The 2026 Federal Budget Recap

If you’ve been reading our recaps for a while now, you’ll know that nothing gets a bunch of accountants up and about quite like the promise that in May, we’ll be tuning in to the Treasurer handing down their federal budget. Jim Chalmers was last night’s main character and he dubbed it the most ambitious tax reform budget in years.

We’ve summarised the most pertinent areas for business owners below *rubs hands together* so, let’s get into it!

First, some context: every one of us is aware of the current global oil shock that has slowed Australia’s (and most of the world’s) economic growth. When you couple that with our existing inflation rates and subsequent interest rate increases, the Labor government’s task of addressing cost-of-living pressures now was always going to make this budget particularly tricky, and particularly interesting.

The overall theme: take pressure off working Australians now, while repairing the budget bottom line over the long term. Here we go…

Income tax cuts for individuals

From 1 July 2026: the tax rate on income between $18,201 and $45,000 drops from 16% to 15%, saving most workers around $236 per year
From 1 July 2027: that rate drops again to 14%, delivering a further $236 saving; a total of $472/year for those earning above $45,000
A new Working Australians Tax Offset of $250 per year will be available from the 2027–28 tax return, helping to address bracket creep.

Reminder: the $1000 instant tax deduction for work-related expenses (requiring no receipts) takes effect from July 1 this year.

Small business measures

The $20,000 instant asset write-off (for businesses with turnover under $10 million) has been made permanent from 1 July 2026
Loss carry-back provisions are being permanently reintroduced for companies with turnover up to $1 billion from 1 July 2026, allowing current losses to be offset against prior-year profits
The government is targeting a $10.2 billion reduction in annual regulatory costs across the economy, including $780 million in the financial sector
Significant funding will target ATO fraud detection, debt recovery and compliance enforcement. Expect an expansion of garnishee powers and the introduction of joint asset risk provision – which essentially means the ATO will have greater power to pursue assets held jointly where one party has an unpaid tax debt
An expanded Digital ID program will reduce administrative burden in dealing with government agencies
The R&D tax incentive is being reformed from 1 July 2028. The direction is towards tighter eligibility criteria, stronger documentation requirements and increased ATO scrutiny of claims.

A quick summary of the loss carry-back provisions in action:

Your business made $200,000 profit in FY 24/25 and paid $60,000 in company tax
Then in FY 25/26, the business makes a $100,000 loss
You apply that $100,000 loss against your 24/25 profit, and the ATO refunds you the tax you overpaid on that portion. In this case, around $30,000 back in your pocket now
The franking account impact: it’s worth noting that when the ATO refunds that $30,000, your franking account balance is reduced by the same amount

Capital Gains Tax Changes

Whilst housing has dominated the headlines, the CGT changes extend to every CGT asset and for many business owners, this is the most consequential reform in the Budget.

From 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships will be replaced by cost base indexation, with a minimum 30% tax rate applied to capital gains
Currently, an asset held for more than 12 months is taxed on only 50% of the gain. From 1 July 2027, the gain will instead be indexed to inflation, with a floor minimum tax rate of 30% – broadly meaning more of the gain is assessable, especially on fast-appreciating assets
For a business owner selling their company, or its goodwill after years of growth, the tax liability on exit could be higher than under current rules
Shares held outside of superannuation (including stakes in private companies) are also affected. Investors who’ve health growth assets for many years may face a significantly larger tax bill if they sell after 30 June 2027
Partnerships and trusts distributing capital gains are also caught. The changes apply at the entity level, not just to individuals.

What is still exempt?

The main residence exemption for your family home remains
Super funds (including SMSFs) retain their existing 33.33% CGT discount
The existing 50% discount continues to apply to gains that arise before 1 July 2027, even if the asset is sold later – so the timing of a sale matters
The small business CGT concessions (15 year exemption, retirement exemption, rollover) remain in place and are not affected by the changes – however they interact differently under the new regime and should be reviewed

Pre-CGT assets: a valuation deadline you can’t ignore

Assets acquired before 20 September 1985 (so-called pre-CGT assets) have historically been fully exempt from capital gains tax. That exemption remains, but only for gains accruing before 1 July 2027. After that date, any further growth in value may become assessable under the new rules. If you hold pre-CGT assets, a market valuation as at 1 July 2027 may be required so speak to us early.

Negative Gearing Changes

Negative gearing will be restricted to new residential builds from 1 July 2027. Established properties acquired after 7:30pm AEST on 12 May 2026 will no longer receive full concessions
Existing investors are protected – properties held at budget night are exempt from the negative gearing changes, and the 50% CGT discount continues to apply to gains arising before 1 July 2027
Losses from negatively geared established properties acquired after 12 May 2026 won’t be lost entirely. They will be quarantined and can be carried forward to offset against future residential rental income or against capital gains on residential property when it’s eventually sold
Build-to-rent developments and investments supporting government housing programs remain exempt
Commercial property, shares and other asset classes are not touched by these changes
Labor projects that 75,000 homes will be helped into the market via these measures with new builds remaining the most tax-advantaged path for future property investment.

Superannuation

A key change we already knew about comes into effect this year:

The Superannuation Guarantee (SG) rate rises from 11.5% to 12% on 1 July 2026. For an employee on $90,000, employer contributions increase by $450 per year – a higher payroll cost to factor in
SMSFs and most superannuation funds are excluded from the new negative gearing restrictions
Existing super tax arrangements and main residence CGT exemptions are unaffected by the CGT changes.

Employers: review your payroll and employment contracts now to ensure your super obligations are being met.

Trusts: Minimum Tax Rules

A minimum tax rate of 30% will be applied to income distributed through discretionary trusts, aligning their treatment more closely with ordinary wage earners. The trustee will be liable for this tax, and beneficiaries will receive a non-refundable tax credit to avoid double taxation
For base rate entities, the company tax rate is 25% meaning a company structure may now be cheaper than a trust for many small businesses. Around one million family and small business trusts will be affected
This is one of the most far-reaching structural changes to the tax treatment of trusts in over 25 years, and it directly limits the income-splitting strategies many families and business owners have historically used
Widely held trusts (including most managed investment trusts) and superannuation funds (including SMSFs) are proposed to be excluded
Rollover relief: this will be available for trusts that restructure into a company before the new rules commence on 1 July 2028. This is significant! The question we know is coming from our clients is “should I be in a company instead?” and the answer will differ depending on your circumstances. Get in touch with us if this applies to you

Action: if you use a family or discretionary trust for income splitting or wealth management, now is the time to review your structure. More on this from us coming.

Cost of Living and Energy

The fuel excise was cut by 26.3 cents per litre from 30 March for three months, reducing the cost of a 65-litre tank by approximately $19
$10 billion has been committed to expand the national fuel stockpile and fund assessment of new fuel refineries to improve energy security
The Medicare levy low-income threshold has been raised by 2.9%, with singles now exempt up to $28,011 (up from $27,222), and families up to $47,238.

While much of the Budget’s attention falls on tax and business, there are significant changes across health, disability, aged care, defence and social services that will affect many Australians.

PBS and Medicines

$5.9 billion over five years for new and amended Pharmaceutical Benefits Scheme (PBS) listings, keeping life-saving medicines affordable
The government says cheaper medicines reforms since 2022 have already saved Australians more than $2.6 billion.

Medicare and Public Hospitals

$25 billion in additional Commonwealth funding for public hospitals over five years which is three times the increase under the previous agreement
137 Medicare Urgent Care Clinics are being made permanent, with $1.8 billion in funding. By July 2026, four in five Australians will be within a 20-minute drive of one
Growing investment in medical research through the Medical Research Future Fund, rising to $1 billion per year by 2030–31.

Families and Social Services

Paid Parental Leave increases to a full six months from July 2026
The 3 Day Guarantee entitles eligible families to three days of subsidised childcare per week
$316.1 million over five years to support employment programs and improve job seeker outcomes, as unemployment is forecast to rise to 4.5%
$182.6 million to make the Child Support Scheme safer for women and children.

NDIS Reform

The government is resetting the NDIS back to its original intent – supporting people with permanent and significant disability – with stricter eligibility and clearer criteria for funded supports
Plan budgets for social and community participation will be reset, with New Framework Planning delivering more consistent outcomes from April 2027
$2 billion committed to a new Thriving Kids program to transition children with lower-level needs to community-based services outside the NDIS
These reforms are expected to save $37.8 billion over the next four years

Aged Care

$3.7 billion to expand residential aged care beds and improve care quality, including $1.7 billion to incentivise construction of up to 5,000 new beds per year
$1.4 billion over four years to improve home care affordability, including fully subsidising personal care services (showering, dressing, and personal support)
Up to 20 new Specialist Dementia Care units and expanded Hospital to Aged Care Dementia Support programs.

Defence and National Security

$53 billion in additional defence spending over the next decade, including the $12 billion Henderson Defence Precinct shipyard in Western Australia
$863.8 million over four years for the nuclear-powered submarine program under AUKUS
Almost $800 million for veterans, including $583.4 million to implement recommendations from the Royal Commission into Defence and Veteran Suicide.