This Budget includes the restatement of the already announced taxable Australian property changes as well as some welcome international tax and business tax reform and a widely anticipated sting for EV enthusiasts.
Key measures include:
- Reintroduction of loss carry back for companies with turnover under $1 billion (from 1 July 2026), plus loss refundability for small startups from 1 July 2028 — together expected to cost $2.8 billion over the forward estimates.
- Implementation of the Pillar Two side-by-side package from 1 January 2026, introducing a permanent Simplified ETR Safe Harbour and extending the Transitional CbCR Safe Harbour to reduce compliance burdens for in-scope MNEs.
- Re-announcement of the controversial strengthening of the foreign resident CGT regime measures, including retrospective amendments back to 2006 significantly expanding the definition of ‘real property’, albeit with a limited transitional 50% CGT discount for renewable energy assets until 30 June 2030.
- Phase-out of the full FBT exemption for electric vehicles from 1 April 2029, transitioning to a permanent 25% discount with grandfathering for existing arrangements below $75,000 — expected to raise $1.9 billion.
Loss refundability and reintroduction of the loss carry-back regime
The Budget introduces reforms to the treatment of tax losses, aimed at providing relief for businesses and startups. These changes are stated to encourage investment, support sensible risk‑taking and improve the resilience of firms during periods of economic volatility.
Loss refundability
A new loss refundability measure will also be introduced for small startups. From income years commencing on or after 1 July 2028, startup companies with aggregated annual turnover below $10 million that incur a tax loss in their first two years of operation will be able to convert that loss into a refundable tax offset. The offset will be capped at the value of fringe benefits tax and withholding tax paid on wages for Australian employees in the relevant loss year.
- This startup measure is expected to increase administered payments by $410 million over the five years from 2025–26.
- In aggregate, these reforms are expected to reduce receipts by $2.3 billion and increase payments by $468.2 million over the five-year forward estimates period. The ATO will receive $58.2 million over five years to support implementation.
Loss carry back rules
- From income years commencing on or after 1 July 2026, eligible companies with aggregated annual global turnover below $1 billion will be permitted to carry back tax losses and offset them against tax paid in the preceding two years. The carry back will be limited to revenue losses and capped by reference to the company's franking account balance.
- The reintroduction of loss carry back is expected to reduce receipts by approximately $2.3 billion over the five years from 2025–26.
Changes to FBT exemption for EVs
As expected, the Government has confirmed that it is adjusting settings of the electric car discount to maintain incentives for the shift to electric vehicles while transitioning to more sustainable settings for the longer term. The key features of the changes are:
- From 1 April 2029, a permanent 25 per cent discount on fringe benefits tax (FBT) will be available for all electric cars valued up to and including the fuel‑efficient luxury car tax threshold, implemented through a 15 per cent rate in the FBT statutory formula.
- The following transitional arrangements will be put in place:
- All eligible electric cars will retain the FBT discount rate that was in place when the arrangement commenced;
- All electric cars valued up to and including $75,000 that are provided before 1 April 2029 will continue to be eligible for a 100 per cent discount on FBT, implemented through a 0 per cent rate in the FBT statutory formula; and
- Electric cars valued above $75,000 and up to and including the fuel‑efficient luxury car tax threshold that are provided between 1 April 2027 and 1 April 2029 will be eligible for a 25 per cent discount on FBT, implemented through a 15 per cent rate in the FBT statutory formula.
- The existing 20% statutory rate will continue to apply for all other cars, including electric cars costing more than the fuel‑efficient luxury car tax threshold.
- Reportable fringe benefits will continue to be determined for eligible electric cars as if a 20 per cent FBT statutory formula rate or cost basis method applied.
- This measure is estimated to increase receipts by $1.9 billion and increase payments by $200.0 million over the five years from 2025–26.
Global Anti‑Base Erosion Rules (Pillar Two) Side‑by‑Side Package Implementation
Australia's global and domestic minimum tax legislation will be amended to implement the side-by-side package agreed by the OECD/G20 Inclusive Framework on 5 January 2026. This package applies from 1 January 2026 and is estimated to decrease receipts by $240 million and increase payments by $11 million over the forward estimates. Key features include:
- The GloBE Rules ensure MNEs with consolidated annual revenue of €750 million ($1 billion in Australia for ‘SGE’s) or more pay a minimum 15% tax on income in each jurisdiction, with a ‘Top-up Tax’ applying where the effective tax rate falls below this threshold.
- A permanent Simplified ETR Safe Harbour substantially reduces compliance by allowing MNE Groups to determine their effective tax rate using simplified calculations based on consolidated financial statements, avoiding entity-by-entity computations.
- A Qualified Domestic Minimum Top-up Tax (or QDMTT) ensures Australia collects any Top-up Tax rather than it being collected by other jurisdictions, while the Transitional CbCR Safe Harbour has been extended for one year to allow smooth implementation.
Indirect tax concession scheme
- The Government has extended access to refunds of indirect tax (including GST, fuel and alcohol taxes) under the Indirect Tax Concession Scheme (ITCS). New access to refunds has been provided to the European Union, Italy and Chile relating to the construction and renovation of their current and future diplomatic missions and consular posts. Tuvalu will also have ITCS access extended to its High Commission, current and future consular posts and applicable accredited staff.
- This measure is estimated to decrease receipts by $0.5 million and decrease GST payments to the states and territories by $0.5 million, over the five years from 2025–26.
Foreign resident CGT regime
The Government has broadly re-announced its measures to strengthen the foreign resident CGT regime, first detailed in controversial exposure draft legislation released on 10 April 2026 with only a two-week consultation period (closing 24 April 2026). The exposure draft went well beyond the 2024-25 Federal Budget announcements, introducing significant retrospective amendments that have drawn criticism from the investment community. Importantly, no grandfathering provisions have been proposed other than the limited transitional relief for renewable energy assets. You can see more detail in our previous update here, but the key features of the measures include:
- An expanded definition of ‘real property’ significantly broadening the scope of taxable Australian real property (TARP) to include interests and rights over land (regardless of State or Territory law), things fixed or installed on land (such as energy and telecommunications infrastructure, transport infrastructure, and heavy mining machinery), water entitlements, and licences or contractual rights exercisable over land — applied retrospectively to 12 December 2006.
- A new 365-day continuous testing requirement for the principal asset test (replacing the current point-in-time test), requiring foreign investors to monitor valuations daily where holdings are close to the 50% TARP threshold. New ATO notification obligations will also apply for transactions valued at $50 million or more where a non-IARPI declaration is made.
- A transitional 50% CGT discount for foreign corporate investors and offshore fund trustees disposing of eligible Australian renewable energy assets until 30 June 2030. The asset must have the ‘primary purpose’ of generating electricity from an eligible renewable source. For indirect disposals, at least 90% of the entity’s TARP value must be attributable to Australian renewable energy assets — a high threshold that may exclude mixed-use portfolios.
- A Commonwealth statutory definition of ‘real property’ will override State and Territory laws, including statutory severance provisions, with retrospective effect from 12 December 2006. This is significant as it has been used as justification for the retrospective expansion of the tax base, although this characterisation is not consistent with the original explanatory memorandum for Division 855.
The transitional renewable energy concession is estimated to decrease receipts by $425 million over the forward estimates. We consider the retrospective application of the broader TAP amendments to be controversial. As Hespe J observed in recent YTL decision, Division 855 intentionally narrowed the classes of CGT assets taxable to foreign residents when it commenced in 2006. The retrospective amendments may have practical implications for historic asset sales where the relevant income year remains open to the ATO, or where returns were not lodged on the basis the asset was not expected to be TARP. Foreign investors in Australian real estate, infrastructure, energy and resources, including pension funds, sovereign wealth funds and private equity, will need to closely consider the proposed amendments.
