- The 2026-27 federal Budget is expected to bring in significant tax reform, touted as reducing intergenerational "unfairness"
- Its speculated there will be changes to the capital gains tax discount, negative gearing concessions, and trust distributions
- It's also expected electric vehicles will be subject to a new tax regime
Senior government figures have been touting the federal budget - due to be handed down on Tuesday 12 May - as aiming to restore intergenerational fairness.
It's a safe bet tax changes are on the way for investors in both property and shares, electric vehicle owners, and beneficiaries of discretionary trusts.
But let's start with what we already know from measures previously announced:
- A tax cut of 1% to the bottom marginal tax rate from 1 July 2026, taking it to 15% (from 16%) on incomes from $18,200 to $45,000. The rate will drop to 14% from 1 July 2027
- The introduction of a $1,000 standard tax deduction for those earning income from work (wages/salary), with no receipts necessary. Those wanting to claim more than a $1,000 deduction can do so under the existing system
- The temporary halving of fuel excise tax until 30 June 2026
Tax changes on the agenda
In the run-up to every federal budget of the modern era, there is a series of orchestrated 'rumours' and leaks to set the path for changes ahead.
This year has largely involved tax reforms that have been on Labor's agenda for some years, many of them scotched by previous electoral defeats.
But with the largest majority government in 30 years, Treasurer Jim Chalmers is taking the opportunity to make some structural changes.
Here's what we know so far:
1. Capital gains tax (CGT)
The government looks set to abolish the 50% discount on capital gains on investments held for more than a year.
The discount was introduced in 1999 to replace the old, more complex system of indexing gains to account for inflation.
It appears the old regime will be reinstalled and it's thought both sets of rules will apply depending on how long the asset has been held.
If, for example, the property or share (or other investment) was held for five years under the 50% discount rule and a subsequent five years under the inflation-adjusted system, total tax payable would be calculated 50/50 using both models.
However, there may be some exceptions to CGT changes, including:
- New-built properties could be exempt or may have the option of using either tax model (depending on which calculation is the lowest)
- Superannuation funds, including self-managed funds, may also be allowed to keep their existing 33% discount on capital gains
At this stage, it's not known when the changes will kick in, perhaps from budget night or 1 July.
2. Negative gearing for property investors
The current negative gearing tax concession allows investors to offset any loss on their investments against other income, such as their wages.
A loss occurs when a property costs more to own (interest payments, rates, maintenance repairs, body corporate fees, etc.) than it generates in rental income.
This can effectively reduce the amount of tax property owners pay and currently applies to around half of all investment properties in Australia.
There's speculation the ability to offset negative gearing losses against other income may be abolished completely, restricted to newly built properties, or limited to one or two investment properties.
It seems the net effect the government is aiming for is to dampen investor demand for established properties while boosting the appeal of building new homes.
See also: What would happen if negative gearing got the axe?
3. Electric vehicle tax concession
The government is widely tipped to introduce phased cuts in the tax break for new electric vehicle purchases from 1 March 2027.
It's speculated the changes will lower the fringe benefits tax discount to 25% on EVs worth more than $75,000.
The current policy exempts buyers from the tax if they purchase a vehicle under $91,387 through a novated lease.
It's thought EVs costing less than $75,000 will still receive the full fringe benefits tax exemption until 1 April 2029.
After that time, all EVs under the luxury car tax threshold will be subject to the lower 25% discount.
4. Minimum tax on trust distributions
There are currently more than 800,000 discretionary (sometimes called family) trusts in Australia.
Trusts can be used to purchase and hold assets with the trustee having the discretion to distribute the trust's income to beneficiaries.
Tax on that income is then paid at the marginal tax rates of the beneficiaries, which can be zero for those whose income falls below the tax-free threshold or minimal for those with limited other income.
It's thought the government will close this tax-minimising loophole by introducing a minimum 30% tax rate on trust distributions, effectively taxing trusts at the same rate as companies.
Under a similar proposal Labor floated in 2019, there may be some exemptions for farmers, charitable trusts, trusts used for estate planning, or in serious hardship cases.
Rumoured tax offset for workers
Unconfirmed reports suggest the government is considering a tax offset of $200-300 for workers on "earned income".
This would be similar to the old $1,080 Low and Middle Income Tax Offset (LMITO, or 'Lamington'), except it would only apply to tax paid on income that was 'earned' - that is through work - as opposed to other income, such as rent, dividends, or capital gains.
How is the federal budget being touted?
While shying away from detail, Prime Minister Anthony Albanese said changes are needed in the Budget "to make Australia fairer".
"For many young people, they feel like they haven't got a fair crack compared with my generation and the generations beforehand," he said.
He also says "resilience" is a key theme of the 2026-27 Budget with the Treasurer noting it will be focused on fuel security, addressing inflation, boosting productivity, and managing global economic uncertainty.
The Budget is due to be released at 7.30pm (AEST) on Tuesday 12 May.
Savings.com.au will be providing comprehensive coverage of the Budget, making it clear what it will mean for everyday Australians.
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