1.1 2026/27 Federal Budget summary
2026/27 Federal Budget - Summary of key tax & superannuation measures.
Treasurer Jim Chalmers delivered the 2026/27 Federal Budget on Tuesday 12 May 2026.
TAXATION
Personal income tax
No changes announced to personal income tax from those already legislated.
Tax brackets to apply from 1 July 2026:
- $18,200 - Nil (unchanged)
- $18,201 to $45,000 - 15% *(1% reduction)
- $45,001 to $135,000 - 30% (unchanged)
- $135,001 to $190,000 - 37% (unchanged)
- $190,001 plus - 45% (unchanged)
$1,000 instant tax deduction
From 1 July 2026, the Government has introduced a new instant tax deduction without the need to itemise and claim work related expenses if claiming less than $1,000. It will be available to Australian tax residents who earn income from work.
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-work-related deductions can still be itemised separately and claimed on top of the instant tax deduction.
Note: Unlike a tax offset that reduces tax liability, this tax deduction reduces the amount of assessable income.
Working Australians Tax Offset (WATO)
From 1 July 2027, the Government has proposed introducing a permanent annual $250 Working Australians Tax Offset (WATO), subject to legislation being passed.
The WATO is claimable against income derived from work, such as wages and salaries and the business income of sole traders.
This could increase the effective tax-free threshold for income derived from work by nearly $1,800 to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset.
Medicare levy: low-income thresholds
The proposed increases to Medicare levy low-income thresholds for singles, families, and seniors and pensioners for 2025/26:
- The threshold for singles increases from $27,222 to $28.011.
- The family threshold increases from $45,907 to $47,238.
- For single seniors and pensioners, the threshold increases from $43,020 to $44,268.
- The family threshold for seniors and pensioners increases from $59,886 to $61,623.
- For each dependent child/student - family income threshold increases from $4,216 to $4,338.
Small business instant asset write-off: extended permanently
From 1 July 2026, the Government is permanently extending the $20,000 instant asset write off for small businesses with annual turnover of under $10 million.
Eligible small businesses will be able to immediately deduct the full cost of eligible assets costing less than $20,000. This threshold applies on a per asset basis which means a small business can instantly write off multiple assets.
Capital Gains Tax (CGT)
The Government has proposed, subject to the passage of legislation, reforms to capital gains tax (CGT).
From 1 July 2027 the current 50% CGT discount for individuals, trusts and partnerships will be replaced by cost base indexation for assets held for more than 12 months, together with a proposed 30% minimum tax on net capital gains.
These changes would apply to all CGT assets, including pre-1985 CGT assets held by individuals, trusts and partnerships. However, capital gains on pre-1985 CGT assets arising before 1 July 2027 will remain exempt from CGT.
The proposed changes will only apply to capital gains arising on or after 1 July 2027 with the 50% CGT discount continuing to apply to gains arising before 1 July 2027.
Recipients of means-tested income support payments, such as the Age Pension or Jobseeker, will be exempt from the minimum tax of 30% if they receive any payment in the financial year in which they realise the capital gain.
The main residence will continue to be exempt for CGT purposes, and the four small business CGT concessions will also be unchanged. Investors in new residential properties will be able to choose either the 50% or cost base indexation and the minimum tax.
Note: These reforms do not apply to assets held by superannuation funds.
Discretionary trusts - 30% minimum tax
From 1 July 2028, trustees of discretionary trusts will pay a minimum tax of 30% 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 certain 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.
Reforming negative gearing
The Government is proposing to limit negative gearing for residential property to new builds only from 1 July 2027.
From 1 July 2027, losses related to existing residential investment properties purchased from 7:30pm AEST 12 May 2026 will only be deductible against other income from residential properties, including capital gains. However, when an investor has excess losses, they will be able to carry forward that excess to offset residential property income in future years.
These changes will apply to individuals, partnerships, companies and most trusts. Eligible new builds will be exempt from the changes, as will properties in widely held trusts and superannuation funds, including SMSFs.
Properties acquired prior to the Budget announcement (including contracts entered into but not yet settled) will be exempt from the changes until they sold.
SUPERANNUATION
Division 296 tax on balances exceeding $3 million
Legislation has passed Parliament that means Division 296 tax commences from 1 July 2026.
This brings a reduction in the tax concessions available to individuals whose total superannuation balances exceed the large superannuation balance threshold of $3 million for the 2026/27 financial year. A further reduction will apply to individuals with a total superannuation balance exceeding the very large superannuation balance threshold, which is $10 million for the 2026/27 financial year.
From 1 July 2026, earnings corresponding to the proportion of an individual's balance greater than $3 million will be taxed at a rate of 30%. The earnings corresponding to funds below $3 million will continue to be taxed at 15% or less. Earnings on balances exceeding $10 million will be taxed at a rate of 40%.
While this new tax is based on the member's superannuation balances above the designated thresholds, it is a personal tax charged by the ATO to them, not the fund.
Indexation of contribution caps and general transfer balance cap
Effective 1 July 2026, indexation applies to the concessional contribution cap (CC), non-concessional contribution cap (NCC) and the general transfer balance cap (TBC).
The CC cap increases from $30,000 to $32,500 p.a. (in line with AWOTE). This indexation of the CC cap will flow through to an increase in the NCC cap (four times the CC cap limit) from $120,000 to $130,000 p.a.
The general TBC also increases from $2 million to $2.1 million (in line with CPI).
Source: ISS/Rainmaker Technical Services 2026
