Treasurer Jim Chalmers delivered his fifth Federal Budget last night. Whilst the measures have attracted some controversy, this Budget is expected to have the most significant impact on taxpayers in over 25 years.

 

Tax Reform – Boosting Home Ownership – reforming negative gearing and capital gains tax

Improving Tax Arrangements for Capital Gains

 From 1 July 2027, the 50 per cent CGT discount will be replaced by cost base indexation for assets held for more than 12 months, with a 30 per cent minimum tax on net capital gains. These changes will apply to all CGT assets, including pre‑1985 CGT assets, held by individuals, trusts and partnerships.

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 per cent CGT discount will continue to apply to gains arising before 1 July 2027. Capital gains on pre‑1985 assets arising before 1 July 2027 will remain exempt from CGT.

Investors in new residential properties will be able to choose either the 50 per cent CGT discount, or cost base indexation and the minimum tax.

Income support payment recipients, including Age Pension recipients, will be exempt from the minimum tax.

Reforming Negative Gearing to Support New Housing Supply

The Government will limit negative gearing for residential property to new builds. From 1 July 2027, losses from established residential properties will only be deductible against rental income or the capital gains from residential properties. Excess losses will be carried forward and able to be offset against residential property income in future years.

These changes will apply to established residential properties acquired from 7:30PM (AEST) on 12 May 2026. Properties acquired prior to this time (including contracts entered into but not yet settled) will be exempt from the changes until disposed of.

Eligible new builds will be exempt from the changes, ensuring the benefits of negative gearing are directed to investment that increases the housing stock. Properties in widely held trusts and superannuation funds will be excluded, alongside targeted exemptions for build‑to‑rent developments and private investors supporting government housing programs.

Tax Reform – introducing a minimum tax on discretionary trusts

The Government will introduce a 30 per cent minimum tax on discretionary trusts.

From 1 July 2028, trustees will pay a minimum tax of 30 per cent on the taxable income of discretionary trusts. Beneficiaries, other than corporate beneficiaries, will receive non‑refundable credits for the tax payable by the trustee.

The minimum tax will not apply to other types of trusts such as fixed and widely held trusts (including fixed testamentary trusts), complying superannuation funds, special disability trusts, deceased estates and charitable trusts. Some types of income such as primary production income, certain income relating to vulnerable minors, amounts to which non‑resident withholding tax applies, and income from assets of discretionary testamentary trusts existing at announcement will also be excluded.

The Government will provide expanded rollover relief 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, such as a company or a fixed trust.

Modernising Private Health

The Government will achieve savings of $3.0 billion over four years from 2026–‍27 (and $1.0 billion per year ongoing) by removing the age‑based uplift of the Private Health Insurance Rebate from 1April2027.

The age based uplift of the Private Health Insurance Rebate affects those aged 65 and over.

Tax Reform – cutting taxes with a Working Australians Tax Offset

The Government will deliver a new tax cut for every working Australian taxpayer by introducing a $250 Working Australians Tax Offset from the 2027–28 income tax year.

The Working Australians Tax Offset will provide a permanent annual tax offset for Australians for their income derived from work, such as wages and salaries and the business income of sole traders, from 1 July 2027.

Tax Reform – introducing a $1,000 Instant Tax Deduction

The Government will introduce an instant tax deduction of up to $1,000 from the 2026–‍27 income tax year.

Australian tax residents who earn income from work will be eligible for the instant tax deduction and will not need to itemise and claim work related expenses if claiming less than $1,000.

Individuals who incur work‑related expenses greater than the instant tax deduction can continue to claim their deductions in the usual way. Charitable donations, union and professional association membership fees and other non related deductions can still be itemised separately and claimed on top of the instant tax deduction.

Electric Car Discount – more sustainable fringe benefits tax treatment of electric cars

The Government is adjusting settings of the electric car discount to maintain incentives for the shift to electric vehicles while transitioning to more sustainable settings for the longer term.

From 1 April 2029, a permanent 25 per cent discount on fringe benefits tax (FBT) will be available for all electric cars valued up to and including the fuel efficient luxury car tax threshold.

All electric cars valued up to and including $75,000 that are provided before 1 April 2029 will continue to be eligible for a 100 per cent discount on FBT.

Supporting Philanthropy

The Government will remove the ministerial declaration requirement from the community charity DGR process, reducing red tape for eligible community charities by removing a step in the endorsement process.

Improving Access to Home Care

The Government will provide $1.4 billion over four years from 2026–‍27 (and $377.3 million per year ongoing) to improve affordability and access to home care supports, including:

• $1.0 billion over four years from 2026–‍27 (and $336.8 million per year ongoing) to ensure the service type ‘personal care’ (including showering) is fully funded by the government for all care recipients in the Support at Home program

Boosting Productivity – Digital ID

The Government will provide $654.3 million over four years from 2026–‍27 (and $166.7 million per year ongoing) to meet its legislative commitments under the

Digital ID Act 2024 and maintain the security and reliability of the Australian Government’s Digital ID System. Funding includes:

• $357.4 million over four years from 2026–‍27 (and $92.0 million per year ongoing) to the Australian Taxation Office to maintain operation of myID and the Relationship Authorisation Manager, including implementation of additional security controls and functionality.

Energy Sovereignty – Fuel Security and Resilience

The Government will provide up to $11.9 billion over five years from 2025–‍26 to support Australian households, businesses and industry through the National Fuel Security Plan, including

• the establishment of a $3.2 billion Australian Fuel Security Reserve to increase long term fuel supply and storage in combination with an increase to the Minimum Stockholding Obligation (MSO), to increase Australia’s fuel reserves to 50 days

Energy Sovereignty – Establishing a Domestic Gas Reservation

The Government will provide $35.5 million over four years from 2026–‍27 to ensure a secure and ongoing supply of affordable gas through the domestic wholesale gas market, including via the establishment of a Domestic Gas Reservation Mechanism.

The domestic gas reservation percentage will be set at the equivalent to 20 per cent of exports. The Domestic Gas Reservation Mechanism will commence on 1 July 2027.

AND FINALLY….

Enhancing Pacific Engagement

The Government will amend the tax law to ensure that income tax exemptions provided by Papua New Guinea also apply in Australia for players and staff of the PNG Chiefs National Rugby League team.

To find out more about how you might be impacted, please contact your client relationship or trust manager directly. If you're not already a client of Equity Trustees Contact Us

 

This article was written by Chris Holloway, Senior Manager of our Taxation Services team.