Australian Federal Budget 2026: Key Tax Changes That Could Affect You

What if the way you invest, own property, or structure your business suddenly became far more expensive? The Australian Federal Budget 2026 has delivered one of the biggest tax shake-ups in more than 25 years.

Released in May 2026, the Budget brought in major tax reforms that affect Capital Gains Tax (CGT), negative gearing, discretionary trusts and individual taxpayers.

Some of the measures announced in the Australian Federal Budget 2026 are already law, while others are still only proposals and will need to go through further legislative steps.

These changes may affect the tax you pay, your investment decisions and how you plan your finances in the years ahead.

In this blog, we break down the key Australian Federal Budget 2026 tax changes and explain what they mean for individuals, investors and business owners.

Capital Gains Tax (CGT) Reform

One of the most significant reforms announced in the Australian Federal Budget 2026 is the overhaul of Capital Gains Tax (CGT).

For many years, individuals and trusts have generally been eligible for a 50% CGT discount on eligible assets held for more than 12 months. Under the enacted reforms, for eligible capital gains from 1 July 2027, the current CGT discount rules will change and be replaced with a cost base indexation approach.

Transitional rules will apply, depending on the type of asset and how it’s owned.

All pre-CGT assets will face specific reset rules from 1 July 2027, so if you hold long-term assets, it’s worth checking your position before the changes kick in.

What Do the New CGT Rules Mean?

Instead of automatically receiving a 50% discount, you’ll generally calculate your taxable capital gain by adjusting your asset’s cost base for inflation. This means you’ll pay tax on your “real” capital gain after inflation, rather than the full increase in value.

A minimum 30% tax on real capital gains will also apply in many circumstances, reducing the tax benefits previously available to some investors. The rules include specific exemptions and should be considered based on each taxpayer’s circumstances.

Some investors may have transitional choices available depending on when the asset was acquired and the applicable CGT rules, which may allow them to use the method that provides the better tax outcome.

These changes may significantly affect long-term investment decisions, so investors should review any planned asset sales before the new rules begin.

Certain taxpayers, including individuals receiving specified government support payments, may be eligible for exemptions from the minimum tax rules. Consider professional advice before selling significant assets.

Changes to Negative Gearing

The Australian Federal Budget 2026 also introduced significant changes to negative gearing for certain residential investment properties.

From 1 July 2027, negative gearing for established residential properties purchased after 7:30 pm (AEST) on 12 May 2026 (Budget night) will be restricted.

Under the new rules, rental losses from these properties will generally only be able to offset future rental income or capital gains from residential property, rather than salary or other forms of income.

Existing investment properties are grandfathered, meaning current owners can continue using the existing negative gearing rules. The changes also do not apply to newly built residential properties, commercial property or certain exempt property arrangements. Our detailed breakdown of the negative gearing grandfathering rules covers exactly which properties are protected and which aren’t.

If you’re planning to purchase an established residential investment property after the Budget cut-off, it’s worth understanding how these changes may affect your future tax position.

Proposed Changes to Discretionary Trust Taxation

The Australian Federal Budget 2026 also introduces major reforms to discretionary (family) trusts.

The Australian Federal Budget 2026 included proposed changes that may introduce a minimum 30% tax rate on certain discretionary trust distributions from 1 July 2028. These changes are not yet finalised and remain subject to the legislative process.

People who get trust distributions will get a tax credit for any tax the trustee has already paid. But if you’re on a lower marginal tax rate, you might lose some of the tax advantages that current trust distribution strategies still offer.

Where trust income is distributed to a company (commonly known as a bucket company), the company generally won’t receive a credit for tax already paid by the trust, which may result in additional tax.

These rules generally won’t apply to fixed trusts, complying superannuation funds, charitable trusts, deceased estates and certain other exempt trusts.

Treasury has proposed transitional arrangements, including a potential three-year restructuring period for eligible taxpayers, subject to the final legislation.

Treasury has also proposed transitional options, including the potential Excluded Election Trust (EET) framework, which may allow eligible trusts to continue flow-through treatment without restructuring.

If you use a discretionary trust to distribute income to family members or a bucket company, it may be worth reviewing your structure before these proposed changes are finalised.

Other Major Changes

Beyond the three headline reforms, the Australian Federal Budget 2026 includes several measures aimed at reducing the tax burden for Australian workers and modernising other tax settings.

Personal Income Tax Relief and Deductions

From 1 July 2026, the tax rate applying to income between $18,201 and $45,000 was reduced from 16% to 15%.

A further reduction to 14% is planned from 1 July 2027. Once both reductions are in place, eligible taxpayers could receive tax savings of up to $536 per year.

From the 2027-28 income year, eligible Australian workers will also benefit from the new Working Australians Tax Offset (WATO) of up to $250, subject to eligibility requirements.

Standard $1,000 Tax Deduction for Work-Related Expenses

If you choose to claim actual expenses instead, you must keep written evidence for the full amount claimed. The previous receipt-free thresholds no longer apply. Some deductions, like eligible professional membership fees and certain insurance premiums, can still be claimed separately.

Rather than appearing in your regular pay, the tax benefit will be received when you lodge your 2026-27 income tax return. Our full breakdown of the $1,000 instant tax deduction covers who’s eligible and how it compares to claiming actual expenses.

Proposed Electric Vehicle Fringe Benefits Tax (FBT) Changes

The Government has proposed changes to the Fringe Benefits Tax (FBT) concession for eligible electric vehicles. These changes are subject to the legislative process and may change before becoming law.

Under the proposed changes, the FBT treatment of eligible electric vehicles will transition over time:

• Until 31 March 2027: The existing 100% FBT exemption continues for eligible electric vehicles that meet the required conditions.
• From 1 April 2027 to 31 March 2029: Eligible electric vehicles valued at $75,000 or less will continue to receive the full FBT exemption where the relevant requirements are met. Eligible electric vehicles above $75,000, but below the fuel-efficient Luxury Car Tax threshold, will receive a 25% FBT discount instead of the full exemption.
• From 1 April 2029: Eligible electric vehicles below the fuel-efficient Luxury Car Tax threshold will move to a permanent 25% FBT discount, replacing the full exemption.

Salary Packaging FBT Integrity Changes

Separate from the electric vehicle FBT concession changes, new FBT integrity rules will affect certain salary packaging arrangements from 1 April 2027.

Under these changes, certain work-related items, including laptops, portable electronic devices, software, protective clothing and tools of trade, will no longer qualify for the usual FBT exemptions when provided through salary packaging arrangements.

These changes are designed to ensure salary packaging arrangements continue to operate within the intended FBT rules.

Changes to SMSF Property Borrowing Rules

The 2026 tax reforms also include changes affecting Self-Managed Super Funds (SMSFs).

New rules prohibit SMSFs from entering into new Limited Recourse Borrowing Arrangements (LRBAs) to acquire residential property.

From the commencement date, SMSF borrowing through LRBAs will generally be restricted to eligible business real property. Existing arrangements may still receive transitional treatment. Our full explainer on the SMSF borrowing ban covers what this means if you’re currently mid-purchase or considering one.

If you are considering buying property through an SMSF, review your borrowing structure before entering into any new arrangement.

Final Thoughts

The Australian Federal Budget 2026 brings several important tax changes. Some measures are already law, while others are still being considered and may change before becoming final.

Measures such as personal income tax cuts and the $1,000 standard work-related deduction have already benefited Australian workers.

Other major reforms, including Capital Gains Tax and negative gearing changes, had future commencement dates. Some proposed measures, such as discretionary trust changes, still require legislative approval.

With several major tax changes planned from 1 July 2027 onwards, now is the ideal time to review your tax strategy, investment plans and business structure so you’re prepared for future changes.

At Clear Tax, we help individuals, investors and business owners understand complex tax legislation and prepare for future changes with confidence. If you’re unsure how these reforms could affect your personal or business tax position, our experienced team is here to help.

Contact Clear Tax today for expert tax advice tailored to your circumstances.

FAQs

When will the Australian Federal Budget 2026 tax changes begin?

Some measures, like the personal income tax cuts and the $1,000 standard work-related deduction, started on 1 July 2026.

Others, including the CGT and negative gearing changes, start later. Proposed measures such as the discretionary trust changes are still working their way through the legislative process.

Will existing investment properties be affected by the negative gearing changes?

No. Existing residential investment properties purchased before 7:30 pm (AEST) on 12 May 2026 are grandfathered and can continue using the current negative gearing rules.

Are all the Australian Federal Budget 2026 tax changes already in effect?

No. While several measures are already in effect, including the personal income tax cuts and the $1,000 standard work-related deduction, other enacted reforms have future commencement dates, while some proposed measures remain subject to further legislative approval.