2026–27 Federal Budget: Tax and Finance Measures Affecting Australian Taxpayers and Small Business Clients
- Future Accounting
- May 13
- 7 min read
Important note: These measures were announced in the Federal Budget delivered on 12 May 2026. Many will still require legislation before becoming law.
Written By: Melissa Cunliffe
Overview
The 2026–27 Federal Budget contains some of the most significant tax changes in recent years, particularly for property investors, discretionary trusts, small businesses, start-ups and workers. The Government’s stated aim is to shift tax support toward work, housing supply, business investment and productivity.
What you need to know:
1. Working Australians Tax Offset
From 1 July 2027, the Government will introduce a permanent $250 Working Australians Tax Offset for income derived from work, including wages, salaries and sole trader business income. The Budget papers say this will increase the effective tax-free threshold for work income by nearly $1,800, to $19,985, or up to $24,985 for workers eligible for the Low Income Tax Offset.
Example:
A sole trader earning business income may receive an additional $250 tax offset from 2027–28. For a wage earner with modest work-related deductions, this will sit alongside the already legislated tax rate reductions and the new instant deduction.
2. Personal tax cuts and $1,000 instant deduction
The Budget confirms the already legislated tax cuts from 1 July 2026 and 1 July 2027, reducing the 16% rate to 15%, then 14%. It also introduces a $1,000 instant tax deduction from 2026–27 for Australian tax residents who earn income from work. Taxpayers claiming less than $1,000 of work-related expenses will not need to itemise those expenses, although larger claims can still be made in the usual way. Charitable donations, union fees and professional memberships can still be claimed separately.
Example:
A nurse with $450 of work-related car expenses could claim the $1,000 instant deduction instead of keeping detailed receipts for that smaller claim. A tradesperson with $2,500 of genuine deductible expenses should continue claiming actual expenses.
3. Medicare levy low-income thresholds
The Medicare levy low-income thresholds will increase by 2.9% from 1 July 2025. The singles threshold rises to $28,011, the family threshold to $47,238, the single seniors and pensioners threshold to $44,268, and the seniors and pensioners family threshold to $61,623.
Example:
Low-income individuals and pensioner clients may remain exempt from the Medicare levy where they would otherwise have begun paying it due to indexation and income growth.
4. Negative gearing changes
From 1 July 2027, negative gearing for residential property will be limited to new builds. For established residential properties acquired from 7:30 pm AEST on 12 May 2026, losses will only be deductible against rental income or residential property capital gains. Excess losses will be carried forward. Properties acquired before Budget night, including contracts entered into but not yet settled, are grandfathered until disposal.
Example:
A client who bought an established investment property before Budget night can continue under the existing rules. A client who buys an established property after Budget night and makes a $12,000 rental loss from 2027–28 generally cannot offset that loss against salary income; it is carried forward against future residential property income or gains.
5. Capital gains tax changes
From 1 July 2027, the 50% CGT discount will be replaced by cost base indexation for assets held more than 12 months, with a 30% minimum tax on net capital gains. The changes apply to individuals, trusts and partnerships, including pre-CGT assets, but only to gains arising after 1 July 2027. Gains before that date remain subject to existing treatment. Investors in new residential properties can choose between the 50% discount or the new indexation/minimum tax method.
Example:
A client selling a long-held investment portfolio after 1 July 2027 may need a split calculation: pre-1 July 2027 gains under current rules, and post-1 July 2027 gains under the new system. Valuations around 1 July 2027 may become important.
6. Discretionary trust minimum tax
From 1 July 2028, trustees of discretionary trusts will pay a 30% minimum tax on trust taxable income. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for trustee tax paid. The measure excludes fixed trusts, widely held trusts, complying super funds, special disability trusts, deceased estates and charitable trusts.
Certain income, including primary production income and some vulnerable minor income, is also excluded. Expanded rollover relief will be available for three years from 1 July 2027 for businesses restructuring out of discretionary trusts.
Example:
A family business operating through a discretionary trust will need its structure reviewed before 1 July 2028. In some cases, restructuring to a company or fixed trust may be worth considering, but commercial, asset protection, duty, CGT and succession issues must be assessed.
7. $20,000 instant asset write-off made permanent
From 1 July 2026, the $20,000 instant asset write-off will be permanently extended for small businesses with turnover up to $10 million. Assets costing $20,000 or more can continue to go into the small business simplified depreciation pool.
Example:
A café purchasing three separate pieces of equipment costing $8,000, $12,000 and $18,000 may be able to immediately deduct each asset, improving cash flow and reducing taxable profit.
8. Loss carry-back and start-up loss refundability
From income years commencing on or after 1 July 2026, companies with aggregated annual global turnover under $1 billion will be able to carry back revenue losses against tax paid up to two years earlier, limited by the franking account balance.
From 1 July 2028, small start-up companies with turnover under $10 million in their first two years may be able to convert losses into refundable tax offsets, limited to FBT and wage withholding tax paid for Australian employees.
Example:
A company that paid $25,000 tax in 2025–26 but makes a $40,000 revenue loss in 2026–27 may be able to obtain a refund by carrying the loss back, subject to eligibility and franking account limits.
9. PAYG instalment flexibility
From 1 July 2027, small and medium businesses will be able to opt in to monthly PAYG instalments and use ATO-approved accounting software calculations to better match instalments to real-time business activity. Businesses with a history of non-compliance may be required to pay monthly.
Example:
A seasonal business could benefit if instalments better reflect fluctuating income instead of relying on prior-year estimates.
10. Electric vehicle FBT changes
The EV FBT exemption is being scaled back. EVs up to $75,000 provided before 1 April 2029 can continue receiving the 100% FBT discount. From 1 April 2029, eligible EVs up to the fuel-efficient luxury car tax threshold will receive a permanent 25% FBT discount, implemented through a 15% statutory formula rate. EVs above $75,000 but below the fuel-efficient luxury car tax threshold provided between 1 April 2027 and 1 April 2029 will receive the 25% discount.
Example:
Employers considering EV salary packaging should review vehicle price and timing. Arrangements entered before the transition dates may receive more favourable FBT treatment.
11. R&D Tax Incentive changes
From 1 July 2028, the Government will reform the R&D Tax Incentive by increasing core R&D offset rates, reducing the intensity threshold from 2% to 1.5%, removing eligibility for supporting R&D expenditure, increasing the refundable offset turnover threshold from $20 million to $50 million, limiting refundability for older firms, lifting the expenditure cap to $200 million and increasing the minimum expenditure threshold to $50,000.
Example:
A technology client undertaking genuine experimental R&D may benefit from stronger core R&D support, but claims involving supporting activities or smaller expenditure may need more careful review.
12. Venture capital incentives
From 1 July 2027, venture capital tax incentive thresholds will increase, including the VCLP investee asset cap from $250 million to $480 million and the ESVCLP investee asset cap from $50 million to $80 million. The ESVCLP tax-exempt return cap rises from $250 million to $420 million, and maximum ESVCLP fund size rises from $200 million to $270 million.
Example:
Start-ups seeking venture funding may become eligible for a wider pool of tax-preferred investment structures.
13. Fuel excise relief
The Government has temporarily reduced fuel excise and excise-equivalent customs duty for most fuel products, plus the heavy vehicle road user charge, for three months from 1 April 2026. Petrol and diesel excise has been reduced by 32 cents per litre, and the heavy vehicle road user charge reduced from 32.4 cents per litre to zero.
Example:
Transport, construction and trade clients may see short-term cash flow relief, but should not treat the reduction as permanent when pricing jobs or setting budgets.
14. ATO fraud and compliance funding
The Government will provide $86.3 million over four years from 1 July 2026 for Phase 2 of the Counter Fraud Strategy, including real-time fraud detection, more protections for individuals, monitoring of fraudulent account access affecting tax agents and businesses, and additional targeted compliance activity including R&D claims.
Example:
Clients should expect stronger ATO scrutiny of high-risk claims, identity access, agent-linked fraud and R&D claims. Documentation and account security will become even more important.
Practical actions for clients now
You should not restructure or transact purely on Budget announcements until legislation is available. However, the following reviews should begin now:
Property investors: identify acquisition dates, contract dates and whether properties are established or new builds.
Trust clients: model the 30% minimum tax impact and consider whether restructuring may be appropriate.
Small businesses: plan asset purchases around the permanent $20,000 write-off and review PAYG instalment options.
Employers: review EV salary packaging timing and FBT exposure.
Start-ups and companies: assess eligibility for loss carry-back, start-up loss refundability, R&D and venture capital incentives.
Individuals: understand when the $1,000 instant deduction is better than actual expense claims.
The key message is that planning and acting early is the key. A thorough understanding of your circumstances, knowing your numbers, knowing your dates and knowing your goals is critically important.
Want clarity on how these changes affect you?
The 2026–27 Budget introduces complex and far-reaching tax changes—but what matters most is how they apply to your specific situation. Timing, structure, and strategy will all play a critical role in the outcomes you achieve.
Let’s work through it together.
Book a meeting with our team to:
Translate these measures into clear, practical impacts for you
Identify risks and opportunities before the rules are finalised
Get tailored advice on property, trusts, business structuring and tax planning
Make confident, informed decisions ahead of key start dates
Don’t wait until the rules are locked in—early planning gives you more control.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
