Treasurer Jim Chalmers handed down what he called “the most important and ambitious Budget in decades” on 12 May 2026. Here is what changed, what it means for you, and what your business needs to prepare for.
Quick Summary
The 2026-27 Federal Budget is the Albanese government’s fifth and most far-reaching yet. Facing a global oil shock triggered by the conflict in the Middle East, Treasurer Jim Chalmers chose reform over caution. The budget delivers sweeping changes to how property investment, capital gains, and trusts are taxed, alongside new tax cuts for workers, record housing investment, and the largest savings package in Australian history.
- Negative gearing for residential property limited to new builds from 1 July 2027
- 50% capital gains tax discount replaced with inflation-linked indexation from 1 July 2027
- New $250 Working Australians Tax Offset for 13.3 million workers
- $63.8 billion in savings, including $37.8 billion from NDIS reforms
- $47 billion total investment in housing, including $2 billion in infrastructure
- Fuel excise more than halved in response to the global oil shock
- Minimum 30% tax rate on capital gains and discretionary trust distributions
The Economic Context: Why This Budget Is Different
Australia is navigating what Treasurer Jim Chalmers described as “a fifth economic shock in less than 20 years.” The conflict in the Middle East and the closure of the Strait of Hormuz has disrupted global oil markets, pushing prices above $100 per barrel for the bulk of the past two months, up from around $60 at the start of the year.
That oil shock is flowing through into petrol prices, food costs, and broader inflation. Treasury is now forecasting inflation to peak around 5% in the middle of 2026, with economic growth coming in at 1.75% for the next financial year.
Despite the global headwinds, the budget delivers what it calls the “most significant tax reform package in more than a quarter of a century,” underpinned by $63.8 billion in savings and a commitment to spending restraint.
Tax Cuts for Workers
More than 13.3 million Australian workers will receive a new $250 Working Australians Tax Offset (WATO). The offset will be paid automatically through tax returns, beginning from the second half of 2027-28 on an ongoing basis.
The government says the combined effect of all five rounds of tax cuts delivered since coming to office will be worth up to $2,816 per year for the average worker by 2028, or the equivalent of around $54 back in the pocket each week.
Worker Tax Cut Summary
| Measure | Benefit | Timing |
|---|---|---|
| Working Australians Tax Offset (WATO) | $250 per year, ongoing | From 2027-28 |
| Instant $1,000 tax deduction | Average benefit $205 | 2026-27 |
| Previously legislated Stage 3 cuts | $5/week rising to $10/week | From 1 July 2026 |
| Combined benefit (average worker) | Up to $2,816/year | By 2028 |
Negative Gearing Changes
This is the most politically significant change in the budget. From 1 July 2027, negative gearing for residential property will be limited to new builds only. Investors who purchase established properties after 7:30pm on 12 May 2026 will no longer be able to use negative gearing to offset their taxable income.
What This Means in Practice
- Negative gearing will still be available on new residential builds acquired after budget night.
- Investors in existing properties purchased after budget night will lose the ability to offset rental losses against other income from 1 July 2027.
- Investments supporting government housing programs, such as affordable housing, are also exempt.
- Treasury projects the changes will redirect around 75,000 properties from investors to first home buyers over time.
The government argues that limiting negative gearing to new builds directs tax support toward increasing housing supply, rather than fuelling competition for existing stock. Critics, including the Housing Industry Association and the opposition, have disputed whether the changes will boost supply or simply reduce rental investment.
Capital Gains Tax Reform
The 50% capital gains tax (CGT) discount, which has been in place since 1999, will be replaced from 1 July 2027 with an inflation-adjusted indexation model. Rather than discounting the gain by half, investors will only pay tax on the portion of the gain that exceeds inflation over the holding period.
A new minimum 30% tax rate on capital gains will also apply from 1 July 2027, ensuring that gains are taxed at a rate broadly consistent with the marginal rate faced by the average worker.
Key Details
| Element | Current Rule | New Rule (from 1 July 2027) |
|---|---|---|
| CGT discount method | 50% flat discount on gain | Inflation-adjusted indexation (real gains only) |
| Minimum tax rate on gains | None | 30% minimum |
| New residential builds | 50% discount | Choice of 50% discount OR new indexation method |
| Gains on assets held before 1 July 2027 | 50% discount applies | Time-based apportionment (pre/post 1 July 2027 split) |
| CGT in superannuation | One-third discount (funds) | Unchanged |
These changes affect all asset classes including shares, commercial property, and investment property. With around 83% of the benefit of the current CGT discount flowing to the top 10% of taxpayers by income, the government frames this as an equity reform as much as a revenue measure.
Discretionary Trust Taxation
A minimum 30% tax rate on distributions from discretionary trusts will apply from 1 July 2028. The measure targets the practice of distributing income to lower-income beneficiaries to reduce the overall tax burden on trust income.
The government says this brings the taxation of trust distributions more in line with the taxes paid on wages, addressing a long-standing structural inequality in the tax system.
What Is and Isn’t Affected
- Discretionary (family) trusts distributing income to adult beneficiaries will face the 30% floor.
- Farming trusts are expected to receive an exemption.
- Estate planning arrangements are also expected to be exempt.
- The measure applies from 1 July 2028, giving affected taxpayers roughly two years to plan.
For businesses and family groups currently using trusts for income splitting, this is a significant change that warrants early advice. Speak with your adviser about how your structure may be affected.
Housing Investment
The budget lifts total government investment in housing to a record $47 billion. The government’s strategy works from both the supply and demand sides.
Key Housing Measures
- First home buyers supported with 5% deposit schemes, reducing the upfront barrier to entry.
- $2 billion invested in the power, roads, and drainage infrastructure needed to unlock new housing developments.
- Extended ban on foreign investors purchasing existing homes.
- $4,000 in support for young people at risk of homelessness, securing accommodation for around 4,000 individuals.
- Work with states to cut red tape and planning delays that are slowing new approvals.
Small Business and Productivity Measures
The budget contains one of the broadest productivity packages since the 1990s, with a particular focus on reducing the compliance burden on small businesses and encouraging investment and innovation.
Business Tax Changes
- Permanent instant asset write-off: Small businesses can continue to immediately deduct eligible asset purchases, providing cashflow certainty.
- Two-year loss carryback: Permanently introduced for companies with turnover up to $1 billion. Companies can carry back tax losses to offset previously paid tax, generating refunds in tough periods.
- Loss refundability for startups: New businesses can access refunds on losses in their first two years, supporting early-stage investment and growth.
- More dynamic tax instalments: Small businesses will be able to adjust their PAYG instalments more easily, reducing cashflow mismatches.
- Venture capital incentives expanded: From 1 July 2027, venture capital tax programs will be updated to align with modern company valuations, unlocking more capital for high-growth businesses.
- R&D Tax Incentive reforms: Better targeted to support high-impact innovation, with over $3.5 billion in new measures across business tax incentives.
Regulatory Reduction
The reforms announced are projected to cut regulatory costs by $10.2 billion per year. That includes $780 million per year in the financial sector alone, and 376,000 hours saved for small businesses at tax time through simplified compliance. The removal of almost 600 additional tariffs will also reduce trade barriers for importers and manufacturers.
Fuel Excise and Cost of Living Relief
In direct response to the Middle East oil shock, the government has deployed a $14.8 billion fuel resilience package, centred on immediate price relief and long-term energy security.
Immediate Measures
- Fuel excise has been more than halved, delivering direct relief at the bowser.
- The heavy vehicle road user charge has been reduced to zero.
- Consumer watchdog penalties for fuel companies have been doubled, with ramped up monitoring and enforcement.
- Businesses facing fuel supply issues will be given more leeway at tax time.
- Small businesses will find it easier and quicker to access credit during fuel supply disruptions.
Long-Term Energy Security
- $10 billion invested in immediate fuel supplies and a new permanent Australian Fuel Security Reserve.
- $1.1 billion Cleaner Fuels Program to increase domestic fuel production.
- 20% reservation of gas exports for Australian users, boosting domestic supply and moderating prices.
- Continued support for EV uptake, charging infrastructure, and heavy vehicle reform.
NDIS Reforms and Savings
The single largest savings measure in the budget is a major restructure of the National Disability Insurance Scheme. The NDIS reforms are projected to save $37.8 billion over the forward estimates, returning the scheme to its original intent and putting it on a more sustainable financial footing.
The government will invest $2 billion in a new Thriving Kids program and $3 billion for foundational supports outside the NDIS, designed to ensure Australians with disability and complex needs continue to receive appropriate care through alternative pathways.
Additionally, $2.2 billion has been committed to strengthen Services Australia and ensure reliable, secure delivery of government payments and services.
Healthcare and Medicare
Healthcare remains a significant area of spending, with the government committing to lower out-of-pocket costs and expanded access to services.
- 137 Medicare Urgent Care Clinics will be permanently funded, with four in five Australians within 20 minutes of one by July 2026.
- The maximum co-payment for PBS medicines remains capped at $25, with the concessional rate frozen at $7.70 until 2030.
- $3 billion committed to aged care, delivering more beds, more home care packages, and improved service quality.
- New medicine listings include a treatment for cystic fibrosis that could save some patients up to $250,000 per year.
Defence and National Security
With economic security, energy security, and national security increasingly intertwined, the budget commits an additional $53 billion over the next decade in defence capability, bringing total defence investment to record levels.
A further $600 million will fund a new Counter-Terrorism Online Centre in response to the Bondi Beach terror attack, alongside grants for affected communities and enhanced resourcing for law enforcement. The government has committed to adopting every recommendation from the Royal Commission on Antisemitism and Social Cohesion’s Interim Report, and to fast-tracking tougher gun laws through National Cabinet.
Veterans will receive almost $800 million as part of the government’s response to the Royal Commission into Defence and Veteran Suicide.
What This Means for You
The 2026-27 budget is the most reform-heavy in over two decades. Depending on your circumstances, the impacts will vary considerably. Here is a quick reference across different situations:
| Your Situation | Key Impact | Status |
|---|---|---|
| Employed worker | $250 WATO + $1,000 instant deduction + earlier Stage 3 cuts | Benefit |
| First home buyer | 5% deposit support, tax reform redirecting 75,000 properties to owner-occupiers | Benefit |
| Existing property investor (pre-budget) | Grandfathered. No change to negative gearing or CGT on existing holdings. | Protected |
| New property investor (existing stock, post-budget) | Negative gearing removed from 1 July 2027. New CGT rules apply to post-July 2027 gains. | Impacted |
| Investor in new residential builds | Retains negative gearing and choice of 50% CGT discount or new indexation method | Mixed |
| Small business owner | Permanent instant asset write-off, loss carryback, simpler compliance, regulatory cuts | Benefit |
| Trust beneficiaries | 30% minimum tax on trust distributions from 1 July 2028 | Impacted |
| Startup / venture capital | Loss refundability, expanded VC incentives, R&D reforms | Benefit |
| Driver / transport business | Fuel excise more than halved. Heavy vehicle road user charge reduced to zero. | Benefit |
| NDIS participant | Scheme restructured. $37.8B in savings. New Thriving Kids and foundational support programs. | Change |
Actions to Consider Now
- Review your property investment portfolio structure with your adviser before 1 July 2027.
- Assess whether a trust restructure is warranted ahead of the 30% minimum rate taking effect in July 2028.
- Consider whether purchasing a new build rather than an established property aligns with your investment strategy and tax position.
- Confirm whether your business will benefit from the permanent instant asset write-off and whether an asset purchase before financial year end is advantageous.
- If you are an employer or business owner, model the impact of WATO and the instant deduction on your workforce costs.