May 2026 – News Brief

On Tuesday, 12 May 2026, the Federal Treasurer, Jim Chalmers, handed down the Federal Budget for the 2026/27 financial year.

Budget Position
The Treasurer confirmed that the Federal Budget will remain in deficit, with:

• a projected deficit of $28.3 billion for the 2025/26 financial year, and
• a projected deficit of $31.3 billion for the 2026/27 financial year.

Key Tax Measures Affecting Our Clients
The Budget includes a wide-ranging package of tax reforms. The key measures most relevant to our clients include:

• Capital Gains Tax (CGT) reforms
• Restrictions on negative gearing
• Changes to the taxation of discretionary trusts
• Re-introduction of the tax loss carry-back scheme
• Permanent $20,000 small business instant asset write-off
• Loss refundability for early-stage start-up companies
• Changes to the R&D tax incentive
• Changes to salary packaging for electric vehicles
• Introduction of a standard work-related tax deduction
• Introduction of an earned income tax offset

Capital Gains Tax (CGT) Reforms
The Budget contains significant proposed changes to the CGT regime which will materially affect investors.

Removal of the 50% CGT Discount
The Government has announced its intention to remove the long-standing 50% CGT discount for individuals and trusts on the disposal of assets acquired after 12 May 2026.
Currently, individuals and trusts can reduce a capital gain by 50% where an asset has been held for more than 12 months. This discount has been in place since 1999 and applies to assets such as investment properties and shares.
Under the proposal:

• Assets acquired after 12 May 2026 will no longer be eligible for the 50% CGT discount from 1 July 2027.
• Instead, capital gains on these assets will be calculated using indexation of the cost base.

Transitional Rules for Existing Assets
For assets already held at 12 May 2026, a transitional approach will apply:

• The portion of the ownership period up to 30 June 2027 will continue to attract the 50% CGT discount.
• The portion of the ownership period from 1 July 2027 onwards will not qualify for the discount and will instead be subject to indexation.

Newly Constructed Residential Property
Taxpayers acquiring newly constructed residential properties after 12 May 2026 will be given a choice of applying either:

• the existing 50% CGT discount, or
• the indexed cost base method.

Minimum CGT Rate
From 1 July 2027, the Government proposes to introduce a minimum tax rate of 30% on capital gains, regardless of the taxpayer’s marginal tax rate.

Pre‑CGT Assets
Assets acquired before 20 September 1985 (previously exempt from CGT) will become partially subject to CGT from 1 July 2027.
CGT will apply to the portion of the ownership period after that date, with gains calculated using indexation of the cost base.

Restrictions on Negative Gearing
The Budget proposes significant changes to negative gearing, limited specifically to existing residential properties.
Negative gearing allows losses from an investment property to be offset against other income. Under the proposed changes:

• Negative gearing will continue to apply to residential properties purchased on or before 12 May 2026.
• For existing residential properties purchased after 12 May 2026, negative gearing will be removed unless the property qualifies as a newly built home or apartment.

Transitional Arrangements
For properties purchased after 12 May 2026:

• Negative gearing will still be available until 30 June 2027.
• From 1 July 2027, losses can no longer be offset against other income and must instead be carried forward to offset future income from the same investment or the eventual capital gain on sale.

Taxation of Discretionary Trusts
From 1 July 2028, discretionary trusts will be subject to a minimum tax rate of 30% on trust income.
Under current rules, trusts generally do not pay tax provided income is fully distributed to beneficiaries. Under the proposal:

• The trust will pay tax at 30%.
• Non-company beneficiaries will receive a non‑refundable tax credit for the tax paid.
• If the beneficiary’s marginal tax rate is below 30%, excess credits will not be refunded.

Primary production income and existing testamentary trusts will be excluded from these changes.

Re‑Introduction of the Tax Loss Carry‑Back Scheme
The Government will reintroduce the tax loss carry-back scheme from the 2027 financial year.
Eligible companies (aggregated turnover under $1 billion) will be able to:

• Carry back tax losses to offset taxable profits from the previous two financial years, and
• Receive a refund of tax previously paid.

Small Business Instant Asset Write‑Off
The $20,000 small business instant asset write‑off will be permanently legislated.
Businesses with turnover under $10 million using simplified depreciation will be able to:

• Immediately deduct the cost of eligible assets costing less than $20,000.
• Pool higher-cost assets into the small business depreciation pool.

Loss Refundability for Start‑Up Companies
From 1 July 2028, companies with turnover under $10 million will be able to claim a refund of tax losses incurred in their first two years of operation, capped at the amount of PAYG withholding and FBT paid.
Changes to the R&D Tax Incentive
Key changes include:

• A 4.5% increase to the R&D offset for core R&D expenditure
• Reduction of the intensity threshold from 2% to 1.5%
• Removal of supporting R&D expenditure
• Increase in the refundable offset turnover threshold to $50 million
• Increase in the expenditure cap to $200 million
• Minimum R&D spend increased to $50,000

Electric Vehicle Salary Packaging Changes
The Government will progressively scale back the FBT exemption for electric vehicles.
From 1 April 2027 to 31 March 2029:

• Full exemption applies only to EVs costing under $75,000.
• EVs priced between $75,000 and the luxury car tax threshold will receive a 25% FBT discount.

From 1 April 2029:

• The exemption will be removed entirely.
• A 25% FBT discount will apply for EVs below the luxury car tax threshold.

Standard Work‑Related Tax Deduction
From 1 July 2026, taxpayers can elect to claim a $1,000 standard work-related deduction without substantiation.
This will cover expenses such as:

• Home office costs
• Work-related travel
• Tools and equipment
• Self-education and subscriptions

Taxpayers claiming more than $1,000 will need full substantiation for all work-related deductions.

Earned Income Tax Offset
From the 2028 financial year, salary earners and those who also operate as sole traders will receive a $250 earned income tax offset.
The offset is not income-tested.

Reference: https://proacctplus.com.au/