Updated 12 May 2026 | Based on Budget Paper No. 2 | Nanak Accountants & Associates
The 2026 Federal Budget is the most significant tax reform package in a generation. It reshapes how Australians invest in property, sell assets, structure trusts, and claim deductions.
Some changes reward you. A $1,000 instant tax deduction with no receipts. A permanent $20,000 write-off for small business. A new $250 annual tax offset for every worker.
Others will cost you. Negative gearing restricted to new builds. The 50% CGT discount scrapped after 25 years. A 30% minimum tax on family trusts.
The trade-off is explicit. Revenue raised from restricting negative gearing ($3.6 billion), reforming CGT (included in the same measure), and taxing trusts ($4.5 billion) directly funds the Working Australians Tax Offset ($6.4 billion) and the $1,000 instant deduction ($2.4 billion).
Negative Gearing: New Rules for Property Investors
Negative gearing means your rental property costs more to hold than it earns in rent. The loss has traditionally been deductible against your salary or wages. That’s changing.
What’s confirmed
From 1 July 2027, losses from established residential investment properties can only be offset against:
- Rental income from other residential properties
- Capital gains from the sale of residential properties
- Carried forward to future years and used against the above
Losses can no longer offset your salary, wages, business income, or any other non-property income.
The acquisition cutoff
The rule kicks in on 1 July 2027, but the acquisition cutoff is 7:30PM AEST on 12 May 2026— Budget night.
- Before Budget night: Fully grandfathered. Negative gearing continues as long as you own the property.
- After Budget night: New restrictions apply from 1 July 2027.
Who’s exempted?
- Existing owners (acquired before Budget night): Fully grandfathered
- New build investors: Completely exempt — negative gearing works as before
- Widely held trusts and super funds: Excluded from changes
- Build-to-rent developments: Exempt
- Private investors in government housing programs: Exempt
A practical example
| Ravi earns $120,000 as an engineer. He owns an investment property earning $30,000/year in rent. His costs total $45,000/year. That’s a $15,000 annual rental loss. Under the old rules: Ravi deducts $15,000 from his salary. At 39% marginal rate, that saves him $5,850 in tax per year. Under the new rules: The $15,000 loss can only offset rental income or property capital gains. Tax saving: $0 per year while holding. Cash impact: $5,850 per year worse off — roughly $487 per month. |
Important: Those carried-forward losses aren’t lost. When Ravi sells, they reduce his capital gains tax bill. The benefit is deferred, not eliminated.
What property investors should do now
- If you already own: Nothing changes. You’re grandfathered. Don’t sell a grandfathered property in a panic.
- If you’re buying: New builds are exempt. If you want the tax benefit, the government is directing you toward new housing supply.
- Stress-test cash flow: If your property only works because of the tax refund, that’s a warning sign.
- Build a self-offsetting portfolio: Losses can still offset rental profits within the property income bucket.
| Revenue impact: +$3.6 billion over five years from 2025-26 (combined with CGT reforms). |
Capital Gains Tax: Replacing the 50% Discount
For over 25 years, Australians who held a capital asset for more than 12 months paid tax on only half the gain. That 50% CGT discount shaped investment strategy for an entire generation. It’s gone.
What’s confirmed
From 1 July 2027:
- 50% discount replaced with cost base indexation. Your purchase price is adjusted for CPI inflation. You pay tax on the full real gain.
- 30% minimum tax on net capital gains. Even on a low marginal rate, you pay at least 30 cents in the dollar.
- All CGT assets affected: property, shares, ETFs, crypto, business goodwill, trusts, partnerships, and pre-1985 assets.
Transitional rules — critical for existing owners
The changes only apply to gains arising on or after 1 July 2027. For assets held before and after that date, the gain is split:
- Gain before 1 July 2027: Still gets the old 50% discount
- Gain after 1 July 2027: Uses new indexation + 30% minimum tax
Taxpayers will have two methods: a formal valuation, or an ATO growth rate formula.
Exemptions from the 30% minimum tax
- Age Pension recipients and other income support payment recipients
- New build investors can choose EITHER the old 50% discount OR the new indexation method
Worked example: existing property owner
| Anita, teacher on $95,000. Bought apartment in 2018 for $500,000. Sells in 2030 for $900,000. Value at 1 July 2027: $780,000. Pre-July 2027 gain: $280,000 × 50% discount = $140,000 taxable Post-July 2027 gain: $120,000 less CPI indexation (8%) = $57,600 taxable Total tax: ~$68,172 (vs ~$69,000 under old rules) |
Key message: For long-term holders, transitional rules protect most of the gain. The headlines are scarier than the reality.
Worked example: new buyer post-Budget
| Raj, dentist on $180,000. Buys for $700,000 in September 2026. Sells in 2037 for $1,200,000. Old rules: $250,000 taxable → $117,500 tax New rules: $288,400 taxable → ~$135,548 tax Raj pays roughly $18,048 more tax on a $500,000 gain over 10 years. |
The single most important action
Get a valuation on every investment asset before 1 July 2027. The 1 July 2027 value determines how much of your gain gets the old 50% discount. A formal property valuation costs $300-600. It could save you thousands when you sell.
The long-game advantage of indexation
Indexation rewards patience. At 2.5% annual inflation, an $800,000 cost base becomes:
| Holding period after July 2027 | Indexed cost base ($800K start) |
| 5 years | $905,600 (+$105,600) |
| 10 years | $1,024,000 (+$224,000) |
| 15 years | $1,159,200 (+$359,200) |
| 20 years | $1,312,000 (+$512,000) |
On a long enough hold, indexation can be more generous than the old 50% discount. Medium-term holders (5-10 years) are hit hardest.
30% Minimum Tax on Family Trust Income
Discretionary trusts have long been used for their flexibility in distributing income to family members on lower tax rates. That strategy just got significantly more expensive.
What’s confirmed
From 1 July 2028, a 30% minimum tax applies to the taxable income of discretionary trusts.
- Trustees pay 30% minimum on the trust’s taxable income
- Beneficiaries (non-corporate) receive non-refundable credits for trustee tax
- Revenue: +$4.5 billion over five years
What’s excluded
- Fixed trusts, widely held trusts, fixed testamentary trusts
- Complying superannuation funds
- Special disability trusts, deceased estates, charitable trusts
- Primary production income (farmers carved out)
- Income relating to vulnerable minors
Rollover relief window
Three years from 1 July 2027 for families to restructure out of a discretionary trust into a company or fixed trust without triggering a CGT event.
Don’t restructure yet. Wait for the legislation. The cost of getting it wrong (triggering CGT and stamp duty) can be far greater than the tax saving.
$1,000 Instant Tax Deduction — No Receipts
From the 2026-27 income year, every Australian tax resident who earns income from work can claim up to $1,000 for work-related expenses — no receipts, no logbooks, no itemisation.
- If actual expenses exceed $1,000, still claim the higher amount with receipts
- Charitable donations, union fees, and professional memberships claimed separately on top
- Benefits 6.2 million workers with an average tax benefit of $205
- Cost: $2.4 billion over four years
| The $1,000 is a floor, not a ceiling. If your real expenses are higher, still claim them. Don’t leave money on the table. |
$250 Working Australians Tax Offset
From 2027-28, a permanent $250 annual tax offset for income from work (wages, salaries, sole trader income).
- Effective tax-free threshold increases by nearly $1,800 to $19,985
- With LITO: effective threshold up to $24,985
- Largest permanent increase in the effective tax-free threshold since 2012-13
- Cost: $6.4 billion over five years
Permanent $20,000 Instant Asset Write-Off
From 1 July 2026, the $20,000 instant asset write-off is permanent for small businesses with turnover up to $10 million.
- Assets under $20,000 fully deducted in the year of purchase
- Assets over $20,000 go into simplified depreciation pool
- 5-year opt-out re-entry suspension extended to 30 June 2027
- Cost: $815 million over five years
| Buy assets because the business needs them. Use the write-off to improve the tax outcome, not to justify a poor purchase. |
Electric Car FBT Windback
The full FBT exemption for electric vehicles is being wound back in stages:
- Under $75,000: Full exemption continues until 1 April 2029
- Over $75,000: 25% FBT discount from 1 April 2027
- From April 2029: Permanent 25% discount for all EVs up to fuel-efficient LCT threshold
- Existing leases: Keep the rate in place when arranged
- Revenue: +$1.9 billion over five years
Migration Overhaul: New Skills Points System
The first major rewrite of the skilled migration points test in over a decade:
- 185,000 permanent places for 2026-27
- 132,240 places (70%+) to the Skill stream
- ~130,000 places reserved for onshore migrants
- Points test redesigned to select younger, better educated, higher-skilled migrants
- $85.2 million for faster skills recognition including pilot licensing pathways for electricians and plumbers
Key Dates Timeline
| Date | What happens |
| 7:30PM 12 May 2026 | Acquisition cutoff for negative gearing grandfathering |
| 1 July 2026 | Permanent $20,000 instant asset write-off begins |
| 2026-27 income year | $1,000 instant tax deduction starts |
| 1 April 2027 | EV FBT windback begins for cars over $75,000 |
| 1 July 2027 | Negative gearing restrictions take effect |
| 1 July 2027 | CGT discount replaced with indexation + 30% minimum tax |
| 1 July 2027 | Trust rollover relief window opens (3 years) |
| 2027-28 income year | $250 Working Australians Tax Offset starts |
| 1 July 2028 | 30% minimum tax on discretionary trusts begins |
| 1 April 2029 | Permanent 25% FBT discount for all EVs |
Five Actions Worth Taking Now
- Get valuations on every investment asset before 1 July 2027. The 1 July 2027 value determines how much of your gain gets the old 50% discount. A property valuation costs $300-600. It could save thousands.
- Stress-test your rental property cash flow. If the property only makes sense because of negative gearing, reassess the borrowing level or the property itself.
- Review your trust structure — but don’t restructure yet. Model the 30% minimum impact. Use the rollover relief window when legislation is published.
- Rebuild your CGT records now. Contracts, stamp duty, renovations, depreciation schedules. Under indexation, every documented dollar reduces your gain.
- Plan the $1,000 deduction properly. If real expenses exceed $1,000, still claim the higher amount. It’s a floor, not a ceiling.
Frequently Asked Questions
When do the negative gearing changes start?
The acquisition cutoff is 7:30PM AEST on 12 May 2026. Properties acquired after that time are caught. The rules take effect from 1 July 2027. Properties acquired before Budget night are fully grandfathered.
Is my existing investment property affected?
If you owned it before 7:30PM on 12 May 2026 (including contracts exchanged but not settled), you are grandfathered. Nothing changes for as long as you own that property.
What is cost base indexation for CGT?
Instead of discounting your gain by 50%, the system adjusts your purchase price for inflation (CPI). You pay tax on the full remaining real gain. Whether this produces more or less tax depends on your holding period and the inflation rate.
What is the 30% minimum tax on capital gains?
From 1 July 2027, a minimum 30% tax applies to net capital gains. Even on a low marginal rate, you pay at least 30%. Age Pension recipients are exempt.
When does the family trust minimum tax start?
1 July 2028. A three-year rollover relief period starts from 1 July 2027 for restructuring.
Can I claim $1,000 without receipts?
Yes, from 2026-27. For work-related expenses up to $1,000 — no receipts needed. If expenses are higher, claim the actual amount with evidence. Donations and union fees are claimed on top.
Is the $20,000 instant asset write-off permanent?
Yes. From 1 July 2026, permanent for small businesses with turnover up to $10 million.
How does the EV FBT change affect my car?
Under $75,000 and provided before April 2029: full exemption continues. Over $75,000: 25% discount from April 2027. Existing arrangements keep their original rate.
| Get Specific Advice for Your Situation If your position involves property, trusts, business income, or future asset sales, generic commentary won’t be enough. Nanak Accountants & Associates Trusted by over 5,000 businesses across Australia Google Rated 5 Stars by 1,000+ Clients |
