What does the 2026 Australian Federal Budget mean for Australians?
The 2026 Australian Federal Budget introduces tax reforms, housing policy changes and cost-of-living measures. Key changes include limiting negative gearing to new property builds, replacing the 50% capital gains tax discount with inflation indexation and a minimum 30% tax, introducing a $250 Working Australians Tax Offset, and simplifying work expense claims with a $1,000 standard deduction.
These reforms aim to improve housing affordability, support workers and strengthen the economy.
What Happened in the Federal Budget Update?
The 2026 Australian Federal Budget introduced several major reforms aimed at improving housing affordability, supporting workers, and strengthening the economy during a period of global uncertainty and elevated inflation.
The centerpiece of the Budget focuses on tax reform, property investment changes and cost-of-living relief, alongside funding changes across healthcare, aged care and disability support.
Key announcements from the Federal Budget
1. Changes to Capital Gains Tax (CGT)
From 1 July 2027, the current 50% CGT discount for assets held longer than 12 months will be removed and replaced with inflation indexation and a minimum 30% tax on capital gains.
This change applies to:
- Investment properties
- Shares and managed investments
- Trust assets
However, transitional arrangements mean only gains from July 2027 onwards will be affected.
2. Negative gearing limited to new builds
To improve housing supply, negative gearing will only apply to newly built residential properties from 1 July 2027.
Important details:
- Existing properties owned before the announcement are grandfathered.
- Properties purchased before July 2027 can still be negatively geared until that date.
- Commercial property and shares are not impacted.
Negative gearing occurs when the costs of owning an investment asset, such as interest on loans, maintenance, and rates exceed the income it generates (e.g., rent). This creates a net loss, which investors can deduct from their other income, such as salary, to reduce their overall tax bill.
3. Introducing a 30% minimum tax rate on discretionary trusts
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.
The following trusts will be exempt from the new minimum tax:
- Fixed and widely held trusts (including fixed testamentary trusts)
- Complying superannuation funds
- Special disability trusts
- Deceased estates, and
- Charitable trusts.
The following types of income are also proposed to be excluded from the new minimum tax:
- Primary production income,
- Income from assets of discretionary testamentary trusts existing at announcement
Certain income relating to vulnerable minors, and - Amounts to which non-resident withholding tax applies.
4. New Working Australians Tax Offset
A permanent $250 Working Australians Tax Offset (WATO) will be introduced to help reduce the tax burden on workers.
Combined with previously legislated tax cuts, this increases the effective tax-free threshold to around $19,985.
5. $1,000 instant tax deduction
From 1 July 2026, taxpayers can claim a standard $1,000 deduction for work-related expenses without needing receipts.
If actual work expenses exceed $1,000, individuals can still claim their full deductions under existing rules.
6. Cost-of-living and healthcare support
The Budget includes measures to ease household costs including:
- PBS medicine costs capped at $25 per prescription
- Concessional PBS costs frozen at $7.70 until 2030
- New medicines added for serious conditions
- Funding for aged care beds and dementia programs
PBS medicine refers to prescription medication subsidized by the Australian Government through the Pharmaceutical Benefits Scheme (PBS).
7. Major NDIS reforms
The Government will implement changes to the National Disability Insurance Scheme to deliver more than $36 billion in savings over four years, aiming to return the scheme to its original intent while ensuring long-term sustainability.
8. Small business tax relief
Small businesses receive continued support including:
- Permanent $20,000 instant asset write-off
- Loss carry-back tax rules
- Startup tax offsets for early losses
These changes aim to stimulate investment and support business growth.
What It Means for Australians?
Cost of living implications
For many Australians, the Federal Budget delivers moderate cost-of-living relief rather than major cash payments.
Key benefits include:
- Lower medicine costs
- Small tax offsets for workers
- A simplified tax deduction
- Future housing supply measures
However, inflation remains a major economic concern.
Inflation is forecast to reach around 5%, meaning many households may still face pressure from higher costs for essentials like housing, groceries and energy.
Economic outlook
Australia’s economy is currently navigating:
- Global conflicts affecting supply chains
- Higher interest rates
- Slower economic growth
The Budget attempts to balance economic stability with long-term structural reforms, particularly in housing and tax policy.
While savings from programs like the NDIS help improve the Budget position, economic conditions will continue to influence interest rates and financial markets in the years ahead.
Impact on Investors and Your Financial Planning
The Budget introduces some of the most significant investment tax reforms in decades, particularly around property and capital gains.
Property market implications
Limiting negative gearing to new builds could shift investor demand toward off-the-plan and newly constructed properties.
Possible impacts include:
- Reduced demand for established investment properties
- Increased focus on new developments
- Changes in long-term property investment strategies
However, because existing investments are grandfathered, many current investors will see no immediate change.
Share market impact
Changes to CGT could also affect investors holding shares and managed funds.
Key considerations include:
- Future tax on capital gains may increase
- Long-term investment strategies may evolve
- Portfolio diversification may become more important
Importantly, the changes only apply to gains from July 2027 onwards, giving investors time to plan.
Broader financial planning considerations
Several other Budget changes may influence financial strategies, including:
- A minimum 30% tax on discretionary trusts from 2028
- Changes to EV Fringe Benefits Tax concessions
- Adjustments to private health insurance rebates for older Australians
These changes could affect tax planning, business structures and retirement planning.
Here to help
At 360 Financial Strategists, we help Australians navigate the financial landscape with confidence.
Book a consultation with our team today
Frequently Asked Questions
When did the 2026 Federal Budget occur?
The Australian Federal Budget for 2026–27 was released on 12 May 2026. It outlines government spending, taxation changes and economic priorities for the coming financial year.
Will the Federal Budget affect mortgage rates?
The Federal Budget does not directly set mortgage rates. However, government spending and tax policies can influence inflation and economic growth, which may affect decisions by the Reserve Bank of Australia on interest rates.
Will the 2026 budget affect property prices?
Housing reforms introduced in the budget may influence investor demand and housing supply. Over time, increased housing construction and tax changes could help improve affordability and stabilise property prices.
Do tax cuts start immediately?
Some tax cuts begin in 2026, while additional reductions will be introduced in 2027, gradually increasing take-home pay for many Australian workers.
Sources
Budget 2026-27 – BUDGET STRATEGY AND OUTLOOK Budget Paper No. 1
Guardian – Budget capital gains tax changes and negative gearing reform explained
The Australian – New $2bn fund to turbocharge construction
The Australian – Labor’s risky reset: how the budget rewires housing market
