Jim Chalmers’ fifth Budget included significant tax reforms with the package billed as “the most significant tax reform package in more than a quarter of a century”.
While Australian workers and small businesses are likely to be happy, property investors and those with discretionary (family) trusts face new rules and tax rates that will require careful review.
The package was announced against a backdrop of global uncertainty and demographic change, with the Treasurer emphasising the tax reforms represent a key component in the government’s response to intergenerational inequality and challenges to national resilience.
We note that all measures included in yesterday’s budget announcement are yet to pass through both houses of parliament and are therefore not yet legislated. The content and application of these announcements may change prior to becoming law.
With cash flow a key issue for smaller businesses, the Budget included measures to make the popular $20,000 instant asset write-off permanent from 1 July 2026.
It also permanently reinstated loss carry backs. From 2026-27, eligible companies making a loss in the current income year will be able to use the loss to obtain a refund against tax paid in the prior two income years.
From 2028-29, small start-ups will be able to access cash flow support through a refund for tax losses in their first two years of operation, up to the value of fringe benefits tax (FBT) and withholding tax paid on employee wages.
Businesses will gain flexibility to opt in to monthly PAYG instalments from 1 July 2027.
The FBT exemption for electrical vehicles continues in its current format until 31 March 2027. Beyond that date, the FBT exemption is available for electric vehicles that cost $75,000 or less until 31 March 2029. For electric vehicles that cost more than $75,000 there is a 25% discount on FBT, but not a full exemption.
From 1 July 2027, tax incentives for venture capital will be expanded through changes to the Early-Stage Venture Capital Limit Partnership and Venture Capital Limit Partnership programs.
The offset for experimental core R&D will also be increased by around 25 to 50 per cent, together with an increased turnover threshold for the refundable offset and a new $200 million maximum expenditure cap.
Two significant changes to existing tax rules for property investments were announced in the Budget.
Negative gearing will no longer be available for established residential properties purchased after 1 July 2027. For all properties held prior to Budget night 2026, the existing negative gearing tax arrangements will remain unchanged.
Investors who purchase new builds after 1 July 2027 will still be able to negatively gear and deduct losses from other income.
Purchasers of established housing after the Budget announcement, however, will only be able to deduct losses against residential property income. Unused losses can be carried forward to future years but will no longer be deductible against other income (such as wages).
Another major change is replacement of the current 50 per cent capital gains tax discount with cost-based indexation from 1 July 2027.
The government is also introducing a minimum 30 per cent tax rate on capital gains starting on the same date.
The CGT change will only apply to gains arising after 1 July 2027, with investors in new builds given a choice of the 50 per cent CGT discount or the new arrangements.
The tax change likely to generate the most criticism is a new minimum taxation rate of 30 per cent for discretionary trust distributions from 1 July 2028.
The new rate will not apply to fixed trusts, super funds, special disability trusts, deceased estates and some types of farming income.
Rollover relief will be available for three years from 1 July 2027 to assist small businesses and others wishing to restructure in light of the new rules.
Over 13 million workers will benefit from a new annual $250 Working Australians Tax Offset from 1 July 2027. This will increase the effective tax-free threshold for workers to $19,985.
The offset is in addition to announced cuts to the lowest tax rate on 1 July 2026 – when the rate drops to 15 per cent – and on 1 July 2027 (14 per cent).
The Budget included a new $1,000 instant tax deduction for work-related expenses from 2026-27, reducing paperwork requirements for employees claiming these deductions.
Information in this article has been sourced from the Budget Speech 2026-27 https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/speeches/2026-27-budget-speech-parliament-house-canberra and Federal Budget Support documents https://budget.gov.au/.
It is important to note that the policies outlined in this article are yet to be passed as legislation and therefore may be subject to change.
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