Australia's 2026-27 Federal Budget, delivered by Treasurer Jim Chalmers on 12 May 2026, introduces major tax reforms targeting capital gains and negative gearing while supporting businesses and workers. The budget replaces the 50% capital gains tax discount with inflation-based indexation, restricts negative gearing to new residential builds, and delivers enhanced R&D incentives alongside permanent asset write-offs for small businesses.

RF Report

Australia’s Treasurer, Jim Chalmers, delivered the 2026-27 federal budget in parliament on 12 May 2026. The 2026-27 budget outlines a comprehensive vision for tax reform in Australia, focusing on supporting workers, incentivising business investment, and making the system more sustainable.

The key highlights of the 2026-27 budget are as follows:

Capital gains tax and housing reforms

Significant changes are being made to how investment properties and capital gains are taxed to encourage new housing supply:

  • Capital Gains Tax (CGT) changes: From 1 July 2027, the 50% CGT discount will be replaced with a discount based on inflation. Additionally, a 30% minimum tax will apply to all capital gains accruing after 1 July 2027, calculated after indexation adjustments.  These changes apply only to gains arising after the start date. These changes affect individuals, trusts, and partnerships across all asset classes except new residential properties. Notably, the reforms will also capture pre-CGT assets acquired before 1985, taxing gains accumulated after 1 July 2027. New residential property owners retain the option to choose between the 50% discount and the new indexation system.
  • Negative gearing limits: From 1 July 2027, negative gearing will be limited to new builds. Investors who purchase established housing after Budget night will no longer be able to deduct losses against their wages; they can only deduct them against residential property income or carry them forward. The restrictions apply to individuals, partnerships, companies, and most trusts, though widely held trusts and superannuation funds are exempt. Commercial properties and other asset classes remain unaffected. Full negative gearing benefits continue for newly constructed residential properties that genuinely add to the housing supply.
  • Extended foreign purchase ban: the government has also extended the temporary ban on foreign purchases of established residential dwellings through to 30 June 2029.

Business cash flow and investment support

The 2026-27 budget introduces measures to support business risk-taking and improve liquidity:

  • Loss carry-back: Companies with a global turnover under AUD 1 billion can carry back tax losses to offset tax paid in the previous two years, applicable from 1 July 2026.
  • Start-up support: Start-up companies with turnover below AUD 10 million receive a refundable tax offset for losses generated in their first two operational years, limited to FBT and wage withholding tax paid, starting 1 July 2028.
  • Instant asset write-off: The AUD 20,000 instant asset write-off for small businesses (turnover up to AUD 10 million) will be made permanent from 1 July 2026.
  • PAYG flexibility: From 1 July 2027, businesses will have the option to switch to monthly PAYG instalments to better manage cash flow.

Incentivising research and development (R&D)

The 2026-27 budget will better incentivise core R&D that benefits the broader economy, in response to recommendations of the Ambitious Australia Report starting 1 July 2028. These are:

  • The R&D offset for experimental core R&D will increase by around 25% to 50%, while expenditure that only supports R&D will no longer qualify.
  • The R&D intensity threshold will be reduced to 1.5%, providing higher offsets for firms conducting substantial core R&D.
  • The turnover threshold for the higher refundable offset will increase to AUD 50 million to support young, fast-growing firms.
  • Refundable offsets will be limited to firms operating for less than ten years, with older firms eligible for a comparable non-refundable offset.
  • The maximum eligible expenditure cap will rise to AUD 200 million to encourage more onshore R&D investment.
  • The minimum expenditure threshold will increase to AUD 50,000, with smaller claims only qualifying if undertaken through a Research Service Provider or Cooperative Research Centre.

Increased VCLP and ESVCLP thresholds

Venture capital limited partnerships benefit from increased thresholds effective 1 July 2027, with the VCLP investee asset cap rising from AUD 250 million to AUD 480 million and ESVCLP caps increasing proportionally. The Eligible Venture Capital Investor programme closes to new applications from 12 May 2026.

Electric vehicle support

The Government is moving toward more sustainable settings for electric cars.  Eligible electric cars over AUD 75,000 will move to a permanent 25% fringe benefits tax (FBT) discount from 1 April 2027. This 25% discount will apply to all eligible electric cars starting 1 April 2029. Current full FBT exemptions for cars under AUD 75,000 will remain available for arrangements that begin before April 2029.

Temporary fuel excise relief

On 30 March 2026, the Australian Government announced and subsequently legislated temporary measures to ease the impact of high fuel prices on businesses and consumers. The relief package includes a 50% reduction in fuel excise on petrol and diesel for three months from 1 April 2026 to 30 June 2026. Additionally, the heavy vehicle road user charge has been reduced to zero for the same three-month period, with the next scheduled increase deferred by six months.

Other key announcements

  • Pillar Two implementation: Australia will implement the OECD side-by-side package for Pillar Two global minimum tax rules, effective 1 January 2026. The changes include simplified effective tax rate safe harbours and extended transitional provisions
  • Outstanding announced measures: Several previously announced measures remain unenacted, including penalties for mischaracterised royalty payments, Part IVA anti-avoidance rule expansions, and the crypto asset reporting framework expected to commence in 2027.
  • Support for workers and first home buyers: The government is introducing several measures to assist individual taxpayers:
  • Working Australians tax offset: A new AUD 250 annual tax offset will be introduced from 2027–28 for over 13 million workers.
  • Instant tax deduction: From 2026–27, workers can access a new instant tax deduction of up to AUD 1,000 for work-related expenses, simplifying the deduction process for approximately 6.2 million people.
  • Total tax relief: When combined with previously legislated cuts, an average worker could see a total benefit of up to AUD 2,816 per year.