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The Treasurer handed down the Albanese Government’s fifth Federal Budget on the evening of 12 May 2026. It arrived against a backdrop of global oil price shocks from the Iran conflict, persistent deficits, and gross debt tracking toward $1 trillion. No return to surplus is forecast until 2034–35.
The Budget is framed around three pillars: structural tax reform, productivity, and cost-of-living relief. For business owners, investors and individuals, the changes are significant — and some require action well before the legislation lands. Here’s the full picture, without the spin.
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⚠️ Trekk’s position
The legislation hasn’t passed yet. How it’s drafted will matter enormously for individual circumstances. Our advice: hold tight, don’t restructure anything yet, and get on our radar. Once the detail is settled, we’ll be working through this one-on-one with clients — because the right move will look different depending on your structure, income and goals. |
1. Economic Outlook & Fiscal Position
Treasury’s key forecasts for the years ahead:
| Indicator | 2025–26 | 2026–27 | 2027–28 | 2028–29 | 2029–30 |
| Budget Deficit | $28.3B | $31.5B | $31.0B | $34.4B | $25.3B |
| Gross Debt | $982B | $1.05T | $1.12T | $1.20T | $1.25T |
| Net Debt | $556B | $617B | $669B | $726B | $768B |
| GDP Growth | 1.30% | 2.25% | 1.75% | 2.25% | 2.50% |
| CPI Inflation | 5.00% | 2.50% | 2.50% | 2.50% | 2.50% |
| Wage Growth (WPI) | 3.40% | 3.25% | 3.50% | 3.50% | 3.75% |
| Unemployment | 4.25% | 4.50% | 4.50% | 4.50% | 4.25% |
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RBA Note
The RBA’s independent forecasts are materially more conservative — GDP growth of 1.9% (2026), 1.3% (2027), 1.4% (2028) — and dwelling investment projections also diverge significantly from Treasury’s. |
RBA Snapshot — 7 May 2026
| Metric | Figure |
| Cash Rate Target | 4.35% (3rd consecutive hike since Jan 2026) |
| CPI (Monthly) | 4.6% — well above RBA target band |
| Unemployment Rate | 4.3% (Employment growth 1.8%) |
| Avg. Residential Price | $1,074,700 |
| Wage Growth | 3.4% / Avg Weekly Earnings $1,562.40 |
| AUD/USD | US$0.71 |
| Household Debt | 177% of income |
| Household Saving Ratio | 6.90% |
1A. Superannuation — Measures Already Law
The following significant superannuation measures were legislated prior to Budget night and are already in effect or imminent. Clients should ensure they have actioned advice on each.
| Measure | Key Detail | Effective |
| Payday Super | Employers must pay super at the same time as salary and wages. SGC redesigned with updated penalties for late/missed payments. | 01 July 2026 |
| Better Targeted Super (Div 296) | Additional 15% tax on super balances $3M–$10M (total 30%); additional 10% on balances above $10M (total 40%). Thresholds indexed to CPI annually. | FY2026–27 onwards |
| LISTO Increase | LISTO eligibility threshold raised from $37,000 to $45,000; maximum LISTO increased from $500 to $810 (reflecting 12% SG rate). | FY2027–28 onwards |
| HELP Debt Reduction | One-off 20% reduction of outstanding HELP/student loan balances. Minimum repayment threshold increased to $67,000, indexed annually. | Already applied |
| Deductions for ATO Interest Charges Denied | GIC and SIC charges are no longer deductible for income years starting on or after 1 July 2025. | From 1 July 2025 |
2. Income Tax
2.1 Income Tax Rate Reductions
Previously legislated cuts are now in effect from 1 July 2026. The 16% second bracket rate reduces to 15% this year and 14% from FY28.
| Taxable Income | 2025–26 (current) | 2026–27 | 2027–28 |
| $0 – $18,200 | Nil | Nil | Nil |
| $18,201 – $45,000 | 16% | 15% | 14% |
| $45,001 – $135,000 | 30% | 30% | 30% |
| $135,001 – $190,000 | 37% | 37% | 37% |
| $190,001+ | 45% | 45% | 45% |
A dual-income household on $150k combined will save ~$268 in FY27 and ~$536 per annum from FY28 onward
2.2 $1,000 Standard Deduction for Work-Related Expenses (from FY27)
- Effective 1 July 2026 (i.e., the 2026–27 return onwards).
- Taxpayers earning income from work m ay claim up to $1,000 in work-related deductions without substantiation.
- Claims above $1,000 continue under existing substantiation rules.
- Charitable donations, union fees and professional memberships are claimable in addition.
- An estimated 6.2 million Australians benefit — average saving ~$205.
2.3 Working Australians Tax Offset — $250 p.a. (from FY28)
- Applies to income derived from work (wages, salary, sole trader business income).
- Permanent annual offset — not means-tested for working income.
- Commences 2028 income year (1 July 2027).
2.4 Medicare Levy Low-Income Thresholds (from 1 July 2025)
| Category | New Threshold (up 2.9%) |
| Singles | $28,011 (was $27,222) |
| Families | $47,238 (was $45,907) |
| Single Seniors/Pensioners | $44,268 (was $43,020) |
| Family – Seniors/Pensioners | $61,623 (was $59,886) |
| Per dependent child/student | +$4,338 (was +$4,216) |
2.5 Private Health Insurance (PHI) Rebate
- The age-based uplift of the PHI Rebate will be removed from 1 April 2027.
- Currently, individuals aged 65+ receive a higher rebate percentage — this concession ends.
- Clients over 65 holding PHI should review their policies and premium costs ahead of April 2027.
3. CGT Reform — Fundamental Restructure
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⚠️ Most significant change in this Budget
This is the single most significant tax change in this Budget and requires urgent client review for all investors, property owners and trust structures. |
3.1 Replacing the 50% CGT Discount with Indexation (from 1 July 2027)
- The 50% CGT discount will be abolished for assets held after 1 July 2027.
- Replaced by cost base indexation (Keating-era rules) with a 30% minimum tax on net capital gains.
- Applies to individuals, trusts and partnerships.
- Transitional: gains accrued before 1 July 2027 retain the 50% discount.
- Pre-CGT assets (acquired before 20 September 1985): gains accrued before 1 July 2027 remain exempt; gains from 1 July 2027 onwards are captured.
- New residential property investors may choose: 50% discount OR indexation + 30% minimum tax.
- Income support / Age Pension recipients are exempt from the minimum tax.
- Assets sold before 1 July 2027 are unaffected — existing rules apply.
3.2 Foreign Resident CGT — Renewables Concession
- A targeted, time-limited concession applies to foreign investors disposing of renewable energy infrastructure assets.
- Window: first day of next quarter after Royal Assent through to 30 June 2030.
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Legal risk — K&L Gates
Assets held pre-1 July 2027 will require valuations as at that date to split the gain between old (50% discount) and new (indexation + 30% min tax) regimes. ATO-approved methodologies will be published — but experience suggests these are rarely concessional. Particular concern for start-up equity holders and employee share scheme participants who may have low or nil cost base with no specific relief announced. |
4. Negative Gearing Reform
From 1 July 2027, negative gearing on established residential property is ring-fenced:
- Losses from established residential properties will only be deductible against rental income or residential property capital gains.
- Excess losses carry forward — not claimable against general income (salary, other business income).
- Applies to established properties acquired from 7:30 PM AEST, 12 May 2026 (Budget night).
- Existing properties (contracts before 7:30 PM tonight) are grandfathered until disposal.
- New builds (eligible) are exempt — negative gearing losses remain fully deductible.
- Exclusions: superannuation funds, widely held trusts, build-to-rent, government housing program investors.
- Treasury modelling: property prices may decline ~2% from pre-Budget trajectory (~$19k on national median).
Transitional arrangements
| Timing of purchase | Negative gearing allowed? | Treatment |
| Held at announcement (incl. contracts not yet settled) | Yes | Grandfathered until disposal |
| Purchased between announcement & 30 June 2027 | Partially | Allowed to 30 June 2027; ring-fenced from 1 July 2027 |
| Purchased from 1 July 2027 | No | Ring-fenced from day one |
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Legal risk — K&L Gates
It is currently unclear whether carried-forward losses from established properties will eventually lapse if unable to be recouped in any given year. Losses are also ring-fenced against residential property income only — they cannot offset other investment income (e.g. interest on savings, dividends). |
5. Discretionary Trust Reform
A 30% minimum tax on discretionary trusts applies from 1 July 2028 (2029 income year). This measure is forecast to raise $4.5 billion in revenue.
- Trustees will pay 30% minimum tax on the taxable income of the trust.
- Beneficiaries (other than corporate beneficiaries) receive non-refundable credits.
- Corporate beneficiaries: assessed on trust income without access to trustee-level credits.
- Excluded trust types: fixed trusts, fixed testamentary trusts, complying superannuation funds, special disability trusts, deceased estates.
- Excluded income: primary production income, certain minor-related income, non-resident withholding tax income, income from assets of discretionary testamentary trusts at announcement.
- Rollover relief: expanded 3-year window (from 1 July 2027) for small businesses and others restructuring out of discretionary trusts into companies or fixed trusts.
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Action Required
Clients using discretionary trusts should model the interaction of the 30% trustee-level tax, the new CGT regime and reformed negative gearing rules before the 2027 restructure window opens. A company or fixed trust structure may be preferable depending on facts. |
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Legal risk — K&L Gates
No defined concept of ‘discretionary trust’ exists in current tax law — the regime will work by exclusion, potentially catching unit trusts and other non-AMIT structures. Company beneficiaries face effective double tax, targeting and eliminating ‘bucket company’ structures. Consultation still required on how excess franking credits can be used. |
Worked Example B — Trust vs Company (from 2028–29)
Loretta operates through a company. She pays herself $100k salary; the company retains $200k profit at 25% small business rate. Total tax: $72,002.
Kurt uses a family discretionary trust with $100k salary and $200k distributed to 4 family members at $50k each. Currently total tax: $42,010. Under the 30% trust minimum tax: Kurt’s trust pays 30% on $200k regardless of distributions = total tax $86,002 — $14,000 more than the company structure. Kurt is better off operating via a company from 2028–29.
6. Business Measures
6.1 $20,000 Instant Asset Write-Off — Permanent (from 1 July 2026)
- Permanently available to small businesses with turnover under $10 million.
- Assets valued at $20,000 or more continue to enter the small business depreciation pool.
- Five-year re-entry restriction on simplified depreciation remains suspended until 30 June 2027.
6.2 Loss Carry-Back — Two Years (from 1 July 2026)
- Companies with aggregated global annual turnover under $1 billion can carry back tax losses to offset tax paid up to two years earlier.
- Revenue losses only — capital losses excluded.
- Capped at the company’s franking account balance.
- Provides meaningful cash flow relief for businesses recovering from loss years.
Worked Example C — Loss Carry-Back: Dining Co (small business)
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Example
Dining Co ($1M turnover) had $50,000 profit and paid $12,500 tax in 2025–26. In 2026–27 it purchases $55,000 of equipment using the instant asset write-off, generating a $15,000 tax loss. It carries this loss back to 2025–26, generating a $3,750 cash refund ($15,000 × 25%). The combination of the permanent IAWO and the reintroduced loss carry-back delivers both an upfront deduction and an immediate cash refund. |
6.3 Start-Up Loss Refundability (from 1 July 2028)
- Start-up companies with turnover under $10 million generating losses in their first two years can convert losses to a refundable tax offset.
- Offset value is capped at FBT and wages withholding tax paid in the loss year.
6.4 Dynamic PAYG Instalment Calculations (opt-in from 1 July 2027)
- Small and medium businesses can opt in to monthly PAYG reporting and payments.
- ATO-approved calculations embedded in accounting software to reflect real-time business activity.
- Non-compliant taxpayers will be required (not optional) to report monthly.
6.5 Fuel Excise Tax Reduction (Temporary - ends July 2026)
- Excise rates reduced by 60.9% (32 cents/litre for petrol and diesel) for three months from 1 April 2026.
- Heavy vehicle road user charge reduced to zero for the same period.
- No extension beyond this temporary period — fuel excise will return to standard rates.
- Total budget cost: $2.55 billion.
6.6 R&D Tax Incentive Reform (from 1 July 2028)
| Current | Post 1 July 2028 | |
| SME R&D offset — Turnover threshold | Less than $20M turnover | Less than $50M turnover |
| SME R&D premium | 18.5% refundable | 23% (refundable or non-refundable) |
| Eligibility for refund | — | Entities less than 10 years old |
| Large business Tier 1 premium | 8.50% | 13% |
| Large business Tier 2 premium | 16.5% (intensity >2%) | 21% (intensity >1.5%) |
| Eligible activities | Core and supporting R&D | Core R&D activities only |
| Minimum expenditure | $20,000 | $50,000 |
| R&D expenditure cap | $150 million | $200 million |
7. FBT - EV Exemption Phasing Down
| Period | Vehicle Type | FBT Treatment |
| Before 1 Apr 2027 | EV ≤ $75,000 | 100% FBT exempt (0% statutory rate) — unchanged |
| 1 Apr 2027 – 1 Apr 2029 | EV $75k–LCT threshold | 25% FBT discount (15% statutory rate) |
| From 1 Apr 2029 | All eligible EVs ≤ LCT threshold | Permanent 25% FBT discount (15% statutory rate) |
| All other cars | EVs above LCT threshold | Existing 20% statutory rate — unchanged |
8. Housing & Property
- $2 billion housing infrastructure fund to enable local councils to deliver roads, pipes and power for new developments — targeting 65,000 additional homes over a decade.
- Foreign purchase ban extended: the temporary ban on foreign purchases of established dwellings extended by 2 years and 3 months to 30 June 2029.
- The government aims to help 75,000 Australians into home ownership through the combined CGT and negative gearing changes.
- Rents: independent analysis suggests rents may rise by approximately $104/year as a consequence of the reforms — a risk clients as landlords and tenants should note.
- Dwelling investment forecasts diverge significantly: Treasury projects 5% (2026), 4% (2027), 3.5% (2028); RBA projects 3.8%, 1%, −1.1% — reflecting significant policy uncertainty.
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Legal risk — K&L Gates
The carve-out for ‘new residential properties’ from the CGT discount removal is critical but undefined in the announcement. Substantial renovations and knock-down/rebuilds are unlikely to qualify. The boundary between ‘new build’ and ‘substantially renovated’ will be a significant compliance battleground. |
9. Energy & Fuel Security
- $10 billion fuel security package: national fuel stockpile raised to at least 50 days supply (from ~40 days), government-owned reserve of 1 billion litres of diesel and aviation fuel established.
- 20% of Australia’s gas exports will be reserved for domestic use.
- Renewable energy investment funding has been cut in this Budget — ending an upward trend since 2022.
- Green hydrogen funding has been slashed.
- Stress scenario: if global oil hits US$200/barrel, inflation could reach 7.5% — a key tail risk for business planning and interest rate expectations.
10. Social Spending & Migration
- NDIS: $38 billion in forward estimate savings — eligibility tightened, provider fraud crackdown, 160,000 participants to be redirected to new Thriving Kids program by 2030. NDIS spending now exceeds $50B per annum.
- $25 billion for public hospitals.
- $5.9 billion for new medicine listings (PBS).
- Aged care: age-based PHI rebate uplift removed (1 April 2027).
- Net migration forecasts: 305,000 (FY25) → 295,000 (FY26) → 245,000 (FY27) → 225,000 (FY28) — gradual tapering.
- Payments as a share of GDP: 26.8%, reducing to 26.2% by mid-2030s.
- Inheritance/estate taxes: “ruled out”.
11. Tax Integrity & Compliance
- $86.3 million over four years for Phase 2 of the ATO Counter Fraud Strategy — real-time fraud detection, enhanced protections for victims of tax agent fraud, expanded garnishee powers including jointly held assets.
- ATO gains powers to pause debt recovery and waive debts where clients are victims of tax intermediary fraud — and to recover from those intermediaries.
- OECD/G20 Global Anti-Base Erosion (GloBE / Pillar Two) rules: Australia’s 2024 legislation will be amended to align with the side-by-side package agreed on 5 January 2026.
- PAYG bracket creep note: PAYG collections grew from $260B (FY23) to $315B (FY26) — a 21.3% increase (approx. 6.6% per year) — illustrating the ongoing tax drag even before rate cuts.
12. What the Experts Are Saying
CPA Australia — “Punishes aspiration”
CPA Australia’s Tax Lead Jenny Wong was direct on budget night: “This is not tax reform — it’s a revenue measure that shifts more of the burden onto middle Australia under the guise of tax reform. For anyone looking to invest, grow a business or take on risk, the message is clear: the government will take at least 30 per cent, regardless of the outcome.”
Wong warned that the heavier tax regime on capital investments and business structures risks discouraging investment, productivity and entrepreneurship.
The Tax Institute — Reform or just change?
The Tax Institute characterises the Budget measures as significant legislative changes rather than true tax reform. Key concerns:
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The CGT, negative gearing and trust changes deal with symptoms of a broken system rather than root causes, and are in several cases likely to be impractical and complex to administer.
- Of 14 key announced but unenacted measures (ABUMs), only 2 have been addressed in this Budget.
- The trust minimum tax does not resolve broader trust taxation issues, particularly around Division 7A and family trust distribution tax.
- The $1,000 standard deduction is a small win for simplicity but does not shift the system away from over-reliance on income tax.
- 25% of directors reported global economic conditions had curtailed investment plans.
- 90% expect business costs to rise.
- Inflation and interest rates as a major challenge has jumped from 6% to 24% of respondents.
- 41% believe current RBA settings will cause a major uptick in business insolvencies.
- Three core macro risks: lagged effects of global trade disruptions, AI market froth, and a volatile domestic and global policy environment.
CA ANZ — Instant Asset Write-Off Welcomed
CA ANZ tax leader Susan Franks: “For years, short-term, year-to-year thresholds have created confusion for businesses and advisers, undermining investment planning and adding unnecessary complexity. Locking in a stable, long-term setting is exactly the kind of practical reform we’ve been advocating for.”
CA ANZ estimates the permanent write-off will save small businesses an estimated 376,000 hours per year in compliance and around $32 million per year in compliance costs.
AICD — Crisis Management & Macro Context
AICD Chief Economist Mark Thirlwell framed 2026–27 as a year of competing crises:
- 25% of directors reported global economic conditions had curtailed investment plans.
- 90% expect business costs to rise.
- Inflation and interest rates as a major challenge has jumped from 6% to 24% of respondents.
- 41% believe current RBA settings will cause a major uptick in business insolvencies.
- Three core macro risks: lagged effects of global trade disruptions, AI market froth, and a volatile domestic and global policy environment.
Announced But Unenacted Measures (ABUMs)
The following significant measures announced in prior Budgets remain unlegislated:
| Measure | First Announced | Status |
| Division 7A deemed dividend rule amendments | Budget 2016–17 | Unresolved — consultation paper 2018 |
| Corporate tax residency reforms | Budget 2020–21 | Unresolved |
| Individual tax residency reforms | Budget 2021–22 | Unresolved — consultation paper 2023 |
| Proposed updates to Part IVA | Budget 2023–24 | Deferred in Budget 2024–25 |
| Proposed MIT regime amendments | Mar-25 | Unresolved — proposed from 13 March 2025 |
| Multinational royalty penalty regime | Budget 2024–25 | Unresolved — proposed from 1 July 2026 |
| FBT car parking benefits consultation | Mar-22 | Unresolved |
| SMSF residency requirement relaxation | Budget 2020–21 | Deferred in Budget 2022–23 |
13. Trekk's Key Action Items for Clients
| # | Action | Who | Urgency |
| 1 | Review all property acquisitions — established vs new build distinction now critical for CGT and negative gearing treatment | Property investors | IMMEDIATE |
| 2 | Consider bringing forward property sales before 1 July 2027 to access 50% CGT discount on existing gains | All investors with CGT assets | HIGH |
| 3 | Model discretionary trust vs company vs fixed trust structure under the new 30% minimum tax | Trust clients | HIGH — before 2027 rollover window |
| 4 | Review EV novated lease arrangements — vehicles >$75k will lose full FBT exemption from 1 April 2027 | Employers / salary packagers | HIGH |
| 5 | Claim $1,000 standard work-related expense deduction on 2026–27 returns (no receipts required) | All PAYG earners | FY27 return |
| 6 | Review PHI for clients aged 65+ ahead of April 2027 rebate changes | Over-65 PHI holders | MEDIUM |
| 7 | Leverage loss carry-back for eligible companies reporting a loss in FY27 or FY28 | Companies <$1B turnover | FY27/FY28 |
| 8 | Register and plan R&D claims ahead of 2028 rule changes — confirm eligibility under new thresholds | R&D claimants | MEDIUM |
What Happens Next
The legislation hasn’t passed yet, and the detail matters enormously. Key measures like the discretionary trust minimum tax, the CGT indexation rules and the negative gearing ring-fencing all contain significant open questions that will only be resolved when draft legislation emerges for consultation.
Our position is pragmatic: now is the time to understand what’s proposed, model your own situation, and get your questions ready. It’s not the time to restructure anything.
Once the legislation settles, we’ll be working through this with clients individually — because the right strategy will look different depending on your structure, income and goals. The 3-year rollover relief window opening 1 July 2027 gives discretionary trust clients meaningful time to plan, but that window only works if you’re prepared before it opens.
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Ready to talk it through?
If you’d like to get ahead of this or just want to understand what it means for your specific situation — reach out to your Trekk advisor. We’re already working through the detail and will be in contact as the legislation develops. |
Disclaimer: This summary has been prepared by Trekk Advisory for general information purposes only. It is based on Budget documentation and professional commentary current at 12 May 2026. It does not constitute financial, tax or legal advice. Clients should seek specific advice tailored to their circumstances before acting on any measures contained in this summary. Legislative details remain subject to parliamentary process and may change. Sources: budget.gov.au; NTAA Federal Budget Handout 2026–27; The Tax Institute Federal Budget 2026–27 Report; Taxbanter/KnowledgeShop 2026–27 Federal Budget Report & Timeline; AICD Economic Weekly & Director Sentiment Index; Accountants Daily; CA ANZ & CPA Australia post-budget commentary; K&L Gates Australian Tax Alert; RBA Key Economic Indicators Snapshot 7 May 2026; Budget Papers 1, 2 & 4.
