the proposed regime.

Working Australians Tax Offset (WATO)

From 2027–28

The Budget introduces a new permanent $250 Working Australians Tax Offset.

The offset will apply to income earned from:

• Employment
• Sole trader business activities

The offset will automatically apply when individuals lodge their tax returns.

Effective Tax-Free Threshold Increase

The WATO effectively increases the tax-free threshold for working Australians.

Combined with existing tax offsets, some Australians may benefit from significantly higher effective tax-free thresholds.

The measure is in addition to the already legislated personal income tax cuts commencing from 1 July 2026 and 1 July 2027.

New $1,000 Instant Tax Deduction

From 2026–27

The Government will introduce a simplified instant tax deduction of up to $1,000 for work-related expenses.

Eligible taxpayers earning income from work will:

• No longer need receipts for deductions under $1,000
• Avoid itemising standard work-related expenses

What Can Still Be Claimed Separately?

Taxpayers can still separately claim:

• Charitable donations
• Union fees
• Professional association fees
• Income protection insurance premiums

Claiming More Than $1,000

Individuals with higher work-related expenses may continue using the traditional deduction method.

However, they will still need:

• Appropriate records
• Receipts
• Substantiation

Simpler Tax Returns for Employees

The proposal aims to reduce record-keeping requirements and simplify tax returns for millions of Australians.

Employees with relatively low work-related expenses may benefit most from the streamlined deduction process.

Electric Vehicle Fringe Benefits Tax (FBT) Changes

From 1 April 2029

The Government will gradually scale back the generous FBT exemption currently available for eligible electric vehicles.

From 1 April 2029:

• Eligible electric vehicles under the luxury car tax threshold will receive a 25% FBT discount instead of a full exemption.

Transitional Rules

EVs provided before 1 April 2029

Vehicles valued up to $75,000 may continue receiving the full FBT exemption.

EVs provided between 1 April 2027 and 1 April 2029

Some vehicles will receive a reduced but still concessional FBT treatment.

Impact on Novated Leases

The changes may increase salary sacrifice costs for employees entering electric vehicle novated lease arrangements after April 2029.

However, electric vehicles are expected to remain tax advantaged compared to traditional petrol and diesel vehicles.

Key Takeaways

The Federal Budget 2026–27 proposes sweeping personal tax reforms that may significantly impact:

• Property investors
• Trust structures
• High-income earners
• Small business owners
• Retirees
• Employees claiming work-related deductions

Key areas likely to require review include:

• Investment ownership structures
• Capital gains tax planning
• Negative gearing strategies
• Trust distribution arrangements
• SMSF investment opportunities

As many measures are proposed to commence over the next several years, individuals and advisers may have time to review and adjust strategies before the changes take effect.

Professional financial and tax advice will be critical to understanding how the proposed reforms may apply to individual circumstances.

Source: Federal Budget 2026–27 FirstTech Briefing Paper.

 

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Disclaimer and Warning

The information above is of a general nature only.  It should not be used as a source to make financial decisions. It’s also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.