Australia Tax Reform 2026-27: Complete Overview of What Changed

The 2026-27 Australian Federal Budget, delivered on 12 May 2026 by Treasurer Jim Chalmers, introduced the most significant package of tax reforms in a generation. From personal income tax cuts and simplified deductions to sweeping changes to negative gearing, capital gains tax, discretionary trusts, and business incentives, these reforms reshape the tax landscape for virtually every Australian taxpayer. This article provides a complete overview of what changed, when each measure takes effect, and who is affected.

What changed for individual taxpayers

Stage 3 tax cuts (already in effect)

The revised Stage 3 tax cuts took effect on 1 July 2024 under the Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024. While the original Morrison-era Stage 3 plan would have created a flat 30% rate for incomes between $45,001 and $200,000, the Albanese Government revised the design in January 2024 to spread the benefit more broadly.

The current tax brackets (from 1 July 2024):

Taxable Income	Tax Rate
$0 – $18,200	0% (tax-free threshold)
$18,201 – $45,000	16% (down from 19%)
$45,001 – $135,000	30% (down from 32.5%)
$135,001 – $190,000	37% (threshold raised from $120,001)
$190,001 and above	45% (threshold raised from $180,001)

According to Treasury, all 13.6 million Australian taxpayers receive a tax cut under the revised design. A worker on $75,000 saves $1,429 per year compared to the old rates.

Working Australians Tax Offset (WATO) — from 1 July 2027

The Budget introduces a new permanent $250 annual tax offset called the Working Australians Tax Offset (WATO). This applies to every taxpayer earning wage, salary, or sole trader business income.

Key details (per Budget Paper No. 2, p.16):

Takes effect from the 2027-28 income year
Benefits 13.3 million workers
Effectively increases the tax-free threshold by nearly $1,800 to $19,985
Combined with the Low Income Tax Offset (LITO), the effective tax-free threshold rises to $24,985
Estimated cost: $6.4 billion over five years

$1,000 instant tax deduction — from 1 July 2026

From the 2026-27 income year, all workers can claim a flat $1,000 deduction for work-related expenses without needing receipts (Budget Paper No. 2, p.19).

Workers claiming less than $1,000 in work expenses no longer need to itemise or keep receipts
Workers with more than $1,000 in legitimate expenses can still claim the full amount with documentation
Benefits 6.2 million workers who currently claim less than $1,000
Estimated cost: $2.4 billion over four years
Reduces compliance costs by approximately $32 million annually

Medicare levy threshold increases — from 1 July 2025

The Medicare levy low-income thresholds have been increased (already effective):

Singles: raised from $27,222 to $28,011
Families: raised from $45,907 to $47,238
Single seniors/pensioners: from $43,020 to $44,268
Over 1 million individuals benefit from these increases

What changed for property investors

Negative gearing limited to new builds — from 1 July 2027

This is the most significant structural reform in the Budget. From 1 July 2027, negative gearing for residential property is limited to new builds only (Budget Paper No. 2, p.21).

Under the new rules:

Losses from established (existing) residential properties can only be deducted against rental income or capital gains from residential property
Excess losses can be carried forward to offset residential property income in future years
New builds continue to qualify for full negative gearing against all income
Properties in widely held trusts, superannuation funds, and build-to-rent developments are excluded from the restriction

Grandfathering: The changes apply to established residential properties acquired from 7:30PM AEST on 12 May 2026 (budget night). Properties acquired before that time — including contracts entered into but not yet settled — are fully exempt from the changes and retain unlimited negative gearing until disposed of.

Capital gains tax overhaul — from 1 July 2027

The longstanding 50% CGT discount is replaced by a new system:

Cost base indexation replaces the flat 50% discount for assets held more than 12 months
A 30% minimum tax rate applies to net capital gains
Applies to all CGT assets held by individuals, trusts, and partnerships
Transitional rule: Changes only apply to gains arising on or after 1 July 2027; the 50% discount continues for gains arising before that date

Special exemption for new residential property: Investors in new residential properties can choose either the 50% CGT discount OR cost base indexation and the minimum tax — whichever produces a better outcome.

Income support recipients (including Age Pension) are exempt from the 30% minimum tax.

Foreign investment ban extended — to 30 June 2029

The temporary ban on foreign purchases of established residential dwellings has been extended by two years and three months, now running until 30 June 2029. Permanent residents and New Zealand citizens are exempt.

What changed for trusts

30% minimum tax on discretionary trusts — from 1 July 2028

A 30% minimum tax now applies to the taxable income of discretionary trusts (Budget Paper No. 2, p.22). Beneficiaries (other than corporate beneficiaries) receive non-refundable credits for tax paid by the trustee.

Exclusions:

Fixed and widely held trusts (including fixed testamentary trusts)
Complying superannuation funds
Special disability trusts, deceased estates, and charitable trusts
Primary production income
Income from assets of discretionary testamentary trusts existing at the announcement date

Transition: Expanded rollover relief is available for three years from 1 July 2027 to support businesses restructuring out of discretionary trust structures.

Revenue impact: This measure is expected to raise $4.5 billion over five years — the single largest revenue-raising measure in the Budget.

What changed for small business

Permanent $20,000 instant asset write-off — from 1 July 2026

After years of temporary annual extensions, the $20,000 instant asset write-off is now permanent from 1 July 2026 (Budget Paper No. 2, p.20).

Applies to small businesses with aggregated turnover under $10 million
Each asset costing less than $20,000 can be immediately deducted
Assets over $20,000 go into the simplified depreciation pool
Provides $890 million in cash flow support over five years
Reduces compliance costs by approximately $32 million annually

Two-year loss carry back (permanent) — from 1 July 2026

Companies can now permanently carry back tax losses and offset them against tax paid in the two preceding years:

Applies to companies with aggregated annual turnover under $1 billion
Limited to revenue losses and by the company's franking account balance
Estimated cost: $2.3 billion over five years

What changed for startups and innovation

Start-up loss refundability — from 1 July 2028

Start-up companies can utilise tax losses to generate a refundable tax offset in their first two years of operation:

Eligible companies: aggregated annual turnover under $10 million
Offset is capped at FBT and PAYG withholding tax on wages paid to Australian employees
Benefits up to 25,000 start-ups annually
Estimated cost: $410 million over five years

R&D Tax Incentive reform — from 1 July 2028

Major changes to the Research & Development Tax Incentive:

Core R&D offset increased by 4.5 percentage points (to approximately 50%)
Intensity threshold reduced from 2% to 1.5%
Refundable offset turnover threshold raised from $20 million to $50 million (limited to firms under 10 years old)
Maximum R&DTI expenditure cap raised from $150 million to $200 million
Minimum expenditure threshold raised from $20,000 to $50,000
"Supporting" R&D expenditure removed from eligibility

Venture capital incentive expansion — from 1 July 2027

VCLP asset cap raised from $250 million to $480 million
ESVCLP asset cap raised from $50 million to $80 million
ESVCLP tax-exempt return cap raised from $250 million to $420 million
Maximum ESVCLP fund size raised from $200 million to $270 million

International tax changes

OECD Pillar Two (global minimum tax) — from 1 January 2026

Australia has amended its global and domestic minimum tax legislation to implement the OECD/G20 "side-by-side" package agreed on 5 January 2026 (Budget Paper No. 2, p.12).

This ensures multinational enterprise groups with consolidated global revenue of EUR 750 million or more pay an effective tax rate of at least 15% through:

Income Inclusion Rule (IIR) — top-up tax on parent entities for low-taxed subsidiaries
Qualified Domestic Minimum Top-up Tax (QDMTT) — allows Australia to collect top-up tax before other jurisdictions
Undertaxed Profits Rule (UTPR) — backstop mechanism

Timeline of key dates

Reform	Effective Date
Stage 3 tax cuts (revised)	1 July 2024 (in effect)
Medicare levy thresholds increased	1 July 2025 (in effect)
OECD Pillar Two side-by-side package	1 January 2026
$1,000 instant tax deduction	1 July 2026
Permanent $20,000 instant asset write-off	1 July 2026
Loss carry back made permanent	1 July 2026
Venture capital incentive expansion	1 July 2027
Working Australians Tax Offset (WATO)	1 July 2027
Negative gearing limited to new builds	1 July 2027
CGT discount replaced by indexation	1 July 2027
R&D Tax Incentive reform	1 July 2028
Start-up loss refundability	1 July 2028
30% minimum tax on discretionary trusts	1 July 2028
Foreign dwelling purchase ban expires	30 June 2029

Frequently asked questions

Are the Stage 3 tax cuts still in place?

Yes. The revised Stage 3 tax cuts took effect on 1 July 2024 and remain in force. The 2026-27 Budget builds on top of them with additional measures (WATO, $1,000 deduction) rather than replacing them.

When do negative gearing restrictions actually start?

1 July 2027. Properties acquired before 7:30PM AEST on 12 May 2026 (budget night) are fully grandfathered and retain unlimited negative gearing.

Does the $1,000 instant deduction replace my existing work expense claims?

No. If your legitimate work expenses exceed $1,000, you can still claim the full amount with receipts. The $1,000 is a simplified alternative for those with smaller claims — it replaces the need to itemise and keep receipts for claims under $1,000.

Who qualifies for WATO?

All workers earning wages, salary, or sole trader business income. It takes effect from the 2027-28 income year and is worth $250 per year, applied as a tax offset at return time.

How do the CGT changes affect my existing investments?

The 50% CGT discount continues to apply to any capital gain arising before 1 July 2027. After that date, cost base indexation replaces the discount. If you hold assets acquired before that date, you are not "grandfathered" from the CGT change — but any gain accruing before 1 July 2027 retains the old treatment.

What is the total tax saving for the average worker?

According to the Treasurer's media release (12 May 2026), the combined benefit of the Stage 3 cuts, WATO, and $1,000 deduction delivers up to $2,816 per year for the average earner from the 2027-28 income year.

Related tools

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