Federal Budget 2026-27 snapshot

The Federal Government has reset key elements of the Australian tax system in its 2026-27 Budget by proposing major reforms to capital gains tax, negative gearing on residential investment properties, and taxes on discretionary trust distributions.

However, there are no changes in the latest Budget to the existing superannuation tax regime – an important factor many Australians may consider when reviewing their current and future investment strategies.

The Government has forecast lower economic growth and higher inflation over the near term linked to the current Middle East conflicts, with a projected deficit of $31.5 billion for 2026-27. Australia’s gross debt is forecast to reach $1.05 trillion at 30 June 2027.

In announcing a range of measures set to come into effect over the next financial year, the Government says its focus is on relieving cost of living pressures and delivering improved outcomes to workers, businesses and future generations. They include tax changes aimed at helping younger Australians to enter the housing market.

Changes to capital gains tax

The Government will discontinue the current 50% capital gains tax discount on any assets held for more than 12 months from 1 July 2027. The discount will be replaced with an annual inflation-adjusted indexation rate calculated on the value of the assets held, while a new 30% minimum capital gains tax rate will be applied when assets are sold. The changes will also apply to any assets acquired before 19 September 1985, when capital gains tax was introduced, which were previously exempt. Any gains on these assets that are accrued from 1 July 2027 will be subject to capital gains tax.

Meanwhile, the latest Budget has not included any changes to the capital gains tax treatment of superannuation assets. Superannuation fund members will still receive a 33 1/3 capital gains tax discount on any assets that have been held for more than 12 months. This equates to a capital gains tax rate of 10% based on the 15% tax rate applied to superannuation earnings during accumulation phase. Superannuation members in pension phase will also still pay zero capital gains tax when assets are sold, and zero tax on their earnings and income.

Changes to negative gearing

From 1 July 2027, negative gearing (the ability to use property losses to offset the tax payable on other income such as wages) will be limited to newly constructed residential investment properties only. Furthermore, any losses on established residential investment properties purchased after the Budget announcement on 12 May 2026 will only be deductible against rental income or capital gains from residential properties, not against wages. Residential investment properties owned prior to 12 May 2026 will not be impacted by the negative gearing change.

Changes to discretionary trusts

The Government will apply a minimum 30% tax rate to discretionary trust distributions from 1 July 2028 to end the ability of trustees to distribute income to beneficiaries on lower tax rates. As part of this, the Government will introduce expanded roll-over relief for a limited period to ensure restructures from discretionary trusts into alternative ownership vehicles can occur without adverse tax consequences.

Other types of trusts, such as complying superannuation funds, fixed and widely held trusts, special disability trusts, deceased estates, and charitable trusts will be excluded from the new 30% minimum tax rate.

$250 Working Australians Tax Offset

The Government will deliver a new Working Australians Tax Offset (WATO) to provide a permanent annual $250 tax offset to eligible Australian workers. This begins to apply for income earned from work for the second half of 2027 and will automatically reduce workers’ tax liability for the 2027–28 income year.

Previously announced tax cuts

Under measures already announced, the tax rate applied to income between $18,201 and $45,000 will be reduced to 15% from 16% at 1 July 2026, and to 14% from 1 July 2027.

Other Budget measures

• Effective 1 July 2026, individual taxpayers will be able to claim a $1,000 instant tax deduction for work-related expenses.
• Effective 1 July 2026, the immediate write-off of assets costing less than $20,000 for small business will be made permanent.
• Effective 1 April 2029, the fringe benefits tax discount on new electric cars will be reduced to 25%. The change will not impact existing electric vehicle FBT arrangements.

Incoming superannuation changes

Outside of the latest Budget which contained no changes to superannuation, there are a number of recently announced superannuation member changes that will come into effect from 1 July 2026.

Contribution levels: From 1 July 2026, superannuation contribution caps are increasing due to indexation, with the annual concessional cap rising to $32,500 and the annual non-concessional cap to $130,000. Eligible individuals will also potentially be able to contribute up to $390,000 over a three-year period under the existing bring-forward rule.

PayDay Super: From 1 July 2026, Australian employers must pay superannuation guarantee (SG) contributions to employees within seven days of their salary and wages, rather than quarterly.

Division 296: From 1 July 2026 a new 15% tax will be applied to earnings on superannuation balances exceeding $3 million, bringing the total tax on those earnings to 30%. An additional 10% tax will be applied on balances exceeding $10 million, increasing the total tax rate on these balances to 40%.

Superannuation remains a tax-effective way to invest for retirement as part of a long-term investment strategy.

You can access the full Budget 2026-27 documents at budget.gov.au