This Budget makes significant changes to the R&D tax incentive scheme. Core R&D offset rates have been increased by 4.5%, and there has been an increase in the cap on eligible R&D expenditure to $200 million, though the cap remains despite the recommendation in the Ambitious Australia review that it be removed altogether. A boost to the turnover threshold for access to the refundable tax offset from $20 million to $50 million should assist Australian startups. The minimum expenditure threshold is similarly being increased. Venture capital tax incentives are also being expanded.
In terms of productivity, companies with less than $1b in aggregated annual global turnover will now be able to access loss carry-backs for 2 years, limited by their franking account balance. Start-ups with aggregated annual turnover of less than $10m generating losses in their first 2 years will be able to generate a refundable tax offset, subject to limitations. Further, the $20,000 instant asset write-off for small businesses will continue permanently. Amendments to regulation in the financial sector are flagged, including a reduction in unnecessary reporting and disclosure.
The Budget puts forward a grab-bag of relatively minor measures to assist Australians with the cost of living crisis, including a $250 offset available to every working Australian taxpayer, a $1,000 instant tax deduction, and a minor increase in the Medicare levy low-income thresholds. Given the massive increases in the cost of living of late, there are surprisingly few direct measures to alleviate the pressures on Australians.
To particularly address higher petrol prices arising from the conflict in the Middle East, the Budget offers a temporary reduction in fuel excise and the road user charge for heavy vehicles for 3 months from 1 April 2026, and provides funding to a variety of measures to increase Australia’s fuel resilience and resistance to fuel price shocks in the future.
Australian gas will also be partly shielded from global volatility with domestic supply increased via the establishment of the Domestic Gas Reservation Mechanism, requiring Australian LNG exporters to supply 20% of their exported gas volumes to the domestic wholesale gas market.
Research & Development
Reforming the R&D tax incentive
The Government is reforming the Research and Development Tax Incentive (R&DTI). From 1 July 2028, the Government will:
- Increase the offset for core R&D expenditure by around 25 to 50 per cent, through a 4.5 percentage point increase in core R&D offset rates;
- Reduce the intensity threshold from 2 per cent to 1.5 per cent, enabling more firms that engage in substantial core R&D to qualify for higher offset rates;
- Remove eligibility of supporting R&D expenditure for the R&DTI;
- Enable growing firms to retain access to the refundable tax offset for longer by increasing the turnover threshold for the highest offset rate from $20 million to $50 million;
- For firms below the $50 million turnover threshold, maintain older firms' eligibility for the higher offset rate while limiting refundability to firms under 10 years of age;
- Lift the maximum R&DTI expenditure threshold from $150 million to $200 million; and
- Lift the minimum expenditure threshold from $20,000 to $50,000, with research activities valued below this amount required to be undertaken with a registered Research Service Provider or Cooperative Research Centre to be eligible for the R&DTI.
This measure forms part of the first stage of the Government's response to the Ambitious Australia: Strategic Examination of Research and Development Final Report. The reforms will unlock 20 per cent more business R&D for each dollar of tax offset and a further $400 million increase in R&D investment by young firms each year.
Promoting Research, Development and Innovation
The Government will provide funding to support Australian science and research and development capabilities, including:
- $387.4 million over four years from 2026–27 (and $38.0 million per year ongoing) to support the CSIRO, including additional funding for work on biosecurity to safeguard Australia's agriculture sector;
- $273.0 million over four years from 2026–27 for the National Measurement Institute;
- $40.1 million over five years from 2025–26 to establish the Neale Daniher MND Clinical Network;
- $24.3 million over two years from 2026–27 to provide an uplift in operating resources for the National Health and Medical Research Council;
- $21.7 million over two years from 2026–27 to the Australian Space Agency; and
- $15.8 million over two years from 2026–27 to continue the development of the National One Stop Shop to streamline approvals for clinical trials and human research.
The Government will establish a National Resilience and Science Council to advise on Research, Development and Innovation objectives, priorities and performance and improve coordination of government research and development and industry initiatives as a first step in responding to the recommendations of the Ambitious Australia: Strategic Examination of Research and Development final report.
The Government has also made a provision for future spending of $508.5 million over four years to increase disbursements from the Medical Research Future Fund, from $650.0 million in 2025–26 increasing to $1.0 billion annually from 2030–31, with funding to be held in the Contingency Reserve pending finalisation of the National Health and Medical Research Strategy.
Expanding Venture Capital Tax Incentives
The Government will expand the venture capital tax incentives to better facilitate venture capital investment and support early stage and growth businesses.
From 1 July 2027:
- the venture capital limited partnership (VCLP) cap on the asset size of the investee business at the time of investment will be increased to $480 million, from $250 million;
- the early stage venture capital limited partnership (ESVCLP) cap on the asset size of the investee business at the time of investment will be increased to $80 million, from $50 million;
- the ESVCLP tax incentive cap on the asset size of the investee business, at which investment returns can be fully tax exempt, will be increased to $420 million, from $250 million; and
- the maximum fund size of ESVCLPs will be increased to $270 million, from $200 million.
The increases reflect asset caps that have not been adjusted for over 20 years and will unlock more investment in venture capital by global and local investors – including super funds – supporting the next wave of innovative Australian businesses to start up and scale up. The increases will apply to new and existing funds and to new investments they make, including where funds make further investments in businesses already held. ESVCLPs must remain in compliance with their existing investment plans or seek approval for a replacement plan.
The eligible venture capital investor program will be closed to new applications from 7.30PM (AEST) 12 May 2026.
Productivity
Digital ID
The Government will provide $654.3 million over four years from 2026–27 (and $166.7 million per year ongoing) to meet its legislative commitments under the Digital ID Act 2024 and maintain the security and reliability of the Australian Government's Digital ID System.
Loss Refundability for Businesses and Start-Ups
The Government will provide tax relief to businesses and start‑ups by reforming the treatment of tax losses.
For tax years commencing on or after 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid up to two years earlier. Loss carry back will apply to revenue losses only and will be limited by a company's franking account balance.
This will benefit up to 85,000 businesses each year. Reintroducing loss carry back is estimated to decrease receipts by $2.3 billion over the five years from 2025–26.
The Government will also introduce loss refundability for small start‑up companies. For tax years commencing on or after 1 July 2028, start‑up companies with aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to utilise the loss to generate a refundable tax offset. The offset will be limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year.
This is predicted by the Government to benefit up to 25,000 start-ups each year.
Making the small business instant asset write-off permanent, and PAYG timing changes
From 1 July 2026, the Government will permanently extend the $20,000 instant asset write‑off for small businesses with turnover up to $10 million. Assets valued at $20,000 or more can continue to be placed into the small business simplified depreciation pool. The provisions that prevent small businesses from re‑entering the simplified depreciation regime for 5 years after opting out will continue to be suspended until 30 June 2027.
The Government will also provide $10.9 million to the ATO to expand its pilot of dynamic pay as you go (PAYG) instalment calculations, and will expand access to monthly payments. From 1 July 2027, small and medium businesses will be able to opt in to reporting and paying PAYG instalments monthly and to using an ATO-approved calculation embedded in accounting software to calculate and vary their instalments. Taxpayers with a demonstrated history of non‑compliance will be required to report and pay PAYG instalments monthly. The ATO will remove interest charges for businesses that accidentally get their instalment variation wrong when using ATO-approved calculators.
Regulatory systems and secure data access
The Government will provide $198.1 million over two years from 2026–27 to boost productivity through streamlining regulatory systems and secure access to data. Funding includes:
- $136.1 million over two years from 2026–27 to complete the second tranche of stabilisation and uplift of Australia's business registers; and
- $62.0 million over two years from 2026–27 to extend the operation and participation in the Consumer Data Right.
The Government will also introduce legislation to modernise, simplify and improve regulation in the financial sector. The reforms will:
- reduce unnecessary reporting and disclosure requirements
- implement reforms to regulatory requirements for small and medium‑sized banks
- modernise and simplify financial system frameworks.
Accelerating Approvals
- The Government has legislated reforms to the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act), which are estimated to save up to $6.9 billion a year in regulatory costs. The Government will provide funding to accelerate and streamline approvals processes and implement reforms to strengthen Australia's foreign investment framework, including:
- $105.9 million over four years from 2026–27 for the Department of Climate Change, Energy, the Environment and Water (DCCEEW) and the National Environmental Protection Agency (NEPA) to modernise environmental information, data and digital systems (including through the use of artificial intelligence) to improve user experience and enable simpler, faster environmental approvals
- $47.6 million over four years from 2026–27 to progress bilateral agreements with states and territories, to enable states to conduct assessments and approvals on the Commonwealth's behalf, to reduce duplication and ensure more efficient processing of environmental approvals
- $47.5 million over four years from 2026–27 (and $3.9 million per year ongoing) for the Treasury and the Australian Taxation Office (ATO) to strengthen and streamline Australia's foreign investment framework, including a new performance target to decide all low‑risk applications within 30 days from 1 January 2027, removal of ineffective conditions on existing approvals and reforms to foreign investment laws and the Register of Foreign Ownership of Australian Assets
- $26.4 million over four years from 2026–27 for DCCEEW and NEPA to work with states and territories to develop new bioregional plans and strategic assessments, which will fast‑track environmental approvals in priority areas including housing, critical minerals and renewable energy
- funding to support states and territories to implement bioregional plans and strategic assessments in priority areas.
The Government will also:
- amend the Telecommunications Act 1997 and the National Broadband Network Companies Act 2011 to streamline approvals for telecommunications infrastructure, support the removal of redundant facilities, improve the National Broadband Network and strengthen consumer safeguards
- introduce legislation to amend the Foreign Acquisitions and Takeovers Act 1975, the Foreign Acquisitions and Takeovers Regulation 2015 and the Foreign Acquisitions and Takeovers Fees Imposition Regulations 2020 to implement these reforms
- amend the National Consumer Credit Protection Regulations 2010 to extend the small business exemption from responsible lending obligations for a further ten years, until October 2036, to support easier and timely access to finance for small businesses.
Selecting Migrants and Recognising Skills
In relation to migration, the Government will:
- set the 2026–27 permanent Migration Program planning level at 185,000 places and allocate 132,240 places to the Skill stream;
- across both the Skill and Family streams of the permanent Migration Program, prioritise applications from onshore migrants;
- make amendments to the permanent migration points test;
- reform the Working Holiday Maker program; and
- provide $85.2 million over four years from 2026–27 to the Department of Employment and Workplace Relations for better recognition of migrant skills through faster, more flexible skills assessments including a new skills assessment system for Trades Recognition Australia.
Abolishing Nuisance Tariffs
The Government will abolish a second tranche of 497 nuisance tariffs from 1 July 2026. This builds on the removal of 457 nuisance tariffs in July 2024. Together, the Government will have removed almost 1,000 tariffs over two years. This will streamline around $23 billion worth of trade and save businesses $157 million in compliance costs per annum.
This measure will eliminate tariffs on a wide range of imported goods including wine glasses, tyres, air conditioners, margarine and bitumen. The Government will also consult on abolishing additional tariffs to further cut costs for Australian businesses.
Economic Security
The Government will provide $38.9 million over four years from 2026–27 (and $7.3 million per year ongoing) to increase Australia's economic security and resilience to strategic shocks and threats. Funding includes:
- $20.3 million over four years from 2026–27 (and $5.2 million per year ongoing) for the Treasury to provide a dedicated economic security and sector assessment function to inform policy responses to global shocks and emerging economic threats and support closer collaboration between policy and intelligence agencies.
- $18.5 million over four years from 2026–27 (and $2.2 million per year ongoing) to uplift ASIC and APRA’s capability to improve the security of systems of national significance.
- The Government will also establish a limited special appropriation to support resolution of any future crisis in the cash distribution network.
Cost of Living
Working Australians Tax Offset
The Government will deliver a new, permanent tax cut for every working Australian taxpayer by introducing a $250 Working Australians Tax Offset from the 2027–28 income tax year. Over 13 million Australian workers will benefit from the WATO, of whom 97 per cent are expected to receive the full $250 offset.
Temporary Reduction of Fuel Excise
The Government has temporarily reduced the excise and excise‑equivalent customs duty rates (excise rates) applying to most fuel products and the road user charge for heavy vehicles, for 3 months from 1 April 2026.
The excise rates have been reduced by a total of 60.9 per cent, equating to a 32 cent per litre reduction for petrol and diesel. States and territories have agreed to provide the Commonwealth up to $400 million to enable increased GST revenue to be returned through lower excise, which equates to 5.7 cents per litre of the cut for petrol and diesel. The road user charge for heavy vehicles has also been reduced from 32.4 cents per litre to zero.
$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. The Government predicts an average tax saving of $205.
Australian tax residents will not need to itemise and claim work‑related expenses if claiming less than $1,000. Individuals who incur work‑related expenses greater than the instant tax deduction can continue to claim their deductions in the usual way.
Fuel Security and Resilience
The Budget includes funding for:
- $54.7 million over five years from 2025–26 (and $8.9 million per year ongoing) to support ongoing management of Australia's fuel security framework, including oversight of the Fuel Security Services Payment, the MSO and the National Fuel Security Plan communications campaign
- $40.5 million in 2026–27 to accelerate the electrification of Australia Post's delivery fleet
- $10.0 million over two years from 2026–27 for the Australian Energy Regulator to expand electricity market monitoring and reporting activities
- $10.0 million in 2026–27 to support feasibility studies into new or expanded fuel refining capabilities, to be co‑funded with state and territory jurisdictions
- $9.2 million over two years from 2025–26, terminating 31 December 2026, for the Department of the Prime Minister and Cabinet to establish a Fuel Supply Taskforce to coordinate Australia's fuel security during Middle East conflict‑related disruptions
- $4.5 million over three years from 2026–27 for the Commonwealth Scientific and Industrial Research Organisation to maintain and enhance its Transport Network Strategic Investment Tool to model transport options to support resilience and enhance responses to disruption
The Government has also passed legislation to double the maximum penalties for major contraventions of the Competition and Consumer Act 2010 and the Australian Consumer Law from $50m to $100m, and tasked the ACCC to undertake weekly public reporting on fuel price movements and market conditions across capital cities and more than 190 regional locations to deter harmful conduct in the fuel industry and supply chains during the Middle East conflict.
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.
Consumer Energy Resources and Bill Savings
The Government will provide $143.2 million over five years from 2025–26 (and $0.7 million in 2030–31) to maximise consumer and community benefits of the energy transition. Funding includes:
- $97.2 million over five years from 2025–26 to continue implementing the National Consumer Energy Resources Roadmap, including establishing a National Technical Regulator to develop, coordinate and streamline regulation of consumer energy resources
- $15.9 million over four years from 2026–27 (and a $2.0 million equity injection in 2026–27) to uplift the Australian Energy Regulator to deliver energy consumers the best deal through network regulation, the Energy Made Easy website, implementation of the recommendations of the National Electricity Market wholesale market settings review and compliance and enforcement activities
- reprofiling $15.4 million over four years from 2025–26 to expand the scope of the Dealership and Repairer Initiative for Vehicle Electrification Nationally program and extend the program by an additional year to better meet industry needs
- $14.6 million over five years from 2025–26 (and $0.7 million in 2030–31) to maintain proportionate battery system inspections under the Cheaper Home Batteries program.
Domestic Gas Reservation
The Government will provide $35.5 million over four years from 2026–27 to ensure a secure and ongoing supply of affordable gas through the domestic wholesale gas market, including via the establishment of a Domestic Gas Reservation Mechanism.
The domestic gas reservation percentage will be set at the equivalent to 20 per cent of exports. The Domestic Gas Reservation Mechanism will commence on 1 July 2027.