Welcome to the May 2026 Federal Budget Edition
Federal Budget – What could this mean for you and your finances?
The 2026 Federal Budget includes a range of proposed changes across taxation, investments, housing, and cost-of-living support.
It is important to note that many of these measures are proposals only and may change before becoming law.
This update highlights some of the key measures that may be relevant at different life stages.
At a glance
Key themes from this year’s Budget include:
- Tax changes that may affect your after-tax income
- Property and investment changes that may impact long-term wealth strategies
- Aged care and home care changes for older Australians
- Cost-of-living and Government support measures
There were no major changes announced to superannuation (beyond previously flagged proposals).
Taxation
Restricting negative gearing to new builds
Investors | Taxpayers
What’s proposed?
From 1 July 2027, losses related to existing residential investment properties purchased from 7:30pm AEST 12 May 2026 will only be deductible against other income from residential properties, including capital gains. When an investor has excess losses, they will be able to carry forward these losses to offset against residential property income in future years.
These changes will apply to individuals, partnerships, companies, and most trusts. Widely held trusts (for example, most managed investment trusts) and superannuation funds (including SMSFs) will be excluded.
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.
Newly built residential properties can continue to be negatively geared before and after 1 July 2027.
Transitional arrangements
For established residential properties:
- Properties held at the time of the Budget announcement will be allowed to be negatively geared in future years until sold.
- Properties purchased between Budget announcement and 30 June 2027 may be negatively geared during this period, but not from 1 July 2027.
What to take away
This may reduce the tax effectiveness of some property strategies going forward, particularly for new investments.
Capital Gains Tax (CGT) changes
Investors | Taxpayers
What’s proposed?
From 1 July 2027, the 50% CGT discount will be replaced by cost base indexation for assets held for more than 12 months, with a 30% minimum tax on net capital gains. These changes will apply to all CGT assets (including property, shares and pre-20 September 1985 CGT assets), held by individuals, trusts and partnerships. Indexation will be calculated using the Consumer Price Index (CPI) in a similar manner to arrangements previously in place between 1985 and 1999.
A minimum tax rate of 30% will apply to real capital gains accruing from 1 July 2027 (with no impact until the income is realised). The minimum tax rate is to reduce the benefit of taxpayers deferring capital gains realisation to years where their marginal tax rates are low. Recipients of means-tested income support payments, such as the Age Pension or JobSeeker, will be exempt from the minimum tax if they receive any payment in the financial year in which they realise the capital gains.
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% CGT discount will continue to apply to gains arising before 1 July 2027. Capital gains on pre-20 September 1985 assets arising before 1 July 2027 will remain exempt from CGT.
For assets owned prior to 1 July 2027 and sold after 1 July 2027, taxpayers must 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 Government has indicated that the ATO will develop tools to help taxpayers estimate this value.
Investors of new residential properties will be able to choose either the 50% CGT discount, or cost base indexation and the minimum 30% tax when they sell the property.
What to take away
Future capital gains will be taxed based on inflation-adjusted growth, with a minimum 30% tax applying to that amount.
If you hold investment assets, it may be worth reviewing your long-term strategy ahead of these changes.
Discretionary Trust changes
Families | Investors | Small Business
What’s proposed?
From 1 July 2028, the Government will introduce a minimum tax on discretionary trusts, requiring trustees to pay tax at a minimum rate of 30% on the taxable income of the trust. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee.
There are some exclusions, including fixed testamentary trusts, complying superannuation funds and charitable trusts
Recipients of means-tested income support payments, such as the Age Pension or JobSeeker, will be exempted from the minimum tax if they receive any payment in the financial year in which they realise the capital gain.
Rollover relief
Expanded rollover relief will be provided for three years from 1 July 2027 to support small businesses and others that wish to restructure out of discretionary trusts into another entity type.
What to take away
The changes introduce a minimum 30% tax on discretionary trust income, reducing the effectiveness of income distribution strategies.
If you use a family trust, it may be worthwhile reviewing your structure before 1 July 2028.
$1,000 instant tax deduction for work-related expenses
Employees | Taxpayers
What’s proposed?
As announced ahead of Budget night, tax residents who derive assessable labour income can claim a standard deduction of up to $1,000 for work‑related expenses in their 2026–27 income tax return, without the need for receipts.
The standard deduction is reduced, dollar-for-dollar, by general and specified work-related expense deductions claimed (such as certain transport, car, repair, capital allowance and COVID-19 test deductions) so that individuals do not receive a double benefit.
Certain deductions would remain available in addition to the standard deduction, including deductions that are not in connection with earning assessable labour income (such as investment expenses), income protection insurance premiums, charitable donations, costs of managing tax affairs, payments for membership of a union or other trade, business or professional association.
Individuals who incur more than $1,000 of work‑related expenses can elect to claim their actual deductions under existing rules instead.
What to take away
Tax time may be simpler, however keeping records is still important where total expenses exceed $1,000.
Working Australians tax offset (WATO)
Employees | Taxpayers | Self-employed
What’s proposed?
From 2027/28, a tax offset of up to $250 per year is proposed. The WATO 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 those eligible for the Low Income Tax Offset).
This measure is in addition to the legislated tax cuts due to take effect on 1 July 2026 (reduction of the 16% marginal tax rate to 15% on taxable income between $18,201 and $45,000) and 1 July 2027 (a further reduction of the tax rate to 14%).
What to take away
A modest ongoing tax saving depending on your income and circumstances.
Medicare levy low-income threshold increase
Low-income earners | Families | Retirees
What’s proposed?
Thresholds increase by 2.9% for 2025/26.
What to take away
More individuals and families may pay a reduced levy or none at all.
Electric Vehicles (EV’s)
FBT concession changes
Employees | Taxpayers
What’s proposed?
The current full FBT exemption on EVs will transition to a 25 per cent discount, with the change being phased in over three stages:
Under phase 1, the current EV FBT discount will continue in full until 31 March 2027.
Under phase 2 (1 April 2027 to 31 March 2029), the full FBT discount will apply only to EVs costing $75,000 or less, while EVs costing more than $75,000 but below the luxury car tax threshold (currently $91,387) will receive a 25% discount on payable FBT.
Under phase 3 (1 April 2029 onwards), all EVs below the luxury car tax threshold will receive a 25% discount on payable FBT.
Existing leases will not be impacted by these changes.
What to take away
Timing can impact tax savings. Existing arrangements are generally expected to retain their treatment.
Small Business
Instant asset write-off
Self-employed | Small Business
What’s proposed?
From 1 July 2026, the Government will make the small business instant asset write-off permanent.
All other eligibility settings and mechanics remain unchanged. This means that small businesses, with an aggregated annual turnover of less than $10 million, will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use in the relevant income year.
The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool.
What to take away
Immediate deductions may continue to be available rather than spreading costs over time.
Government Support and care
Support at home changes
Retirees | Families | Care receivers
What’s proposed?
From 1 October 2026, personal care for Support at Home participants will be partially funded.
Personal care services (including showering, dressing and non-clinical continence management) will move from the Independence category to the Clinical Supports category.
This means that participants with personal care services approved as part of their support plan and who have available Support at Home funding will be able to receive personal care services with no out‑of‑pocket cost, regardless of means.
Additionally, the Government will implement Support at Home program refinements, including improvements to assessments for faster access to places, digitising and simplifying the hardship application process and extending funding under the end‑of‑life pathway to provide more care for palliative patients, as well as bringing forward the release of Support at Home program places in 2026/27.
What to take away
Potential reduction in out-of-pocket costs for care.
Pension supplement changes
Retirees
What’s proposed?
Currently, the Pension Supplement reduces from the full rate to the basic amount (payable indefinitely):
- After six weeks, if a recipient is temporarily overseas, or
- Immediately if the recipient’s departure is permanent.
It is proposed that the full rate of payment is extended to 12 weeks for temporary departures before ceasing entirely, and for permanent departures, the Pension Supplement will cease entirely upon departure.
What to take away
Short trips may have less impact on entitlements.
Private health insurance rebate changes
Retirees | Families
What’s proposed?
The higher private health insurance rebate rates that currently apply for older Australians will be removed, so that rebate percentages for people aged 65 and over are aligned to the rates that apply to those under 65 on the same income tier.
What to take away
Some older Australians may face higher premiums.
Disclaimer
This document is prepared by BFG Financial Services (BFG). General Advice Disclaimer: The information in this document is general advice only and does not consider the financial objectives, financial situation or needs of any particular investor. Before acting on this document, you should assess your own circumstances or seek personal advice from us. This report is current as at the date of issue but may be subject to change or be superseded by future publications. The content is current as at the date of issue and may be subject to change. If an investor requires access to other research reports, they should ask their adviser. In some cases, the information has been provided to us by third parties. While it is believed that the information is accurate and reliable, the accuracy of that information is not guaranteed in any way. Past performance is not a reliable indicator of future performance, and it should not be relied on for any investment decision. Whilst care has been taken in preparing the content, no liability is accepted BFG, nor their agents or employees for any errors or omissions in this report, and/or losses or liabilities arising from any reliance on this report. This report is not available for distribution outside Australia and may not be passed on to any third person without the prior written consent of BFG.
