Federal Budget Personal & Investment Taxation | May 2026: Budget Alert

Following several years of tax cuts (which still roll out over the next two years), the Government has not changed tax rates any further, but has announced two measures to assist workers.

These are:

Australian tax residents who earn income from work will be eligible for the instant tax deduction and will not need to itemise and claim work‑related expenses if claiming less than $1,000. Individuals who incur work‑related expenses greater than the instant tax deduction can continue to claim their deductions in the usual way.

Charitable donations, union and professional association membership fees and other non‑work‑related deductions can still be itemised separately and claimed on top of the instant tax deduction.

The current and new resident tax rates are as follows:

Legislated resident tax rates from 1 July 2025 and into the future at this point are:

The Medicare Levy is an additional 2% where applicable.

Medicare low-income thresholds have been increased so low-income individuals continue to be exempt from paying the Medicare Levy. 

The threshold for singles will be increased from $27,222 to $28,011. The family threshold will be increased from $45,907 to $47,238. For single seniors and pensioners, the threshold will be increased from $43,020 to $44,268. The family threshold for seniors and pensioners will be increased from $59,886 to $61,623. For each dependent child or student, the family income thresholds will increase by a further $4,338 up from the previous amount of $4,216.

In the 161 pages of Budget Paper No. 2 (Budget Measures) there are 17 instances of the word “superannuation”, but none of these are directly related to superannuation changes. 

In March 2026 the Government successfully passed legislation for additional tax for people with more than $3,000,000 in superannuation (Division 296). This had been a key policy initiative for around two years under the banner of fairer and more sustainable super. Furthermore, the Government was also successful in legislating Payday Superannuation (affecting employers and their payroll compliance), which commences on 1 July 2026.

With these two significant changes and superannuation guarantee remaining at 12%, there were no further changes made to superannuation in the budget.

Following weeks of speculation and rumour, no doubt designed to soften the blow, the Government confirmed three of the most significant investment taxation reforms in decades, with Treasurer Jim Chalmers placing clear emphasis on the scale and impact of the changes being announced. Three significant reforms were announced:

Negative gearing for residential property is being limited to new builds. From 1 July 2027, for established residential properties acquired after 19:30 AEST, 12 May 2026:

However, properties acquired prior to 19:30 AEST on 12 May 2026, including contracts entered into but not yet settled, will be exempt from these changes until they are sold and hence their treatment will be grandfathered to carry forward.

In addition to existing arrangements, eligible new builds will be exempt from the changes, ensuring the benefits of negative gearing are directed to investment that increases the housing stock. Investors in new builds will also have a choice of CGT treatment (see CGT section).

Properties in widely held trusts and superannuation funds will be excluded, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs.

The Treasurer’s Budget announcements represent the most significant CGT reforms since its introduction in September 1985. CGT underwent significant reform in September of 1999 when the indexation factor applied to the cost base to negate inflation was frozen and the general 50% discount was introduced for individuals and trusts (and 1/3^rd discount for superannuation). 

Now 28 years later, we will be back to applying indexation instead of discounts (for most assets) and perhaps even more significantly, the perpetual exemption from CGT for assets acquired prior to 19 September 1985 is coming to an end. Pre-CGT status will only offer shelter from tax up to 1 July 2027.

From 1 July 2027:

Transitional arrangements will limit the impact on existing investments by ensuring the changes only apply to gains arising on or after 1 July 2027. The 50 per cent CGT discount will continue to apply to gains arising before 1 July 2027. Capital gains on pre-1985 assets arising before 1 July 2027 will remain exempt from CGT.

To maintain incentives for new housing supply, investors in new residential properties will be able to choose either the 50 per cent CGT discount, or cost base indexation and the minimum tax. Income support payment recipients, including Age Pension recipients, will be exempt from the minimum tax.

The Government will introduce a 30 per cent minimum tax on discretionary trusts in the name of improving the fairness of the tax system and to help fund new tax cuts for workers.

From 1 July 2028, trustees will pay a minimum tax of 30 per cent on the taxable income of discretionary trusts. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee. A budget fact sheet describes the corporate beneficiary aspect as: “Corporate beneficiaries will not receive non-refundable credits for tax payable by the trustee, to avoid them converting these to refundable franking credits to avoid the minimum tax.” We await further clarity on the impact on franking credits and accounts.

The minimum tax will not apply to other types of trusts such as fixed and widely held trusts (including fixed testamentary trusts), complying superannuation funds, special disability trusts, deceased estates and charitable trusts.

Some types of income such as primary production income, certain income relating to vulnerable minors, amounts to which non-resident with holding tax applies, and income from assets of discretionary testamentary trusts existing at announcement will also be excluded.

The Government will provide expanded rollover relief for three years from 1 July 2027 to support small businesses and others who wish to restructure out of discretionary trusts into another entity type, such as a company or a fixed trust.

This is a fringe benefits tax initiative that has operated since July2022 to accelerate the uptake of electric vehicles. It has proven to be successful, particularly with strong interest in electric vehicles given the surge in oil price driven by the war in the Middle East. Given the program offers an FBT exemption on certain vehicles it is also starting to prove costly for the Government.

The Government announced that the FBT discount will be reduced to 25% from 1 April 2029, meaning a 15% statutory formula rate will apply instead of a 20% rate. The following transitional rules are in place from 1 April 2027 until 1 April 2029:

Whilst this is an FBT exemption that provides benefit for wage earners and employees of businesses, it can also act as part of an employee value proposition.

Whilst tax compliance activity and funding is a consistent feature of the budget papers, it is not as pronounced as the last couple of years in relation to direct compliance programs. There is an additional $86 million over 4 years to protect the tax system against fraud, which includes funding for real-time fraud detection and expanded monitoring of fraudulent activities. Additional funding is also provided under a number of measures for implementation purposes.

For more information on the May 2026 Federal Budget, please click here for our overview.