Federal Budget 2026 overview

There are also income tax sweeteners – a new $250 permanent offset for workers, and a $1,000 instant deduction.

Last year’s global uncertainty focused around the trade wars, but this year it’s the closure of the Strait of Hormuz. Treasury now expects global growth to slow from 3.5% last year to 3% this year. Australia’s economic growth is also forecast to decrease 0.5% to 1.75%.

Inflation is expected to hit 5% in mid 2026 – well above the RBA’s target band, which suggests more interest rate rises are to come. Assuming that oil prices begin to decline from mid 2026, headline inflation is forecast to return to the RBA’s target band in the middle of 2027.

However, there are still big questions over how reliable the budget projections can be in both the short and medium term.

Readers will be pleased to know there were no changes to the super rules, so we’ve focused our coverage around the tax announcements.

Changes to super performance test

The only super-related announcement is that the government has confirmed it will open consultation to ‘strengthen’ the test, reducing ‘unintended barriers to investment’ while ensuring it remains fit for purpose.

The super performance test has been in place for years, and has had some success in protecting Australians from persistent underperformance. However, industry experts have warned that it constrains funds because it doesn’t cater for all investments, particularly ESG, energy, venture capital and housing.

Joining the dots, a key objective of this is likely to encourage further venture capital investment by super funds. The Government announced separately that from 1 July 2027, they will expand venture capital tax incentives to “align with modern company valuations”. This will assist “investors, including superannuation funds, with greater flexibility to invest for longer periods”.

Tax announcements

Negative gearing changes

Negative gearing for residential property will be limited to new builds from July 2027. Properties owned on 12 May 2026 will be exempt, so existing investors won’t be affected.

Investments that support government housing programs, for example, through the provision of affordable housing, will also be exempt.

Investors who buy established housing after Budget night will still be able to deduct losses against residential property income. They will be able to carry forward unused losses to future years but won’t be able to deduct them against other income like wages.

CGT discount changes

With around 83% of the benefit of the current CGT discount going to the top 10% of taxpayers by income, the government wanted to ‘even the playing field’ for younger Australians and only incentivise investment in new property. Coincidentally 83% of new investor loans in 2025 were for existing property, rather than new housing.

From 1 July 2027 the Government will replace the 50% CGT discount with an inflation-linked discount, alongside a new minimum 30% tax on capital gains.

The CGT reforms will only apply to gains arising after 1 July 2027. Investors in new housing will be able to choose the 50% CGT discount or the new rules when they sell the property.

The government hopes it will support productive investment in assets such as higher density housing and shares while reducing incentives for debt-financed investment in some areas, like existing detached housing. It means investors with lower gains will pay less tax, while those with gains well above inflation will pay more.

Minimum tax for discretionary trusts

The Government will introduce a minimum tax of 30% on discretionary trusts from 1 July 2028 with some exceptions.

The minimum tax won’t apply to other types of trusts such as fixed and widely held trusts, charitable and special disability trusts, or complying superannuation funds. It also won’t apply to deceased estates, primary production income, certain income relating to vulnerable minors, and income from assets of discretionary testamentary trusts existing at announcement.

Rollover relief will be provided for three years from 1 July 2027 to assist small businesses and others that wish to restructure.

Income tax changes

The Government is introducing a new permanent tax offset for every working Australian. The Working Australians Tax Offset (WATO) provides an additional tax cut of up to $250 and will apply from July 2027. It will be automatically applied to tax returns and increases the effective tax-free threshold for 13 million Australian workers by nearly $1,800 to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset).

The Government is also introducing a $1,000 instant tax deduction, effective from the 2026-27 financial year. This allows workers to lower their taxable income from work by up to $1,000 without keeping receipts when they lodge their tax return. 6.2 million workers, or 42% of taxpayers, will benefit from an average tax saving of $205 for 2026–27.

The Medicare levy low-income threshold will be increased by 2.9% from the 2025-26 financial year to provide tax relief for over 1 million low-income individuals, families, seniors and pensioners.

Pension supplement overseas recipients

Currently, Australian pension recipients who travel overseas lose the majority of their pension supplement after six weeks abroad. The Government will extend payment of the full rate of the pension supplement from 6 to 12 weeks overseas. It is expected to provide a benefit to around 92,000 pensioners who travel overseas for more than six weeks each year.

At the same time, the Government will cease payment of the pension supplement to those who reside permanently overseas or who are temporarily overseas for more than 12 weeks. This change recognises that the pension supplement was created to compensate for a range of costs that are experienced in Australia, particularly GST, and that pensioners overseas for more than 12 weeks have reduced exposure to those costs.