Federal Budget 2026–27
Key Measures Explained
The 2026-27 Federal Budget is the most consequential Budget for investors in years, and the centrepiece is a suite of tax reforms. The grandfathering provisions limit the immediate damage and give investors (and advisers like Steps) time to compare options for clients, and plan ahead.
The golden rule of a solid investment strategy still applies after these proposals: don’t overhaul your financial strategy or portfolio in response to market volatility or Budget announcements alone.
Below is a clear summary of the most relevant measures and what they could mean in practical terms. More importantly, these proposals are not yet legislated, and in many key areas, they’re not all clearly defined either.
What’s next?
For a Budget measure to become law, the government must first release the detailed design, draft the legislation, and introduce a Bill to Parliament. The Bill must then pass both the House of Representatives and the Senate, and in some cases may be amended or delayed during that process – especially if other parties cannot reach an agreement about the final legislation. Once passed by both houses and given Royal Assent, the measure becomes law, and some changes may still start from a later announced date.
In previous years, measures announced in the Budget have looked quite different by the time they were legislated (I’m looking at you, Division 296), so acting too early is rarely a good idea. At Steps, we’ll contact clients in an ongoing advice relationship when changes become official and update your financial plan where needed, in consultation with your accountant and other professional advisers.
Changes to Capital Gains Tax (CGT)
From 1 July 2027
The Government has proposed significant changes to how capital gains are taxed on assets such as property, business assets and shares, held by individuals, trusts and partnerships.
The current 50% CGT discount for assets held for more than 12 months will be replaced with cost base indexation, which adjusts the purchase price for inflation.
A minimum 30% tax rate will apply to net capital gains.
Special transition rules will apply. The 50% CGT discount continues to apply to all gains arising before 1 July 2027. If you sell an asset before that date, the existing rules apply in full. For gains arising on or after 1 July 2027, the new indexation method applies
An exception is available for new residential builds, where investors may be able to choose between the current discount or the new approach.
What does this mean for business owners?
For businesses built from scratch – where goodwill has a zero cost base – the impact is particularly significant. Indexation can only adjust a cost base that exists: a zero cost base produces no reduction. Every dollar of goodwill gain accruing after 1 July 2027 will be fully taxable at the owner's marginal rate, subject to the 30% minimum tax. The Small Business CGT Concessions remain available, but their effective value is reduced.
The Budget confirms expanded rollover relief for three years from 1 July 2027 to support businesses wishing to restructure out of discretionary trusts into a company or fixed trust — without triggering a CGT liability at the time of transfer. This is a genuine and time-limited opportunity.
Steps Financial Commentary
If you hold shares, property or other investments, these proposed changes could alter how your gains are taxed over time. The transition rules are important, particularly for assets already owned. Good accounting and financial advice is crucial to model which options would result in a better outcome and can help you make informed decisions.
Negative Gearing Changes
Negative gearing occurs when the costs of owning an investment property exceed the rental income it generates. Under the current rules, that net loss can be deducted against other income, including salary or wages, reducing your overall tax bill.
What Has Changed
Existing investment properties are fully protected. If you already own a negatively geared investment property, your ability to offset losses against other income continues unchanged for as long as you hold that property.
For established residential properties acquired after 7:30 pm AEST on 12 May 2026, the rules change from 1 July 2027. Losses from those properties will only be deductible against rental income or capital gains from residential properties. Excess losses are carried forward — they cannot reduce salary or wage income.
Newly constructed properties are exempt. When you purchase a new build that adds to Australia's housing supply, negative gearing deductions remain fully available.
Contracts entered into before 7:30 pm on 12 May 2026 — including those not yet settled — are covered by the grandfathering provisions.
Combined effect: The negative gearing changes interact directly with the CGT changes confirmed in the same Budget. Together, the overall economics of acquiring a new established investment property have shifted materially.
Steps Financial Commentary
If you own an investment property or are considering one, the rules have changed that affect both ongoing cash flow, deductions and future capital gains position. Comprehensive accounting and financial advice is more important than ever, so please reach out to understand the best way forward for you.
Tax Changes for Trusts
From 1 July 2028
A new 30% minimum tax will apply to income in discretionary trusts.
The trustee will pay this tax, and beneficiaries will receive a corresponding (non-refundable) tax credit, similar to franking credits on dividends.
Some trusts are excluded, including super funds, charities, special disability trusts and deceased estates.
Steps Financial Commentary
If you are involved in a family or discretionary trust, these changes introduce a new minimum tax at the trust level. This may affect how income is reported and taxed, so it’s important to be aware of how trust arrangements may operate going forward. There is still a lot of uncertainty around this proposal, but with a longer starting deadline, it gives you time to review your options and make the necessary changes well in advance.
Personal Tax Relief Measures
Income tax cuts
From 1 July 2026 to 1 July 2027
Previously legislated tax cuts will proceed as follows:
The lowest tax rate decreases from 16% to 15% in 2026–27, then to 14% in 2027–28.
This provides modest tax relief for most taxpayers.
Working Australians Tax Offset
From 2027–28
A new $250 annual tax offset will apply to income from work, including wages and self-employment income. The offset reduces tax owed, rather than providing a direct cash payment, so if you pay little or no tax, there is no benefit.
Steps Financial Commentary
These changes provide modest tax relief and may slightly increase the amount you keep from your income. While the impact will vary, it can be useful to understand how these changes fit into your broader financial position over time.
$1,000 instant tax deduction
From 2026–27
You will be able to claim a standard $1,000 deduction for work-related expenses without needing receipts if your total claim is below this amount. The saving depends on your tax rate. At 32% (30% plus the Medicare Levy), the saving is $320. At 47% (45% plus the Medicare Levy), the saving is $470. If you currently claim more than $1,000 in legitimate work-related expenses, your actual expenses remain the better option.
Steps Financial Commentary
If you normally claim work-related expenses, this new option may simplify your tax return. It’s important to understand how it compares to your usual claims, so you can choose the approach that best reflects your circumstances. Ask your accountant to compare options to see which one gives you the best outcome.
Superannuation Updates
While much of Budget night's focus was on CGT, negative gearing, and trusts, there are several important superannuation changes taking effect from 1 July 2026.
Transfer Balance Cap Increase
From 1 July 2026
The transfer balance cap — the maximum amount you can hold in a tax-free retirement phase pension — increases from $2.0 million to $2.1 million from 1 July 2026. If you are planning to commence a retirement phase pension, this increase may present a planning opportunity.
Payday Super
From 1 July 2026
Employers will be required to pay super contributions at the same time as wages, rather than quarterly.
Division 296 tax
From 1 July 2026
Additional tax will apply to individuals with super balances above $3 million, with higher rates for balances above $10 million. Read more about this new tax, which has already received Royal Assent, in our article on the Steps Website.
Steps Financial Commentary
More frequent super payments might be tricky for small business cash flow, but would be a win for employees as the funds are now in YOUR super account sooner. Review your Super Fund and investment options to ensure it’s right for you.
The new tax rules for higher balances may affect how superannuation is managed and reported, and there are some planning opportunities for clients with higher balances or those nearing retirement stage with the higher balance caps. We are proactively contacting those clients in an ongoing arrangement, but if you have any questions, please reach out to see how these changes affect your plans.
Aged Care and Social Security
Aged care investment
From 1 July 2026
Funding will support:
More aged care beds (around 5,000 per year)
Improved support for home care and dementia services
Pension supplement changes
From 1 July 2025
Full payments continue for up to 12 weeks overseas (previously 6 weeks)
Payments cease after 12 weeks or for permanent departures
Steps Financial Commentary
The additional funding and rule changes may influence access to care services and certain payments, particularly later in life. Please speak to an Aged Care expert, or reach out to us for a referral, as these changes could improve your quality of life, or that of your elderly parents and family.
Business and Employment Measures
Small business support
From 1 July 2026
The $20,000 instant asset write‑off will be made permanent for eligible small businesses.
Loss carry-back and start-up support
Companies can carry losses back up to two years to offset past tax.
New start-ups may access a refundable tax offset for losses in their first two years from 2028.
Steps Financial Commentary
If you run or are involved in a small business, these changes may affect how assets and losses are treated for tax purposes. Ensure you get quality taxation advice on these new measures to increase the benefit to you.
Other Notable Changes
Private health insurance rebate
From 1 April 2027
The age-based higher rebate for older Australians will be removed, meaning the rebate will no longer increase with age.
Steps Financial Commentary
If you hold private health insurance, changes to the rebate system may affect how much support you receive and significantly increase the cost of health insurance next year. The start date is also important to note: it's right when health insurance premiums increase, so please plan ahead for the increase in your cash flow, especially if you pay yearly premiums.
Electric vehicle FBT changes
The Budget announced a staged approach to removing some of the existing tax benefits in place when entering a novated lease arrangement for Electric Vehicles (EV).
Until 31 March 2027: Full FBT exemption remains in place for all eligible EVs.
From 1 April 2027: Full exemption only applies to EVs priced at $75,000 or less. EVs above $75,000 but below the Luxury Car Tax threshold receive a reduced 25% FBT discount only.
From 1 April 2029: The 25% FBT discount applies to all EVs below the Luxury Car Tax threshold, regardless of price.
Read more about the changes, which were first announced a week ago, in our article on the Steps Website.
Steps Financial Commentary
If you currently have an electric vehicle under a novated lease, or are considering one, the rules are changing in ways that could affect your after-tax cost. It may be helpful to review how these changes apply before making any new arrangements.
Final Thoughts
This Budget introduces wide-ranging tax and policy changes that may affect workers, investors, retirees and business owners differently. Many measures are proposed to apply over several years, with transition rules designed to ease the move to the new system.
The changes create so much opportunity, though, and we feel that a stronger focus on the benefits of Superannuation might be an unintended consequence. Income-focused shares might be a more attractive option, and strategies such as debt recycling using these types of investments, rather than direct property, might become more popular as investors seek more “bang for their buck”. At Steps, we’ve always said that Tax should not be the major consideration or goal of a chosen investment strategy, but rather a benefit of it. The 2026FY budget shouts this from the rooftop of Parliament House, and we’re sure that it will sink in now.
General Advice Warning
The information in this document and any shared links has been prepared for general information purposes only and does not consider your personal objectives, financial situation or needs. It is not intended to provide commercial, financial, investment, accounting, tax or legal advice. You should, before you make any decision regarding any information, strategies, or products mentioned in this email, consult a professional financial adviser to consider whether it is suitable and appropriate for you and your personal needs and circumstances. Before deciding to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product, together with the Target Market Determination (TMD).
Antoinette Mullins
GradDipFinPlan| CFP® | B.Diac | ADFS (FP) Certified Financial Planner® & Director
Antoinette Mullins is an Authorised Representative (No. 316376) of Spark Advisors Australia Pty Ltd
ABN 34 122 486 935 AFSL 380552
Tanya Oddo
BA-BCom | DFP, Financial Planner & Director
Tanya Oddo is an Authorised Representative (No. 284500) of Spark Advisors Australia Pty Ltd
ABN 34 122 486 935 AFSL 380552