Federal Budget 2026-27: Personal Tax

The 2026–27 Budget delivers the most significant transformation of Australia's tax system in more than a quarter of a century. The centrepiece is the personal tax reform package, headlined by a new $250 Working Australians Tax Offset for over 13 million workers from 2027–28 (estimated to decrease receipts by $6.4 billion over five years), complemented by a $1,000 instant tax deduction for work-related expenses from 2026–27.

In a landmark shift, the Government is replacing the longstanding 50 per cent capital gains tax discount with cost base indexation and introducing a 30 per cent minimum tax on net capital gains from 1 July 2027. Notably, these changes will also apply to pre-1985 CGT assets, bringing them within the CGT regime for gains arising from 1 July 2027. The changes apply to individuals, partnerships and trusts who have held the asset for at least 12 months. Negative gearing for residential property will be limited to new builds from the same date, with losses from established residential properties only deductible against rental income or residential property capital gains. These changes apply to individuals, partnerships, companies and most trusts. Properties held before 7:30PM (AEST) on 12 May 2026 are grandfathered. Together, these reforms are estimated to increase receipts by $3.6 billion over five years. The Budget also increases the Medicare levy low-income thresholds by 2.9 per cent and transitions the electric car FBT exemption to a permanent 25 per cent discount from 1 April 2029.

Reforming negative gearing and capital gains tax

• The Government is reforming negative gearing and capital gains tax (CGT) arrangements to improve the fairness of the tax system, support home ownership and help fund new tax cuts for workers.
• This measure is estimated to increase receipts by $3.6 billion over the five years from 2025–26.

Improving Tax Arrangements for Capital Gains

• From 1 July 2027, the 50 per cent CGT discount will be replaced by cost base indexation for assets held for more than 12 months, with a 30 per cent minimum tax on net capital gains. These changes will apply to all CGT assets, including pre-1985 CGT assets, held by individuals, trusts and partnerships. Indexation will be calculated using CPI in a similar manner to arrangements previously in place between 1985 and 1999. The ATO will provide guidance and tools to support calculation of this adjustment.
• Transitional arrangements will limit the impact on existing investments by ensuring the changes only apply to gains arising on or after 1 July 2027. The 50 per cent CGT discount will continue to apply to gains arising before 1 July 2027. Capital gains on pre-1985 assets arising before 1 July 2027 will remain exempt from CGT.
• To maintain incentives for new housing supply, investors in new residential properties will be able to choose either the 50 per cent CGT discount, or cost base indexation and the minimum tax. Income support payment recipients, including Age Pension recipients, will be exempt from the minimum tax.
• An asset's value at 1 July 2027 will be determined by taxpayers as part of their tax return in the year the asset is realised. Taxpayers can either: seek a valuation of the asset as at 1 July 2027, which will include using quoted prices for assets such as shares; or use a specified apportionment formula that estimates the asset's value on 1 July 2027, based on its growth rate over the asset's holding period. The ATO will provide tools to estimate this value for taxpayers.
• The main residence will continue to be exempt for CGT purposes. The four small business CGT concessions will also be unchanged. The existing 60 per cent CGT discount applying to qualifying affordable housing will be fully retained to preserve incentives to invest in those assets.
• Given the unique characteristics of the tech and start up sector the Government will consult on the interaction of the capital gains tax reforms and incentives for investment in early-stage and start-up businesses.

Reforming Negative Gearing to Support New Housing Supply

• The Government will limit negative gearing for residential property to new builds. From 1 July 2027, losses from established residential properties will only be deductible against rental income or the capital gains from residential properties. Excess losses will be carried forward and able to be offset against residential property income in future years. It will apply to individuals, companies, partnerships and most trusts.
• These changes will apply to established residential properties acquired from 7:30PM (AEST) on 12 May 2026. Properties acquired prior to this time (including contracts entered into but not yet settled) will be exempt from the changes until disposed of. Properties purchased between announcement and 30 June 2027 may be negatively geared during this period, but not from 1 July 2027.
• Eligible new builds will be exempt from the changes, ensuring the benefits of negative gearing are directed to investment that increases the housing stock. New builds are residential properties which genuinely add to supply. This will include: dwellings constructed on vacant land, or where existing properties are demolished and replaced with a greater number of dwellings. Knock-down rebuilds or substantial renovations that do not increase supply will not be eligible. A new build cannot have been previously sold, unless first owned by the builder and not occupied for more than 12 months.
• Subsequent purchasers of the dwelling will not be able to access the 50 per cent CGT discount or negative gearing in relation to that property.
• Changes to negative gearing will only apply to residential property. Commercial property and other asset classes, such as shares, will remain subject to existing arrangements.
• Properties in widely held trusts (for example, most managed investment trusts) and superannuation funds (including SMSFs) will be excluded, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs. 

Working Australians tax offset

• The Government will deliver a new tax cut for every working Australian taxpayer by introducing a $250 Working Australians Tax Offset from the 2027–28 income tax year.
• The Working Australians Tax Offset will provide a permanent annual tax offset for Australians for their income derived from work, such as wages and salaries and the business income of sole traders, from 1 July 2027. This will help Australian workers keep more of what they earn, delivering further targeted cost-of-living relief and helping to incentivise workforce participation.
• The Working Australians Tax Offset will increase the effective tax-free threshold for income derived from work by nearly $1,800 to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset). This is the largest permanent increase in the effective tax-free threshold since 2012–13.
• Around 13 million Australian workers, including 6.3 million women, will receive the WATO for the 2027–28 income year, of whom 97 per cent are expected to receive the full $250 offset. The WATO will be available automatically after workers lodge their tax return. The WATO will also be available to sole traders running their own business.
• This measure is estimated to decrease receipts by $6.4 billion over the five years from 2025–26.
• This new tax relief is in addition to the tax cuts for every Australian taxpayer that will come into effect on 1 July 2026 and 1 July 2027, and the $1,000 instant tax deduction.
• This measure is offset by the measures Tax Reform – Boosting Home Ownership – reforming negative gearing and capital gains tax and Tax Reform – introducing a minimum tax on discretionary trusts.

$1,000 instant tax deduction

• The Government will introduce an instant tax deduction of up to $1,000 from the 2026–27 income tax year to make the tax system simpler while also delivering more cost-of-living relief.
• Australian tax residents who earn income from work will be eligible for the instant tax deduction and will not need to itemise and claim work‑related expenses if claiming less than $1,000. Around 6.2 million workers (42 per cent of taxpayers) will benefit in 2026–27, with an average tax saving of $205.
• Individuals who incur work‑related expenses greater than the instant tax deduction can continue to claim their deductions in the usual way. Charitable donations, union and professional association membership fees and other non‑work‑related deductions can still be itemised separately and claimed on top of the instant tax deduction.
• The instant tax deduction is expected to decrease receipts by $2.4 billion and increase payments by $183.9 million over four years from 2025–26. This measure was provisioned for by the Government in the 2025–26 MYEFO.
• This measure delivers on the Government's election commitment made during the 2025 federal election.

Medicare levy low-income thresholds

• The Government will increase the Medicare levy low‑income thresholds for singles, families, and seniors and pensioners by 2.9 per cent from 1 July 2025.
• The threshold for singles will be increased from $27,222 to $28,011. The family threshold will be increased from $45,907 to $47,238. For single seniors and pensioners, the threshold will be increased from $43,020 to $44,268. The family threshold for seniors and pensioners will be increased from $59,886 to $61,623. The family income thresholds will increase by $4,338 for each dependent child or student, up from $4,216.
• The increase in the thresholds provides cost‑of‑living relief by continuing to exempt low‑income individuals and families from paying the Medicare levy.
• This measure is estimated to decrease receipts by $450.0 million over the five years from 2025–26.

Electric car discount

• The Government 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.
• 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.
• Please see the Corporate Tax section for more information.

Modernising payment of the pension supplement to recipients overseas

• The Government will achieve savings of $218.0 million over five years from 2025–26 (and $62.3 million per year ongoing) by amending eligibility for the Pension Supplement, including:
  • extending payment of the full rate of Pension Supplement from six weeks to 12 weeks for recipients who are temporarily absent from Australia
  • ceasing the Pension Supplement for those recipients who are residing permanently overseas or who are temporarily absent from Australia for longer than 12 weeks.
• The Government has previously made a provision for these savings.
• The savings from this measure will fund other Government policy priorities.

Modernising private health insurance rebate

• The Government will achieve savings of $3.0 billion over four years from 2026–27 (and $1.0 billion per year ongoing) by removing the age‑based uplift of the Private Health Insurance Rebate (the PHI Rebate) from 1 April 2027, to enable a simplified and more equitable distribution of the PHI Rebate and help to improve intergenerational equity.
• The savings from this measure will be invested in the aged care sector to deliver more residential aged care beds and improve affordability and access to home care supports.
• The Government will provide $3.2 million over two years from 2025–26 for implementation and to undertake consultation on further reforms to improve the private healthcare system.

Discretionary trusts

There are also significant changes to the taxation of discretionary trust distributions including the introduction of a 30 per cent minimum tax on discretionary trusts – see the Funds & Trusts section.