Modoras · Federal Budget 2026–27 Analysis
What actually matters for you.
Modest cost-of-living relief on the surface. Underneath it, some of the most significant proposed changes to investment taxation in years.
The key Budget changes at a glance
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From 1 July 2026
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From 1 July 2027
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From 1 July 2028
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$1,000 Instant tax deduction for work expenses From 1 July 2026 |
$250 Working Australians Tax Offset From 1 July 2027 |
$20,000 Permanent instant asset write-off Small businesses · 1 July 2026 |
The 2026 Federal Budget delivered a combination of modest cost-of-living relief and some genuinely significant proposed tax reforms that could reshape parts of the investment landscape over the coming years.
For many Australians, the immediate impact may simply mean slightly lower tax, simpler deductions and some additional support around everyday living costs. However, for investors, business owners and families using trust structures, this Budget introduced proposals that are far more substantial — particularly around capital gains tax (CGT), negative gearing and discretionary trusts.
Importantly, there were no major changes announced to superannuation.
At this stage, many of the measures remain proposals only and are yet to become law. However, they provide a very clear indication of where the Government intends to head over the coming years.
Lower income tax rates
One of the simpler announcements in this year's Budget was the confirmation of previously legislated tax cuts.
From 1 July 2026, the lowest marginal tax rate applying to taxable income between $18,201 and $45,000 is proposed to reduce from 16% to 15%. Then, from 1 July 2027, it is proposed to reduce further to 14%.
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Lowest marginal tax rate
Applies to taxable income between $18,201 and $45,000 |
The higher tax brackets remain unchanged. While these changes are not enormous individually, they are designed to gradually increase after-tax income over time.
Who this may affect
- Employees
- Part-time and casual workers
- Younger Australians entering the workforce
- Sole traders
- Retirees still earning employment income
Real-world example
If you earn $40,000 per year, you may notice slightly less tax being withheld from your pay from July 2026 onwards. For dual-income households, even modest tax reductions can assist with rising mortgage costs, groceries, school fees and insurance premiums.
A new Working Australians Tax Offset
From 1 July 2027, the Government proposes introducing a new permanent Working Australians Tax Offset (WATO) worth up to $250 annually.
The offset is intended to apply to income earned from work, including wages and salary, and eligible sole trader income. It is expected to apply automatically when tax returns are lodged.
On its own, the amount is relatively modest. However, when combined with the tax rate reductions, it forms part of the Government's broader cost-of-living support measures.
Who this may affect
- Employees
- Sole traders
- Casual workers
- Working retirees
- Younger Australians starting their careers
Real-world example
A self-employed electrician earning $75,000 through their business may automatically receive the offset when lodging their tax return from the 2027–28 financial year onwards. Likewise, someone transitioning into retirement but still working part-time may also qualify.
The new $1,000 instant tax deduction
One of the more practical changes announced in the Budget was the proposed introduction of a $1,000 instant deduction for work-related expenses from the 2026–27 financial year.
In simple terms, eligible employees would be able to claim up to $1,000 in work-related deductions without needing to keep receipts or itemise individual claims below that amount. If your eligible work expenses exceed $1,000, you can still claim the higher amount using the normal substantiation rules.
The proposed deduction includes work-from-home expenses. However, you would not be able to separately claim work-from-home costs under the ATO fixed-rate or actual-cost methods if using the instant deduction.
Some deductions remain claimable on top of the instant deduction, including charitable donations, union fees, and professional memberships.
Why this matters
For many Australians, tax returns may become significantly simpler. A large number of employees typically claim relatively modest deductions each year. This proposal is designed to reduce paperwork and streamline tax time.
Who this may affect
- PAYG employees
- Hybrid workers
- Australians working from home
- Employees with relatively simple tax returns
Real-world example
An office worker who typically claims internet costs, stationery, small home office expenses and minor work purchases may no longer need to keep detailed receipts if their total claim remains under $1,000.
However, employees with larger deductions — such as salespeople, tradies or professionals with significant travel expenses — may still benefit from claiming actual expenses separately.
Medicare levy threshold increases
The Government also announced increases to Medicare levy low-income thresholds for singles, families, pensioners and seniors for the 2025–26 financial year.
In practical terms, this means more lower-income Australians may either avoid paying the Medicare levy altogether, or pay a reduced amount.
Who this may affect
- Lower-income households
- Retirees
- Pensioners
- Families with modest incomes
- Seniors eligible for SAPTO
Real-world example
A retired couple drawing modest income from superannuation and investments may remain below the updated threshold and avoid paying the Medicare levy entirely. Similarly, younger families with one parent working part-time may also benefit from the increased family thresholds.
Private health insurance rebate changes
From 1 April 2027, older Australians will no longer receive higher private health insurance rebates purely because of age. Instead, the standard income-tested rebate system will apply across age groups.
For some retirees, this may increase out-of-pocket health insurance costs.
Who this may affect
- Australians aged over 65
- Retirees
- Self-funded retirees
- Couples with private health cover
Real-world example
A retired couple in their 70s who currently receive a higher age-based rebate may see their annual private health premiums rise after April 2027. For some households, this may trigger a review of policy inclusions, excess levels or overall cover.
Capital gains tax reform
Without question, one of the most significant announcements in this year's Budget was the proposed overhaul to capital gains tax.
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How your CGT may be calculated
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From 1 July 2027, the Government proposes replacing the current 50% CGT discount for individuals, trusts and partnerships with a CPI-based indexation approach.
Currently, Australians who hold an asset longer than 12 months are generally eligible for a 50% discount on the taxable capital gain. Under the proposed rules, the asset's purchase price would instead be adjusted for inflation before calculating the taxable gain.
The changes are proposed to apply to investment properties, shares, managed investments, and other CGT assets held personally or through trusts and partnerships.
Importantly: gains accrued before 1 July 2027 would continue under the current rules, and gains accrued after 1 July 2027 would fall under the new system. The family home remains exempt from CGT under the proposal.
Why this matters
This is a major structural shift in how long-term investment gains may be taxed in Australia. The eventual outcome will depend heavily on inflation, how long assets are held, the growth rate of investments, and ownership structures.
For some investors, the outcome may be similar to the current rules. For others, particularly long-term growth investors, the taxable gain may potentially be higher.
Who this may affect
- Property investors
- Share investors
- Families using investment trusts
- High-net-worth investors
- Australians holding long-term growth assets outside super
Real-world example
An investor who purchased shares in 2025 and sells them in 2033 may effectively have the gain earned before July 2027 taxed under the current 50% discount rules, and the gain earned after July 2027 taxed under the new inflation-indexed method.
Proposed minimum 30% tax on capital gains
Alongside the CGT reforms, the Budget also introduced a proposed minimum 30% tax rate on capital gains accrued from 1 July 2027.
This means that even if an investor's personal tax rate is below 30%, eligible capital gains may still effectively be taxed at 30%.
There is, however, a proposed exemption for Australians receiving means-tested government income support payments, including the Age Pension and JobSeeker Payment. Superannuation funds, including SMSFs, are not proposed to be affected by these changes.
Why this matters
Historically, many Australians intentionally sold investments during lower-income years — such as retirement or career breaks — to reduce CGT. The proposed minimum tax may reduce the effectiveness of that approach moving forward.
Who this may affect
- Lower-income investors
- Retirees not receiving government support
- Australians planning to realise gains during lower-income years
- Investors holding assets outside super
Real-world example
Someone taking 12 months off work who sells an investment property during that year may still face a minimum 30% tax rate on the capital gain, even if their other taxable income is low.
Negative gearing changes
Another major proposal in the Budget relates to negative gearing.
From 1 July 2027, negative gearing is proposed to be restricted for established residential properties purchased after 7:30pm AEST on 12 May 2026.
Under the proposal, losses from these properties would no longer reduce salary or wage income — they could instead only offset residential property income or future capital gains. Unused losses could still be carried forward into future years.
Properties already owned before Budget night are proposed to remain under the existing rules. Certain newly built residential properties are also expected to retain existing negative gearing treatment.
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Negative gearing at a glance From 1 July 2027
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Why this matters
This proposal changes the after-tax economics of investing in established residential property moving forward. For decades, negative gearing has been a core part of many Australian property investment strategies. Restricting access for future purchases of established homes may influence investment demand, borrowing decisions, property selection, and ownership structures.
Who this may affect
- Future residential property investors
- Younger Australians building investment portfolios
- Investors using leverage strategies
- Higher-income earners using negative gearing benefits
Real-world example
If an investor purchases an established investment property in August 2027 and the property generates a $15,000 annual loss, that loss may no longer reduce their salary income under the proposed rules. Instead, the loss may only offset future rental profits or capital gains from residential property.
New-build residential property exemptions
The Government confirmed that certain newly built residential properties would remain exempt from some of the proposed property tax changes. Eligible new builds generally include newly constructed dwellings on vacant land, and developments that increase housing supply.
Why this matters
The Government is clearly attempting to direct investment toward increasing housing supply rather than existing housing stock.
Who this may affect
- Property developers
- Investors considering off-the-plan purchases
- Buyers of newly constructed dwellings
Real-world example
An investor purchasing a newly completed townhouse development that adds additional dwellings to the market may still retain access to current negative gearing arrangements and CGT concessions.
Minimum 30% tax on discretionary trusts
From 1 July 2028, trustees of discretionary trusts are proposed to pay a minimum tax rate of 30% on trust income. The proposal is designed to reduce the tax effectiveness of distributing income to lower-income beneficiaries.
Certain structures are proposed to remain exempt, including fixed trusts, charitable trusts, deceased estates, complying super funds, and certain testamentary trusts.
Why this matters
Discretionary trusts have long been used by families and business owners for asset protection, succession planning and income distribution flexibility. This proposal may reduce some of the taxation flexibility traditionally associated with these structures.
Who this may affect
- Families using discretionary trusts
- Small business owners
- Professionals with family trust structures
- Investors distributing trust income to adult children
Real-world example
A family trust distributing investment income across multiple adult family members on lower tax rates may become less tax effective under the proposed minimum 30% trust tax arrangements.
Permanent $20,000 instant asset write-off
The Budget also proposes making the $20,000 instant asset write-off permanent from 1 July 2026. Eligible businesses with turnover under $10 million would be able to immediately deduct eligible assets costing less than $20,000 on a per-asset basis.
Who this may affect
- Small business owners
- Sole traders
- Family-run businesses
- Tradespeople
- Small companies investing in equipment
Real-world example
A landscaping business purchasing a trailer, new office computers, and tools and equipment under the threshold may be able to immediately deduct the full cost rather than depreciating those assets over multiple years. For many small businesses, this may help improve cash flow and simplify equipment replacement decisions.
Electric vehicle tax concessions changing
The Budget also announced changes to the fringe benefits tax (FBT) treatment of electric vehicles.
From 1 April 2027, full FBT exemptions are proposed to continue only for eligible EVs valued at $75,000 or less. Higher-value EVs would receive reduced concessions instead. From 1 April 2029, a permanent 25% FBT discount is proposed for eligible EVs up to the fuel-efficient luxury car tax threshold.
Who this may affect
- Employees using novated leases
- Salary packaging users
- Businesses providing EVs to employees
- Australians considering higher-value EV purchases
Real-world example
Someone entering a novated lease arrangement for an $85,000 EV after April 2027 may receive a smaller tax concession than someone who entered into the arrangement earlier.
Final thoughts
For many Australians, this Budget may simply mean slightly lower tax, simpler tax returns, and modest cost-of-living relief.
However, beneath those headline measures sits a much bigger story. The proposed reforms to capital gains tax, negative gearing and discretionary trusts represent some of the most significant proposed changes to investment taxation in many years.
For investors, business owners and families using trusts, these changes may influence how assets are owned, how investment decisions are made and how wealth is structured over time.
Importantly, most measures announced in the Budget remain proposals only and may still change before becoming law.
Want to know what this means for you?
Modoras helps individuals, families and business owners navigate structural tax change with clarity. Book a no-obligation consultation.
Book a consultationGeneral advice warning. The information on this page is general in nature and does not take into account your personal objectives, financial situation or needs. Before acting on any information, you should consider its appropriateness having regard to your circumstances and seek personal advice from a qualified adviser.
The measures referenced are Federal Budget 2026–27 proposals and remain subject to legislation. Details may change before becoming law.
Modoras Pty Ltd ABN 86 068 034 908. Australian Financial Services and Credit Licence No. 233209. Published 13 May 2026