Federal Budget 2026: The Biggest Tax Changes Since Budget Night

By Romeo Caporaso FIPA – Registered Tax Agent, Tax Accounting Adelaide

The 2026 Federal Budget delivered some of the most significant tax changes Australia has seen in many years. While many measures are designed to provide cost-of-living relief, there are also major proposed reforms affecting property investors, discretionary trusts, capital gains tax and small businesses.

Here is a plain-English summary of the key changes announced since Budget Night on 12 May 2026.

1. Personal Income Tax Cuts Continue

The Government confirmed further tax cuts for Australian taxpayers.

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

From 1 July 2027, that tax rate reduces again from 15% to 14%.

These changes build on the Stage 3 tax reforms and are intended to reduce bracket creep and provide cost-of-living relief.

What This Means

Most taxpayers will pay less tax and keep more of their income, particularly low and middle-income earners.

2. New $1,000 Instant Tax Deduction

One of the most talked-about measures is the introduction of a $1,000 Instant Tax Deduction from the 2026–27 income year.

Eligible employees will be able to claim up to $1,000 of work-related deductions without needing to keep receipts or itemise expenses, provided their total work-related claims do not exceed $1,000.

What This Means

For taxpayers with relatively low work-related expenses, tax returns should become simpler and faster to prepare. Those with deductions above $1,000 can still claim actual expenses using the normal substantiation rules.

3. New $250 Working Australians Tax Offset

From 1 July 2027, a new Working Australians Tax Offset (WATO) will provide a permanent annual tax offset of up to $250 for workers and many sole traders.

The Government estimates that more than 13 million workers could benefit from this measure.

What This Means

This effectively increases the tax-free amount earned by working Australians and complements the recent tax rate reductions.

4. Major Capital Gains Tax Reform

The biggest proposed change for investors is the reform of Capital Gains Tax (CGT).

From 1 July 2027, the Government proposes replacing the traditional 50% CGT discount with a system based on inflation-adjusted cost base indexation. A minimum 30% tax rate on net capital gains is also proposed.

Importantly, gains accumulated before 1 July 2027 are proposed to continue receiving treatment under the existing rules.

What This Means

• Property ownership structures may need review.
• Share investment strategies may change.
• The timing of asset sales may become more important.
• Long-term wealth planning may need to be revisited.

Many investors should seek professional advice before making significant investment decisions.

5. Negative Gearing Changes

Another major proposal affects residential property investors.

From 1 July 2027, the Government proposes limiting negative gearing benefits to new residential properties. Existing properties owned before Budget Night would retain current treatment under grandfathering provisions.

For established residential properties acquired after Budget Night, losses would generally no longer be deductible against wages and salary income and instead be carried forward.

What This Means

• New builds may become more attractive to investors.
• House and land packages may benefit.
• Off-the-plan developments may become more popular.

The proposed reforms may significantly influence future property investment decisions.

6. Discretionary Trust Tax Changes

The Budget also proposes a significant change for discretionary trusts.

From 1 July 2028, a minimum 30% tax rate is proposed to apply to discretionary trusts, subject to various rules and exceptions.

What This Means

Families and business owners using discretionary trusts should monitor future legislation closely and review their structures with their accountant well before the proposed commencement date.

7. Permanent $20,000 Instant Asset Write-Off

Good news for small business owners.

The Government announced plans to make the $20,000 Instant Asset Write-Off permanent from 1 July 2026 for eligible small businesses with aggregated turnover under $10 million.

What This Means

Eligible businesses may continue to immediately deduct the cost of assets under $20,000 rather than depreciating them over several years.

8. Company Loss Carry-Back Returns

The Budget proposes reintroducing company loss carry-back measures.

Eligible companies that make losses may be able to obtain refunds of tax paid in previous years by carrying losses back against earlier taxable profits.

What This Means

This may improve cash flow and support business resilience during periods of economic uncertainty.

9. Medicare Levy Low Income Threshold Increases

The Government announced increases to Medicare levy low-income thresholds.

What This Means

Many low-income individuals, families and pensioners may pay less Medicare levy or potentially avoid it altogether.

Final Thoughts

The 2026 Federal Budget contains a mix of immediate tax relief measures and longer-term structural reforms.

For most individuals, the key benefits are:

• Lower income tax rates
• The new $1,000 Instant Tax Deduction
• The future $250 Working Australians Tax Offset

For investors and business owners, however, the proposed changes to Capital Gains Tax, Negative Gearing and Discretionary Trusts could have significant long-term implications.

Many of the investment and trust measures still require legislation and may change before becoming law. Taxpayers should avoid making major decisions solely on Budget announcements and instead seek professional advice based on their personal circumstances.