Delivered against an uncertain economic backdrop, the 2026-27 Federal Budget reflects a government navigating competing pressures.
For households and businesses alike, the outlook remains challenging. Interest rates, inflation and unemployment – the metrics that most acutely shape economic confidence – are all trending in the wrong direction.
The Government delivered a deficit of $31.5b for 2026-27, and is forecasted to increase slightly to $34.4b before decreasing to a deficit of $25.3b by 2029-30. Notably, the budget position over the forward estimates improved by $44.9b compared to the MYEFO delivered in December. The Government noted a slight revenue increase over the next four years, with higher commodity prices and elevated inflation, and notes $63.8b in savings.
Partner - Corporate Tax
Cost-of-living relief
Fuel supply & security
Productivity & resilience
Tax reform
Housing and infrastructure
for defence over the next decade to reach 3 per cent of Australia's GDP by 2033
to support R&D through education, grants, scientific organisations, defence and research
for public hospitals in the National Health Reform Agreement
plan to secure Australia’s Fuel Resilience package
to list more PBS medicines
extra for Homes for First Home Buyers program
Suburban Rail Loop Melbourne
aged care package, including an extra 5,000 beds per year
to expand Services Australia
for infrastructure to support the build and supply of new homes
over five years to make the Medicare Urgent Care Clinics permanent
to streamline environmental approvals
To support resilience and investment, the Government has announced that it will permanently reintroduce the loss carry back rules, allowing companies to carry back a tax loss and apply it against income tax paid in earlier income tax years. These provisions were last seen during the COVID years.
Under these provisions, companies with an aggregated global annual turnover less than $1b will be able to carry back income tax losses incurred in the income tax years commencing 1 July 2026 to offset against income tax paid up to two years earlier. The loss carry back will apply to income tax losses only. The amount of the carry back will be limited by the company’s franking account balance.
To help new businesses invest and grow in their first two years, the Government has announced it will introduce loss refund provisions for small start-up companies. For income tax years commencing on or after 1 July 2028, start-up companies in the first two years of operation with an aggregated annual turnover of less than $10m will be entitled to convert tax losses generated into a refundable tax offset. The offset is limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the relevant loss year.
Expanding the tax net retrospectively
Following the end of the consultation period, the Government has introduced draft legislation to give effect to amendments first announced in the 2024-25 Budget. These changes enhance the integrity and certainty of the foreign resident CGT rules in Division 855 of the Income Tax Assessment Act 1997 (ITAA 1997):
The commencement date for the provisions has again been deferred until the legislation is passed by Parliament. The amendment clarifying and broadening the types of assets subject to CGT for foreign residents will operate with retrospective application from 12 December 2006.
Rewarding non-residents investors for their faith in Australian renewable energy
The Government has also introduced draft legislation to provide a 50 per cent CGT discount on disposals on or before 30 June 2030 for investments made by foreign residents in assets located in Australia that produce renewable energy.
The Government has announced it will invest an additional $86.3m over four years from 1 July 2026, and $9.7m per year from 2030-31, into the Australian Taxation Office to expand and enhance its compliance activities and projects.
Projects and initiatives that will receive additional support include:
The Government has announced it is looking to reduce reporting obligations by raising monetary thresholds for large proprietary companies from $50m to $100m of consolidated revenue and $25m to $50m of consolidated gross assets. As a result, Australian businesses that fall under these amounts will no longer need to lodge an annual audited financial report, directors’ report or sustainability report.
Consistent with jurisdictions that have adopted the OECD/G20 Global Anti-Base Erosion (GloBE) rules, the Government announced it will amend the Pillar Two provisions by implementing the side-by-side package. The side-by-side package will apply from 1 January 2026.
The Government announced it intends to introduce legislation to amend the Capital Gains Tax (CGT) discount. The current law allows individuals, partners in partnerships, and trusts to discount capital gains realised on the disposal of CGT assets held for more than 12 months by 50 per cent.
Under the proposed legislation, from 1 July 2027, the 50 per cent discount will be replaced by a cost-base indexation method. This method will allow taxpayers to index the cost base of CGT assets held for more than 12 months. Additionally, a 30 per cent minimum tax on net capital gains will apply for capital gains made by individuals, trusts and partners in partnerships.
The changes will apply to all CGT assets, including pre-CGT assets disposed from 1 July 2027. Under the transitional arrangements, the impact on existing investments will be limited by ensuring the changes only apply to gains arising on or after 1 July 2027. The 50 per cent CGT discount will continue to apply to gains arising before 1 July 2027, and capital gains on pre-CGT assets arising before 1 July 2027 will continue to be exempt from CGT. Investors in new residential housing will be able to choose between applying the:
In addition, income support payment recipients, including aged pension recipients, will be exempt from the minimum tax.
From 1 July 2027, losses relating to established residential investment properties acquired after 7.30pm (AEST) on 12 May 2026 will no longer be deductible against an individual’s broader taxable income. Instead, these losses will be quarantined such that they can only be offset against rental income or capital gains derived from residential properties. Any excess losses will only be carried forward and applied against future residential property income or gains.
As a transitional measure, the established residential properties acquired between 7.30pm (AEST) on 12 May 2026 and 30 June 2027, current negative gearing arrangements will continue to be eligible until 30 June 2027. However, from 1 July 2027, any rental losses attributable to these properties will be subject to the new quarantining rules.
These changes will not apply to the following:
The Government announced its intention to expand the venture capital tax incentives from 1 July 2027.
These changes will also apply to existing funds, as well as follow-on investments in businesses that they already own.
The amendments expand the following thresholds:
The early venture capital investor program will be closed to new applications from Budget night (12 May 2026).
Overall, these changes are welcome changes, as they increase the usefulness of Early Stage Venture Capital Limited Partnerships (ESVCLPs) and Venture Capital Limited Partnerships (VCLPs). Previously, if an investor sought to invest in a business that exceeded the EVCI thresholds, the fund would resort to incorporating additional alternative investment vehicles, resulting in additional set up and compliance costs for investors and investment managers. Under the proposed amendments, ESVCLPs and VCLPs may invest in a wider range of businesses by themselves.
The Government’s legislated personal income tax cuts will commence this year and continue into next year. From 1 July 2026, the 16 per cent marginal tax rate (applicable to income between $18,201 and $45,000) will reduce to 15 per cent, with a further reduction to 14 per cent from 1 July 2027.
|
Thresholds ($) |
Rates in 2024-25 and 2025-26 (%) |
Rates in 2026-27 (%) |
Rates in 2027-28 (%) |
|
0 – 18,200 |
Tax free |
Tax free |
Tax free |
|
18,201 – 45,000 |
16 |
15 |
14 |
|
45,001 – 135,000 |
30 |
30 |
30 |
|
135,001 – 190,000 |
37 |
37 |
37 |
|
>190,000 |
45 |
45 |
45 |
The Government announced it intends to introduce legislation to amend the way in which discretionary trusts are taxed. Under the proposal, trustees of discretionary trusts will be subject to a 30 per cent tax on the taxable income of the trust. Beneficiaries of these trusts, other than corporate beneficiaries, will receive a non-refundable credit for the tax paid by the trustee. These changes will apply from 1 July 2028.
The Government has also acknowledged that family trusts can be used for non-tax purposes, such as for holding family primary production assets and for estate planning. In light of this, the Government has decided to exclude primary production income, income of vulnerable minors, income which is already subject to the non-resident withholding tax, and income from discretionary testamentary trusts.
The minimum tax will not apply to other 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.
To assist small businesses and other taxpayers wanting to move from a discretionary trust structure to an alternative structure, such as a company or fixed trust, rollover relief will be provided for 3 years from 1 July 2027.
Prior to the Budget, the Government released draft legislation to introduce an automatic $1,000 deduction for Australian tax residents who earn income for their work. The amendment will apply from 1 July 2026 (the 2027 income tax year).
Qualifying taxpayers can choose to apply the automatic deduction, or choose to claim a deduction for all work-related deductions they have incurred (where their deductions exceed the $1,000 threshold).
Taxpayers who choose to claim their actual deductions will be required to comply with all substantiation requirements.
Charitable donations, union and professional association membership fees, and other non-work-related deductions will continue to be claimable separately, in addition to the automatic deduction.
The Government has announced it will introduce a permanent tax offset, the Working Australia Tax Offset (WATO). WATO will provide an annual tax offset of $250 for individuals who derive income from salary and wages, or as a sole trader business operator. The offset will apply from 1 July 2027 and will be paid automatically in workers’ tax returns.
The Government announced a number of reforms to the R&D Tax Incentive to apply from 1 July 2028 which includes:
The government has announced the abolition of a further 497 nuisance tariffs from 1 July 2026, bringing the cumulative total abolished to approximately 1,000 since the Government came to office. The removal of these tariffs is estimated to reduce compliance costs for Australian businesses by $157m per year. The government has also indicated its intention to consult on the abolition of additional tariffs to further cut costs. These measures build upon the conclusion of free trade agreement negotiations with the European Union. By reducing tariff complexity and administrative burden, these changes support faster border processing and lower transaction costs for importers, contributing directly to productivity gains across trade‑exposed sectors.
The Government has committed $7.6m to expand the Australian Trusted Trader (ATT) program. The ATT program provides accredited importers and exporters with streamlined border processes and reduced compliance obligations. Alongside this, the Government will streamline biosecurity border processes to facilitate the importation of fertiliser and other agricultural inputs, reducing delays for primary producers. The budget also includes measures to simplify the administration of trade regulations and business interaction with the Australian Border Force at the border. The expansion of risk‑based and trusted trader arrangements further aligns Australia’s border management framework with global trade facilitation best practice.
In response to global supply chain disruptions arising from the Middle East conflict, the Government has established a $7.5b Fuel and Fertiliser Security Facility, through which Export Finance Australia has secured over 450m litres of additional diesel and approximately 100m litres of jet fuel. The Government has also facilitated the delivery of 250,000 tonnes of agricultural urea for Australian farmers and has entered landmark supply chain commitments with Japan, the Republic of Korea, Singapore, Malaysia and Brunei Darussalam to keep critical goods flowing.
To improve domestic freight resilience, $55m has been allocated for a Transport Resilience and Capacity Kickstart pilot program, designed to incentivise greater freight volumes by rail and sea, improving fuel efficiency and supply chain redundancy. Cost recovery charges for agricultural export services have also been deferred, providing $8.2m in direct relief for exporters. Collectively, these initiatives embed trade and border policy within Australia’s broader economic resilience and supply chain security framework.
The Government has delivered a $2.9b package to more than halve the fuel excise and reduce the heavy vehicle road user charge to zero for a period of three months from 1 April 2026, reducing cost pressures on businesses in transport-intensive industries. Interest-free loans are available through the National Reconstruction Fund's $1b Economic Resilience Program for eligible manufacturing and logistics businesses experiencing market disruption. The Australian Taxation Office has also been directed to provide temporary relief from tax obligations, including more generous payment plans and remission of interest and penalties, for businesses unable to meet obligations due to fuel supply issues. These measures collectively reduce the immediate cost burden on manufacturers reliant on road and freight networks to move goods domestically and to port.
The Government has announced a 20 per cent domestic gas reservation requiring Liquefied Natural Gas (LNG) exporters to supply an equivalent proportion of their production to the Australian domestic market from 1 July 2027. Alongside the reservation, the Australian Domestic Gas Security Mechanism will be removed and the Gas Market Code reformed to streamline the regulatory framework. Final consultation on the enabling legislation is anticipated during June and July 2026. While not a customs measure directly, the reservation has downstream implications for energy‑intensive, trade‑exposed industries and domestic manufacturing competitiveness.
The Government is investing $85.2m to accelerate skills assessments for migrant trades workers and integrate the assessment process with occupational licensing, cutting the time taken to enter the workforce by up to six months. The Australian Apprenticeships Incentive System is being reformed from 1 January 2027, with employer incentives prioritised for small and medium employers and Group Training Organisations to address skills shortages in trade and manufacturing industries. National Competition Policy reforms also include progressing nationally harmonised licensing for workers in electrical and engineering occupations, reducing the cost of labour mobility for manufacturers operating across state and territory borders.
Round 3 of the Digital Solutions program will launch on 1 July 2026, offering coaching, workshops and webinars for small businesses with a new focus on Artificial Intelligence (AI) and emerging technologies. The National Artificial Intelligence Centre launched AI.gov.au on 8 May 2026 as the Government's central resource for AI adoption guidance, with a particular focus on the needs of small-to-medium enterprises. Up to $70m in AI Accelerator grants will be made available through the Cooperative Research Centres program, and the Government has entered Memoranda of Understanding with Anthropic and Microsoft to advance AI adoption across the economy. These measures aim to accelerate the integration of AI into manufacturing processes, supply chain management, quality control and product development, helping Australian businesses compete with larger international counterparts.
The National Reconstruction Fund Corporation (NRFC) has opened its $1b Economic Resilience Program, providing zero-interest loans to Australian manufacturing and logistics businesses materially impacted by global supply chain disruptions arising from the Middle East conflict. The program targets businesses in the freight, fuel, plastics and fertiliser sectors, with loans of up to $5m available through participating banks, including ANZ, Commonwealth Bank, NAB, Westpac, Bendigo Bank, and Bank of Queensland, for businesses with annual turnover below $100m, and larger loans available directly through the NRFC for businesses seeking more than $5m.
In response to the ongoing conflict in the Middle East, the Budget includes targeted spending of over $8.6b for new and ongoing nationally significant Australian road, rail and freight projects. This includes:
Against a backdrop of Australia's aging population, the Government has targeted Medicare and aged care support. This includes committing significant investment to Australia’s public hospital system including:
Furthermore, the government has committed $3.7b to deliver better aged care. This investment includes the construction of up to 5,000 aged care beds a year, introduction of new capital subsidies for aged care providers, and delivery of up to 20 additional Specialist Dementia Care units.
The Government is investing $1.5b in our research and scientific institutions including:
To maximise value from its innovation investment, the Government is establishing the National Resilience and Science Council to coordinate and align public innovation investments.
The Government has also provisioned $508.5m to increase disbursements for medical research from the Medical Research Future Fund.
The Government will introduce legislation to retain a permanent instant asset write off for small businesses. From 1 July 2026, business entities with an aggregated annual turnover no greater than $10m will be entitled to an immediate income tax deduction for the acquisition of depreciable capital assets with a value of up to $20,000.
In addition, the provision that prevented small business entities from re-entering the simplified depreciation regime for five years if they had previously opted out of the system will continue to be suspended until 30 June 2027.
The Government announced it will amend the operation of the FBT exemption for electric vehicles (EV). The changes are as follows:
Watch our Federal Budget Virtual Seminar, where our panel of experts unpack the proposed spending measures, tax reform implications and key policy changes.
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Delivered against an uncertain economic backdrop, the 2026-27 Federal Budget reflects a government navigating competing pressures.
