The Tax Institute’s Julie Abdalla commends political bravery in tackling big ticket tax issues but warns announced measures are complex and may trigger unintended behavioural changes.
The Tax Institute welcomes the willingness to engage with the tough issues facing our tax system and the leadership shown in “taking the hard road”, despite the announced measures falling short of true, holistic tax reform.
“We commend the Treasurer for the political bravery to tackle some big ticket issues in our tax system and set out on the road to tax reform. The measures announced are significant but complex, and altogether, are not the comprehensive reform package we had hoped for. However, the willingness to engage on serious issues and undergo real change is heartening,” says Julie Abdalla, FTI, Head of Tax & Legal at The Tax Institute.
“Some of the measures are a shock, and are likely to be impractical, complex and difficult to administer, and may have significant unintended consequences unless designed appropriately. Our initial concern is that some measures may inadvertently prompt taxpayers to change their behaviour in unexpected and unplanned for ways for tax reasons.”
While this year’s Federal Budget was ambitious, it falls short of the holistic reform that would truly repair an unsustainable tax system, the housing crisis and intergenerational wealth disparity.
“Change without vision is not reform. It is just that: change. These measures deal with symptoms of a broken system, not the root causes. They are not a silver bullet to end the intergenerational wealth divide or the housing crisis. This is not tax reform. But it is incremental progress toward reform and a starting point from which we can move forward. We look forward to engaging in consultation to ensure measures are designed, legislated and implemented appropriately.”
Key tax measures introduced in the Federal Budget 2026-27
Removal of 50% CGT Discount
From 1 July 2027, the 50% CGT discount will be replaced by cost base indexation, with a 30% minimum tax on net capital gains. These changes will apply to all CGT assets, including pre-1985 CGT assets, held by individuals, trusts and partnerships except for new residential properties.
Investors purchasing new residential properties will be able to choose either the 50% CGT discount, or the new cost base indexation and 30% minimum tax.
“The CGT discount has long been part of the discussion around effective tax reform, so we are glad to see it being addressed. However, the announced measure runs the risk of disadvantaging lower income taxpayers, as the 30% minimum tax is likely a larger hit to their overall wealth than the indexed cost and minimum tax for high-income earners on higher marginal tax rates,” Abdalla says.
“If handled appropriately, this change could be a good step toward a fairer and simpler tax system, that creates economic opportunity for all Australians. However, replacing the 50% discount with indexation as well as introducing a minimum 30% tax on net capital gains risks going too far and adding substantial complexity. Further, this is just one tax measure, it won’t be the silver bullet that solves the housing crisis. Holistic tax reform and further measures outside the tax system will be required for that.”
Negative gearing changes
Negative gearing for residential properties will be limited to new builds. From 1 July 2027, losses from established residential properties purchased from 7:30pm (AEST) on 12 May 2026 will only be deductible against rental income or the capital gains from residential properties.
Properties acquired prior to this time (including contracts entered into but not yet settled) will be exempt from the changes until sold.
“The housing crisis is one of Australia’s biggest and most enduring social and economic issues. A change to negative gearing, or any isolated change in our tax system will not solve the housing crisis, but a fair system that allows for each generation of Australians to have the chance to own their own home is a key piece of the puzzle.”
“Exempting properties already negatively geared from these changes means young Aussies trying to get into the property market are at a disadvantage compared to older investors who might continue to benefit from the old rules for many years to come.
Ironically, and surprisingly, the government announced tonight that it will effectively end the exemption for pre-CGT gains for increases in asset values from 1 July 2027. The pre-CGT exemption was a legacy of excluding assets already owned when CGT was introduced over 40 years ago. We now face the situations where legacy investment properties will continue to benefit from older negative gearing rules long after new investors have had to face higher taxes. To truly reach a fair outcome, this measure should be part of a package of system-wide reform,” Abdalla says.
“We are looking forward to consulting on the design of this legislation to help ensure our tax system evolves in ways that create a fairer society and opportunities for everyone.”
Minimum 30% tax rate for trust distributions
Taxable income of discretionary trusts, currently taxed at the recipient’s marginal tax rates, will attract a minimum 30% tax rate from 1 July 2028. Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee.
Exemptions include fixed and widely held trusts (including fixed testamentary trusts), complying superannuation funds, special disability trusts, deceased estates and charitable trusts. Primary production income, certain income relating to vulnerable minors, amounts to which non-resident withholding tax applies, and income from assets of discretionary testamentary trusts existing at announcement will also be excluded.
“If the concern is that trust structures are being used for tax avoidance, then the appropriate policy response is an anti-avoidance measure targeted to those bad actors, not a blanket rate change. It should be remembered that the tax policy of successive government’s has actually encouraged the use of trusts, such as the 50% CGT discount, which is available to trusts but not some other structures. It would be wrong to demonise the use of trusts, or create a situation where there is a rush to shift to different structures only because of changed tax rules. Instead, we should be considering the taxation of trusts more broadly and taking a more holistic approach. For example, Division 7A and the Family Trust Distributions Tax are two areas that need significant reform to ensure fair and efficient taxation of trusts.”
“Trusts are a highly complex area of our tax system, and any legislative change will require consultation and careful design to avoid unintended consequences.”
$250 Working Australian Tax Offset
A $250 Working Australians Tax Offset will be introduced from the 2027–28 income tax year. This is a permanent annual tax offset for Australians for their income derived from work, such as wages and salaries and the business income of sole traders, from 1 July 2027. This will increase the effective tax-free threshold for income derived from work by nearly $1,800 to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset).
$1,000 income tax deduction
From 1 July 2026, taxpayers can claim up to a $1,000 deduction for work-related expenses, without keeping receipts. This measure applies to the 2026–27 financial year.
“The world of work has changed, with more work from home, hybrid work arrangements, gig work and non-traditional career paths than ever before. The $1,000 standard deduction will simplify things for many people. Having said that, it is worth talking to your tax accountant – by claiming this deduction, you cannot claim any actual expenses over and above that amount. So if you have a number of work-related expenses to claim, do your math carefully and keep appropriate records,” Abdalla says.
Reduction of FBT discount for EVs
The FBT exemption for electric vehicles (EVs) will be replaced with a permanent 25% FBT discount, implemented through a 15% rate in the FBT statutory formula. This will take effect:
- from April 1, 2027 for EVs worth more than $75,000
- from April 1, 2029 for EVs worth less than $75,000
“I don’t think anyone was quite prepared for how enthusiastically Australians got on board with EVs under the original FBT exemption, and with petrol price increases, EVs have become a very attractive investment for many. This measure seemingly seeks to somewhat balance the scales, ensuring the support for EV uptake is sustainable in the longer-term,” Abdalla says.
Individual tax cuts
As announced in the Federal Budget 2025-26, the lowest marginal tax rate was reduced from 16% to 15% for income between $18,201 and $45,000.
“This rate reduction was announced in last year’s Federal Budget. At the time, it was slated as a measure to ease cost of living pressures. It will not take effect until more than 12 months after being announced, so while it is a welcome change, for a sustainable solution, we need to review the personal income tax rate system more holistically and deal with the pervasive issue of bracket creep.”
Permanent extension of the Instant Asset Write-Off for small business
From 1 July 2026, the instant asset write-off will become permanent for assets valued up to $20,000 held by small businesses with turnover up to $10 million.
“For many years, small and medium-sized businesses, and their tax advisers, have endured uncertainty about whether the Instant Asset Write-Off will be extended for another year. Often, extensions have been announced too late for planning business investment, which meant small businesses simply had to roll the dice. This added certainty will be well-received.”
No update on Announced but Unenacted Measures
Many of the long list of announced but unenacted measures remain unresolved.
“While these measures remain in limbo, we have unnecessary uncertainty in our tax system. If the government is serious about making our economy fairer and our tax system simpler, addressing these measures must be a priority,” Abdalla says.
By Julie Abdalla, Head of Tax and Legal, The Tax Institute
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