2026 Federal Budget – The Key Changes
Written by Will Lucas
The 2026–27 Federal Budget represents one of the most significant shifts in Australia’s tax and investment landscape in decades. We have no doubt you’ve been hounded with information about this budget (some helpful, some inaccurate) and wanted to provide you with a ‘cut through the noise’ summary of the areas most relevant to the world of financial advice.
Personal tax cuts
There’s been a number of small adjustments to the income tax rules which mostly provide tax cuts. In short, they are:
The lowest marginal tax rate is being reduced from 16% to 15% from 1 July 2026 and to 14% from 1 July 2027. This means that for anybody earning $45,000 or more you will pay about $268 less tax next year and $536 less tax each year following when compared to the current rules.
There will also be a new $250 Working Australians Tax Offset from 2027–28.
$1,000 instant tax deduction for work-related expenses for anybody that doesn’t want to keep receipts or try and work out these deductions themselves and just wants to keep things simple!
Major Capital Gains Tax Reform
Removal of the Capital Gains Tax Discount
This is arguably the biggest structural change in the budget.
While CGT has long been a key lever in investment strategy, these proposed changes will reshape how gains are calculated, taxed, and ultimately factored into financial decisions.
From 1 July 2027, the system moves away from a discounted gains model and toward one that focuses on taxing “real” (inflation-adjusted) returns. Understanding how this works is critical for investors.
Under the current rules, individuals who hold an asset for more than 12 months receive a 50% discount on any capital gain. This discounted gain is then taxed at their marginal tax rate, which has historically created strong incentives for long-term investing and strategic timing of asset sales.
Under the proposed changes, this long-standing discount will be removed. In its place, the Government will introduce an indexation method that adjusts the cost base of an asset for inflation. This means that instead of automatically halving the gain, investors will only be taxed on.
Minimum Tax Rate on Capital Gains
Alongside indexation, a new rule introduces a minimum tax rate of 30% on capital gains. Under the current system, investors on lower marginal tax rates can realise capital gains in low-income years (such as after retirement) and pay little or no tax. This strategy has been widely used to improve after-tax outcomes.
Under the new rules, this flexibility is largely removed:
If your marginal tax rate is below 30%, your capital gain will still be taxed at 30%
If your marginal tax rate is above 30%, your marginal rate continues to apply
The only exemption to this rule is anyone receiving income support payments, including the Age Pension and other means-tested support. Anyone falling in this category will be able to make us of the lower tax thresholds on income up to $45,000.
Transitional Rules – How Existing Investments Are Treated
To ease the transition, the Government has introduced grandfathering provisions.
For assets owned before the changes take effect, gains will effectively be split into two components:
Gains accrued up to 30 June 2027 will continue to receive the 50% discount
Gains accrued from 1 July 2027 onwards will be taxed under the new indexation and minimum tax rules
From a practical perspective, this significantly increases record-keeping requirements and adds complexity to portfolio management. It may also warrant the use of a valuation on large unlisted assets such as property as at 1 July 2027 so this can be more easily tracked.
Negative Gearing Changes
One of the other most significant housing measures in the 2026 Federal Budget is the proposed reform to negative gearing. From 1 July 2027, negative gearing will be restricted to newly built residential properties, designed to encourage additional housing supply rather than investment in existing homes.
For investors purchasing established properties after Budget night, rental losses will no longer offset salary or other income. Instead, they can only be used against rental income or carried forward to offset future rental profits.
Importantly, existing properties are grandfathered, so current investors retain the existing rules. Currently, this may also include anybody who converts their existing principal place of residence into an investment property.
Additionally, the current proposed rules have not impacted negative gearing with shares or commercial property. This is a win for any investors who are making use of a “debt-recycling” strategy.
New 30% Minimum Tax on Discretionary Trusts
From 1 July 2028, discretionary trusts will be subject to a minimum 30% tax on income.
These structures have traditionally been used for income splitting across family members to improve tax outcomes. The new minimum tax reduces that flexibility by setting a floor on how low the effective tax rate can go.
This change affects family trusts, investment structures, and business groups, and may require a review of how these vehicles are being used.
In practice, it is likely to reduce the effectiveness of income splitting and prompt consideration of alternative structures such as companies. As a result, forward planning and advice will be increasingly important to maintain tax efficiency.
Final Thoughts
While many of these measures are still proposed and subject to legislation, it seems inevitable that we are about to experience one of the most significant shifts in Australia’s tax and investment landscape in years.
Those that partner with Braeside Wealth can rest easy knowing that we are actively ensuring that they continue to be employing the best strategies for them and have the freedom to focus on what’s important to them, knowing these changes are being proactively managed in the background.
Get in touch with Braeside Wealth today for a chat. It’s the first step toward a calm, confident, and financially free retirement. Click here to book a 15-minute Good Fit Chat.
The information in this article is general information and does not take into account any person’s individual situation. You should always do your own research, or seek professional advice to assist you in making an informed decision about what suits your needs.