Australian Federal Budget 2026: Winners and Losers

Income Tax Cuts and Worker Relief

For most working Australians, the budget brings tangible tax relief. Three separate measures combine to deliver the most significant income tax reduction stack in years.

The Working Australians Tax Offset (WATO)

From the 2027-28 financial year, a permanent new tax offset of up to $250 per year will apply to more than 13 million working Australians. This increases the effective tax-free threshold by nearly $1,800, taking it to $19,985 (or up to $24,985 for those also eligible for the Low Income Tax Offset). It is applied automatically to tax returns, so no action is needed from workers.

The $1,000 Instant Tax Deduction

From 1 July 2026, workers can claim a flat $1,000 deduction on work-related expenses without keeping a single receipt. This will deliver around 6.2 million workers an average tax saving of $205 for the 2026-27 year. Workers with more than $1,000 in legitimate expenses can still claim the higher amount in the usual way. Charitable donations and professional membership fees remain claimable on top of this deduction.

Further Rate Cuts on Lower Incomes

The tax rate applying to income between $18,201 and $45,000 is being reduced in stages: from 16% down to 15% from 1 July 2026, then further to 14% from 1 July 2027. For an Australian earning the average wage of around $81,000, the combined benefit of all measures from 2027-28 will be up to $2,816 per year more in their pocket compared to 2023-24 tax settings.

Negative Gearing Reform

This is the headline change for property investors. Negative gearing, which allows investors to deduct rental property losses against other income like wages, is being restricted to new builds only. It is the most significant change to the strategy since Paul Keating’s short-lived reform in 1985.

What Is Changing

From 1 July 2027, negative gearing on established (existing) residential properties will no longer be available for properties purchased after 7:30pm AEST on 12 May 2026 (Budget night). Investors who purchased existing properties before Budget night retain full negative gearing entitlements and are completely unaffected.

Investors who buy an established property after Budget night can still deduct losses against other rental property income, but cannot offset those losses against wages or salary. Unused losses can be carried forward to future years.

What Is Exempt

Negative gearing remains fully available for:

• New residential builds (constructed after Budget night)
• Investments supporting government housing programs, including affordable housing
• All properties purchased before Budget night, under existing rules

The reforms are expected to raise around $3.6 billion over the four-year forward estimates period, combined with the CGT changes below.

Capital Gains Tax Overhaul

The 50% capital gains tax discount, introduced by the Howard government in 1999, has been a cornerstone of property investment strategy in Australia for over two decades. That is now changing, and the implications for investment planning are significant.

The 50% Discount Is Being Replaced

From 1 July 2027, the 50% CGT discount will be replaced with an inflation-linked discount, known as cost-base indexation. Under this model, you will only pay tax on the gain above the inflation rate since you purchased the asset, rather than receiving a flat 50% reduction in taxable gain regardless of inflation.

In high-inflation environments, the indexation model could actually deliver a larger effective discount than 50%. In low-inflation environments, the discount will typically be smaller. The key shift is that it rewards long-term, inflation-outperforming growth rather than simply the passage of time.

The New Minimum 30% Tax

A new minimum 30% tax on capital gains will apply from 1 July 2027. This is specifically designed to stop investors from timing property sales around periods of low personal income, such as after retirement, to reduce their tax liability. Income support recipients, including pensioners, are exempt from this minimum rate.

What Is Not Affected

The CGT discount within superannuation funds, including SMSFs, is not affected by these changes. Small business CGT concessions are also maintained, allowing eligible small business owners to halve or completely disregard CGT on the sale of qualifying assets.

Discretionary Trust Tax

Wealthy Australians have long used discretionary (family) trusts to distribute income to lower-income beneficiaries, reducing the overall tax burden on the family unit. That strategy is now being directly targeted.

30% Minimum Tax from July 2028

From 1 July 2028, a minimum 30% tax will apply to income distributed through discretionary trusts. The government expects this measure alone to raise $4.5 billion per year, with the wealthiest 10% of Australians holding almost all of the private trust wealth affected.

What Is Exempt

The minimum tax will not apply to:

• Fixed trusts and widely held trusts
• Complying superannuation funds (including SMSFs)
• Charitable and special disability trusts
• Deceased estates
• Primary production (farming) income
• Income from discretionary testamentary trusts existing at the time of announcement

A three-year rollover relief period from 1 July 2027 is available for small businesses and others wishing to restructure their affairs before the minimum tax takes effect. This provides a meaningful planning window for those affected.

Housing and First Home Buyers

The stated goal of the property tax reforms is to tip the balance back toward owner-occupiers and away from investors in the competition for established housing. The question of whether it will actually work is contested.

75,000 New Buyers Over the Decade

Treasury modelling projects that the combined reforms will help an additional 75,000 Australians into homeownership over the next decade. The mechanism is straightforward: investors who previously bid aggressively for established properties, knowing they could offset losses via negative gearing and walk away with a heavily discounted CGT bill, will now need to recalculate.

With a lower ceiling on what an investor can rationally pay for an existing property, prospective owner-occupiers gain a more level playing field at auction. Treasury estimates property prices will grow roughly $19,000 or 2% less than they otherwise would for the next couple of years as the reforms bed in.

The Supply Problem

Not everyone is convinced this ends well for housing affordability overall. Treasury itself acknowledges that 35,000 fewer homes will be built over the next decade as private investors redirect capital elsewhere. Industry groups, including the Housing Industry Association, have argued this is a net negative for supply at exactly the wrong time.

What About Rents?

Treasury’s modelling puts the impact on rents at around $2 per week for the median renter. Industry groups have warned the figure is optimistic. Renters who cannot yet purchase will find themselves in a thinner rental market with fewer landlords competing to house them.

Superannuation

For those with money in super or an SMSF, the key message from this budget is straightforward: the super rules themselves are unchanged. No tweaks to contribution caps, no changes to the tax treatment of super funds, and no changes to the CGT discount within super. Your SMSF strategy continues to operate under the existing framework.

Super Performance Test Consultation

The one superannuation-related announcement is that the government will open consultation to strengthen the super performance test. The current test has faced criticism for inadvertently constraining fund investment in areas like ESG, energy, venture capital, and housing, due to benchmarking limitations. Separately, venture capital tax incentives will be expanded from 1 July 2027 to allow investors, including super funds, greater flexibility to invest for longer periods at modern company valuations.

For SMSF investors particularly: the CGT discount within your fund is explicitly protected under these reforms. This distinction matters for anyone using an SMSF as part of their property investment structure.

Cost of Living Relief

Beyond the headline tax reforms, the budget delivers several measures aimed at easing day-to-day cost pressures on Australian households, many of which are already struggling with the flow-on effects of global oil price rises from the Middle East conflict.

Cheaper Medicines

The government is investing $5.9 billion to list new medicines on the Pharmaceutical Benefits Scheme, covering treatments for cystic fibrosis, chronic kidney disease, various cancers, and more. The general PBS co-payment is being reduced to $25, with the concessional rate frozen at $7.70 until 2030.

Fuel Excise Relief

A $2.9 billion fuel relief package will reduce the fuel excise by 32 cents per litre for a three-month period, saving roughly $23 per 65-litre tank fill. The heavy vehicle road user charge is also reduced to zero during the same period. This is a direct response to global oil price pressures from the Iran conflict.

Bulk Billing and Healthcare

An $11.4 billion investment in bulk billing incentives aims to ensure 9 out of 10 GP services are bulk-billed by 2030. Paid Parental Leave is expanded to six months from 1 July 2026. Public dental services for adults are permanently funded for the first time, covering eligible low-income adults across all states and territories.

Aged Care

A $3.7 billion commitment will deliver 5,000 additional aged care beds per year for those with limited financial means. However, Australians aged over 65 with private health insurance face higher premiums, a change the government describes as rebalancing generational equity in the health system.

Full Winners and Losers Snapshot

Key Dates at a Glance

What This Means for Property Investors

This budget draws a clear line between the investment strategies of the past and those that will work going forward. For investors already holding a portfolio of established properties, the impact is minimal. The grandfathering provisions protect you fully, and your existing tax treatment continues unchanged.

For investors looking to grow their portfolio from here, the playbook shifts. Established properties purchased after Budget night no longer carry the negative gearing offset against wages, and from mid-2027, the CGT benefit shrinks. That does not mean established property is no longer a viable investment; it means the numbers need to stack up differently, with a greater emphasis on rental yield, genuine capital growth, and long-term fundamentals.

New builds, meanwhile, are now the most tax-advantaged residential property investment vehicle available. Full negative gearing, a choice of CGT treatment, and the broader government push to increase housing supply all point in the same direction. If new construction aligns with your investment goals, the policy environment has never been more supportive.

For investors using discretionary trusts as part of their wealth structure, the window to review and, where needed, restructure is open until July 2028. That is a meaningful planning horizon, but it pays to act early rather than scramble at the deadline.

The super environment remains stable. For those building wealth through an SMSF, including property held within super, the budget changes nothing. The CGT discount in super is protected, contribution rules are unchanged, and the fund structure remains one of the most tax-effective long-term wealth vehicles available to Australians.

The bigger picture here is that Australia’s property tax system is being reset for the first time in a generation. The adjustment period will create both challenges and opportunities. The investors and advisers who understand the new landscape first will be best positioned to navigate it.