The 2026–27 Federal Budget introduces some of the most significant proposed tax reforms Australia has seen in decades.

The Government’s focus is centred around housing affordability, reducing tax concessions for existing property investors, increasing support for workers, and restructuring long-standing taxation arrangements involving capital gains and discretionary trusts.

While many of these announcements are still proposals and have not yet been legislated, the changes could significantly impact investment decisions, property purchases, business structures, and long-term wealth planning strategies.

1.   Budget Snapshot

2. Individual Tax Cuts & Worker Benefits

Summary: The Budget introduces direct tax relief measures for employees and sole traders, including a simplified work deduction and a new permanent tax offset.

From 1 July 2026, Australian workers will be able to claim a standard $1,000 deduction for work-related expenses without needing receipts. This measure is intended to reduce compliance costs and simplify tax returns for millions of taxpayers.

In addition, from 1 July 2027, the Government proposes introducing the Working Australians Tax Offset (WATO), which provides a permanent tax offset of up to $250 annually for employment and sole trader income. Combined with previously legislated tax cuts, the Government estimates the average worker could receive total benefits of up to $2,816 by 2027–28.

3. Negative Gearing Reform

Summary: Negative gearing concessions will largely be restricted to newly constructed residential properties. Established residential properties purchased after Budget night will face significantly reduced tax concessions.

Under the current rules, investors can offset rental losses against salary and wage income. Under the proposed reforms, established residential properties purchased after 7:30pm AEST on 12 May 2026 will no longer allow this treatment from 1 July 2027 onwards. Instead, rental losses from these properties will only be able to offset future rental income or capital gains. Unused losses can still be carried forward indefinitely. Importantly, investors who already owned properties before Budget night are protected under grandfathering provisions. Contracts entered before Budget night are also exempt, even if settlement occurs later.

4. New Build Exemption

Summary: Newly constructed residential properties receive major concessions under the proposed reforms, including retained negative gearing and flexibility under the new CGT regime.

The Government defines a new build as a residential property that genuinely increases housing supply. This exemption is central to the Government’s housing strategy and is designed to encourage construction activity.

Eligible new builds include:

• Newly constructed apartments purchased off-the-plan
• Residential construction on vacant land
• Duplex developments replacing a single dwelling
• Knock-down rebuilds that increase the number of dwellings
• Newly built homes sold within 12 months of first occupation

However, several arrangements are specifically excluded:

• Simple renovations
• Extensions adding bedrooms
• Granny flats attached to existing homes
• Knock-down rebuilds replacing one house with another single house
• Properties occupied for more than 12 months before investor purchase

Eligible new builds retain:

• Full negative gearing benefits
• Access to either the old 50% CGT discount or new CPI indexation method

5. Capital Gains Tax (CGT) Reform

Summary: The current 50% CGT discount will largely be replaced with CPI-based cost base indexation from 1 July 2027.

The Government proposes replacing the current 50% CGT discount system with CPI-based cost base indexation. Under this approach, taxpayers only pay tax on the “real” gain above inflation. The reforms also introduce a 30% minimum tax on real capital gains.

Transitional rules are critical:

• Gains accrued before 1 July 2027 retain the current 50% discount
• Gains after 1 July 2027 fall under the new rules
• Assets acquired after 1 July 2027 are fully subject to the new system

The reforms apply broadly to individuals, trusts and partnerships holding CGT assets.

6. Discretionary Trust Reform

Summary: Family trusts may face a new 30% minimum tax rate from 1 July 2028.

The Government proposes introducing a 30% minimum tax on discretionary trust income. This measure is designed to reduce income splitting arrangements among lower-income beneficiaries.

Under the proposed rules:

• Trustees pay the minimum 30% tax
• Beneficiaries receive non-refundable credits
• Corporate beneficiaries generally do not receive credits

Exemptions include:

• Superannuation funds
• Fixed trusts
• Deceased estates
• Certain primary production income arrangements

The Government also proposes a 3-year rollover relief period from 1 July 2027 to allow restructuring into companies or fixed trusts without immediate CGT consequences.

7. Recommended Action Steps

The proposed reforms could significantly impact tax outcomes for property investors, business owners, and families using discretionary trust structures.

Key considerations include:

• Reviewing future property purchases before signing contracts
• Assessing whether future investments should focus on eligible new builds
• Reviewing trust structures before the 2028 trust reforms commence
• Reviewing existing CGT positions and potential asset sales
• Seeking professional advice before acting on any proposed changes

Most importantly, these measures are still proposed only and remain subject to passage of legislation.