The government has handed down the federal budget for 2026-27 and as expected, there are a series of tax changes, impacting capital gains tax, negative gearing and discretionary trusts.
There are also initiatives to support cost of living, productivity, housing affordability, plus aged care and health.
Tax changes
The most debated element of the budget are the changes directed at property investors and discretionary trusts.
Two significant changes to existing tax rules for property investments were announced.
Negative gearing
Negative gearing will no longer be available for established residential properties from 1 July 2027. For all properties held prior to budget night, the existing tax arrangements will remain unchanged.
Investors who purchase new builds will still be able to deduct their 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).
CGT discount rule changes
Another major change is replacement of the current 50% capital gains tax (CGT) discount with cost-based indexation from 1 July 2027.
The government is also introducing a minimum 30% tax rate on capital gains starting on the same date.
The CGT change will only apply to gains arising after 1 July 2027 (including gains generated from pre-1985 assets), with investors in new builds given a choice of the 50% CGT discount or the new arrangements.
The CGT settings for super and self-managed super funds will remain unchanged, which means investors will continue to receive a CGT discount of 33.33% for relevant assets held for over 12 months in super.
Minimum tax rate for discretionary trusts
There will be a new minimum tax rate of 30% 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.
Cost of living
There will be a new Working Australians Tax Offset, providing a $250 offset for more than 13 million employees from the 2027–28 income year.
In addition, workers will be able to claim a $1,000 instant tax deduction for work-related expenses from 2026–27, without the need to keep receipts.
Income tax thresholds will also be adjusted. From 1 July 2026, the 16% tax rate, applying to income between $18,201 and $45,000, will be reduced to 15% before falling further to 14% from 1 July 2027.
Productivity
New funding will be aimed at reducing red tape by an estimated $10.2 billion per year, including faster environmental approvals and streamlined foreign investment processes.
Housing construction remains a central productivity priority. New funding for local infrastructure is designed to support up to 65,000 extra homes, alongside measures to fast track skilled migrant trades and improve construction capacity.
Investment in transport infrastructure also features prominently, with $8.6 billion committed to nationally significant road and rail projects, improving freight efficiency and workforce mobility particularly across the regions.
Housing affordability
The Government claims around 65,000 additional homes will be delivered over 10 years through its support for new developments.
To free up additional supply, the Government is extending the ban on foreign buyers purchasing established homes until mid-2029.
Aged care and health
Health and aged care receive significant additional funding as demand continues to rise. The budget commits $25 billion in additional hospital funding over the medium term, alongside incentives to expand bulk billing and reduce strain on emergency departments.
As a cost saving, the Government will remove the age-based uplift of the Private Health Insurance Rebate (the PHI Rebate) from 1 April 2027.
Aged care reform focuses on both supply and workforce sustainability. The Government will fund incentives to support construction of an additional 5,000 residential aged care beds per year by 2029.
The NDIS also features prominently, with continued efforts to rein in unsustainable cost growth and strengthen integrity. Measures include tightening eligibility, reducing rorting and redirecting funding towards participants with the highest needs.
What’s next?
If you have any questions about how the federal budget could affect you and your personal situation, please reach out to your adviser or one of the team at Financial Framework.