On Tuesday 12 May 2026, the Federal Treasurer, Jim Chalmers, released his much awaited Federal Budget for the 2026/27 financial year.
In delivering the Federal Budget, Jim Chalmers stated that the tax reforms were necessary to be introduced to ensure intergenerational equality of wealth between the younger generation and the ageing generation.
In announcing the sweeping tax reform measures, Jim Chalmers stated:
“I acknowledge this is a controversial change. I acknowledge this is a government coming into a different view than the view it held 12 months ago,” said Chalmers in a press conference. “The main change in our thinking is the view that we cannot let the intersection of the housing market and the tax system continue to lock out people from getting a toehold in the housing market, particularly young people.”
The finances
In delivering the budget, Jim Chalmers announced that the 2025/26 financial year will result in a budget deficit of $28.3B with the 2026/27 financial year projected to result in a budget deficit of $31.3B.
Tax measures
Some of the key tax reform measures announced in the Federal Budget that will impact our clients involve:
- CGT Reforms
- Restrictions on negative gearing
- Taxation of Trusts
- Re-introduction of tax loss carry back scheme
- Small Business instant asset write-off
- Loss refundability for small start-up companies
- Changes to R&D
- Salary packaging changes for electric cars
- Standard work-related tax deduction
- Earned income tax offset
CGT reforms
As expected, there were significant reform announcements made in the Federal Budget which will impact the amount of CGT that taxpayers pay on the sale of investment assets.
The First Key CGT Reform Measure will remove the ability of taxpayers to claim the 50% CGT discount concession.
By way of background the 50% CGT discount concession has been available since 1999 and has allowed trust taxpayers and individuals to claim a 50% discount on any capital gain made from the sale of an asset that they have held for more than 12 months. The 50% CGT discount applied to the sale of real property, shares and many other forms of CGT assets.
In the Federal Budget, Jim Chalmers announced that the Federal Government proposes to introduce legislation that will remove access to the 50% CGT discount concession from 1 July 2027.
For CGT assets already held on 1 July 2027, Jim Chalmers has proposed a transitional method of calculating capital gains. When an asset is sold, the ownership period that the taxpayer held the asset prior to 1 July 2027 will effectively qualify for access to the 50% CGT discount, whereas the ownership period occurring after 30 June 2027 will not qualify for access to the 50% CGT discount and will instead qualify for indexation of the cost base of the asset.
For taxpayers purchasing newly constructed residential properties on or after 1 July 2027, the taxpayer will have the choice of continuing to apply the 50% CGT discount or using the indexation of cost base method.
The Second Key CGT Reform Measure is the proposed introduction from 1 July 2027 of a minimum rate of tax on capital gains of 30% irrespective of the actual tax profile of the taxpayer making the capital gain.
The Third Key CGT Reform Measure announced in the Federal Budget is that assets that were previously outside of the CGT regime as a result of being purchased prior to 20 September 1985 (i.e. pre-CGT assets) will commence to become subject to CGT for the proportion of the holding period of the asset that occurs after 1 July 2027. The capital gain calculated for these assets will be based on indexation of the cost base of the asset.
Restrictions on negative gearing
As envisioned, the Federal Budget announced sweeping proposed changes to negative gearing. The changes announced in the Federal Budget will only apply, however, to existing residential properties. Thus, negative gearing on other forms of investment assets and new residential premises will be excluded from the changes.
By way of background, negative gearing is the ability of a taxpayer to use a tax loss occurring from a CGT asset they hold (typically real estate and typically arising because of interest and other holding costs exceeding the income generated from the asset) to reduce their other taxable income.
In the Federal Budget, Jim Chalmers announced that while negative gearing will continue to be available for residential properties purchased on or prior to 12 May 2026, the Federal Government proposes to introduce legislation to remove negative gearing for existing residential properties purchased after 12 May 2026 unless the residential property qualifies as a new home or new apartment
As a transitional measure however, the Federal Government has announced that for residential properties purchased after 12 May 2026, the budget changes will only apply from 1 July 2027. This means that for assets purchased after 12 May 2026, negative gearing tax deductions will still be available until 30 June 2027.
With the removal of negative gearing on residential properties, any tax losses created from these investments will be required to be carried forward by the taxpayer and will only be able to be used to offset any net taxable income generated from the investment asset (i.e. when the asset becomes positively geared or is sold).
Taxation of discretionary trusts
In the Federal Budget, the Federal Government has proposed that discretionary trusts will commence to pay a minimum tax rate of 30% on the taxable income in the trust. The Federal Government has stated that this measure will apply from 1 July 2028.
At present, provided a trust distributes all of its income to beneficiaries of the trust, the trust does not pay any tax on the income and instead, the beneficiaries pay tax on their share of the taxable income of the trust based on their own marginal tax rate.
Under the budget proposal, a trust will commence to pay a minimum tax on their taxable income of 30% and beneficiaries of the trust other than companies will receive a non-refundable tax credit for the amount of tax paid by the trust. This means that if the marginal tax rate of the beneficiary is less than 30%, the beneficiary will not receive a refund of the excess tax credit.
The Federal Budget announcement also states that primary production income in discretionary trusts and testamentary trusts already in existence will be excluded from the changes.
Re-introduction of tax loss carry back scheme
The Federal Government announced that it proposes to re-introduce a tax loss carry-back scheme that will allow companies to offset a tax loss incurred in a financial year against the taxable income derived by the company in a prior year thus allowing the company to obtain a tax refund of the tax it paid to the ATO in the prior year. Jim Chalmers announced that loss carry-back will commence from the 2027 financial year and will be available to companies with aggregated turnover of less than $1B.
Under the scheme, the Federal Government has announced that a company that incurs a tax loss in a year will be eligible to offset that loss against any taxable income that the company derived in any of the prior 2 years before the loss was incurred.
Small Business instant asset write-off
In the Federal Budget, Jim Chalmers announced that the $20,000 small business instant asset write-off will become permanently enacted in legislation.
Under the small business instant asset write-off, businesses that have turnover of less than $10M per annum and who use simplified depreciation will be eligible to claim an immediate tax deduction for assets purchased costing less than $20,000. Assets costing more than $20,000 will continue to be eligible to be depreciated in a SBE Pool.
Loss refundability for small start-up companies
The Federal Budget announced that commencing from 1 July 2028, companies with turnover of less than $10M that incur a tax loss in their first 2 years of operation will be eligible to claim a tax refund of the amount of their tax loss incurred (capped to the amount of FBT and PAYG withholding paid by the company in the particular year).
Changes to R&D
In the Federal Budget, various changes were announced in relation to the R&D tax offset. The changes announced include:
- Increasing the R&D offset by 4.5% for core R&D expenditure.
- Reducing the R&D intensity threshold from 2% to 1.5%.
- Removal of supporting R&D expenditure from the R&D tax offset.
- Increasing the turnover threshold for access to the refundable tax offset from $20M to $50M.
- Increasing the maximum R&D expenditure threshold from $150M to $200M.
- Increasing the minimum expenditure threshold for claiming the R&D tax offset from $20,000 to $50,000.
Salary packaging changes for electric cars
In 2022, the Federal Government introduced concessions which were designed to encourage the purchase of electric and certain hybrid cars (noting that the concessions for hybrid cars has since been removed).
The concessions the Federal Government introduced allowed an employer to provide an employee with the use of an electric car without any FBT consequences provided the cost of the electric car was below the luxury car tax threshold for electric cars (being $91,387 for the 2025/26 FBT year).
Due to the significant tax cost of providing the exemption and the perception that the exemption was predominantly being utilised by wealthy taxpayers, the Federal Government has announced that it will be scaling back the FBT exemption.
- From 1 April 2027 – 31 March 2029, the Federal Government has announced that the following changes will be made:
- FBT exemption will only apply to electric cars costing less than $75,000.
- For electric cars costing between $75,000 and the luxury car tax threshold for electric cars (currently $91,387), no FBT exemption will apply but taxpayers will receive a 25% discount on the FBT payable.
- From 1 April 2029, the Federal Government has announced that no FBT exemption will apply at all but for electric cars costing less than the luxury car tax threshold (currently $91,387), taxpayers will receive a 25% discount on the FBT payable.
Standard work-related tax deduction
In April 2026, the Federal Government introduced draft legislation to implement a standard $1,000 work related tax deduction that taxpayers can elect to apply without having to provide any substantiation for the deduction. The amendments are proposed to apply from 1 July 2026.
The standard tax deduction would cover home office expenses, car and other travel expenses, tools and equipment expenses and self-education and subscription expenses.
In conjunction with introducing a standard work-related tax deduction that taxpayers can elect to apply, the draft legislation seeks to remove all other tax deductions currently available to taxpayers without the need to provide substantiation for the claim (eg laundry expenses for up to $150). This means that those taxpayers wanting to claim work related deductions in excess of $1,000 are required to provide full substantiation for all their deductions.
Earned income tax offset
As a cost of living relief measure, the Federal Government announced that all taxpayers that earn a salary and are also sole traders that derive business income will receive an “earned income tax offset” of $250 commencing from the 2028 financial year. The tax offset is not income tested.
Questions?
If you have any further questions in relation to the Federal Budget, please do not hesitate to contact your client service contact at BG Private on +61 3 9810 0700.