May 2026 Federal - Budget Biggest Tax Changes in 25 Years!

Information: What the 2026 Federal Budget Means for You

Treasurer Jim Chalmers delivered the 2026–27 Federal Budget on Tuesday 12 May 2026 - and it is one of the biggest tax overhauls in over 25 years. There are some genuine wins for small businesses, but also some significant tax changes that could affect how you structure your business and investments.

These changes require a complete re-think of your:

·       Tax Planning

·       Estate Planning

·       Asset Protection Strategies

·       Business Succession Plans 

The important thing now is not to panic or make quick decisions. Detailed legislation (which we need to carefully review before advising you) has not yet been released, and there’s always the possibility of a change in Government anytime before May 2028 which could cancel or adjust these tax changes. 

The key changes take place from 1 July 2027 and 1 July 2028, and we will work with you over the next 2 years to ensure that your personal and business tax strategies are optimised.

Here is an easy to understand summary of the measures most likely to affect you.

Individuals & Families

·       New $250 Tax Offset for Workers from 2028

A new “Working Australians Tax Offset” (WATO) of up to $250 will be automatically applied to the 2028 Tax Returns of all 13.3 million Australian workers. This is on top of the previously announced income tax cuts already taking effect from 1 July 2026.

This will put a little more money in your pocket each year — automatically, no action needed.

·       $1,000 Instant Work Deduction from 2027

From the next 2027 financial year, employees can claim up to $1,000 in work-related expense deductions without keeping receipts. Around 6.2 million workers are expected to benefit, saving an average of $205.

If you are an employee, you can use this deduction in your very next tax return. But remember – this is a tax deduction which reduces your taxable income and is NOT n additional $1,000 cash back. Eg. If you earn $100,000 in 2027, your marginal tax rate will be 32%. This means that you will receive an extra $320 (32% of $1,000) as a tax refund.

IMPORTANT: We recommend that you keep copies of all receipts and tax invoices for the entire year in case your overall expenditure is more than $1,000 – otherwise your claim will be limited to only $1,000.

·       Previously Announced Income Tax Cuts Still Coming

The tax rate on income between $18,201 and $45,000 drops to 15% from 1 July 2026, and to 14% from 1 July 2027. These cuts were already legislated and are now kicking in.

Small Business Owners

·       $20,000 Instant Asset Write-Off Made Permanent

Great news: from 1 July 2026, the $20,000 Instant Asset Write-Off (IAWO) is now a permanent feature of the tax law for businesses with turnover under $10 million. You no longer have to worry about it expiring each year.

Buy a piece of equipment, a computer, or other business asset costing under $20,000 inc GST and write it off immediately - simple.

·       Loss Carry-Back Returns - Cash Refunds for Companies (from 2027)

If your company makes a tax loss this year, you will now be able to offset it against tax you paid in the previous two years - potentially getting a tax refund. This applies to companies with turnover under $1 billion.

Very useful if your business hits a rough patch -  you could recoup tax already paid.

·       ATO Gets $700M+ to Chase Tax Compliance

The Government is providing over $700 million to the ATO to expand audits, reviews, and data matching across businesses. This targets R&D claims, fraud, and businesses whose results don’t match industry benchmarks.

Make sure your records are in order. The ATO will be reviewing more businesses than ever over the coming years.

Business Trusts - Major Change Ahead

·       30% Minimum Tax on Discretionary Trusts (from 1 July 2028)

If your business or investment income runs through a family discretionary trust, this is a major change you need to prepare for. From 1 July 2028, a minimum 30% tax rate will apply to trust income distributions. Currently, distributions to low-income family members (such as adult children) can be taxed at much lower rates.

There is some relief: from 1 July 2027, the Government will allow a three-year window to restructure your trust into a company or fixed trust without triggering tax or CGT.

This affects around 350,000 small businesses in Australia. Once the Government releases the new legislation, we will contact you to review your trust structure before the deadlines arrive.

·       “Bucket Companies” will No Longer be Tax Effective (from 1 July 2028)

For decades, a very common tax planning and wealth building strategy has been using a company to receive trust distributions and then paying a company tax rate of either 25% or 30% on this income – lower than the top marginal tax rate for individuals of 47%.

However, with the 30% minimum tax on discretionary trusts from 1 July 2028, a company will not get the benefit of the 30% tax paid and will end up paying an effective tax rate of 51% on any distributions received from a trust.

We will review the new legislation and advise you in coming months of the best way for you to move forward with any existing “bucket companies” and to plan tax effective strategies for the future.

Property Investors

•  Negative Gearing Changes for New Property Purchases (from 1 July 2027) 

If you already own an investment property, nothing changes for you. But if you buy an established (existing) investment property after Budget night (12 May 2026), from 1 July 2027 you will no longer be able to deduct rental losses against your wage or salary income.

Investing in newly built properties will still allow full negative gearing. Thinking of buying an investment property soon? Call us first.

Business Owners, Property Investors and Share Investors 

•  Capital Gains Tax Discount Replaced (from 1 July 2027) 

The current 50% CGT discount (available when you hold an asset for over 12 months) will be replaced from 1 July 2027. In its place, your cost base will be indexed to inflation, and a minimum 30% tax rate will apply to real capital gains. Gains on assets you already own are unaffected until you sell after 1 July 2027.

If you are thinking of selling an investment property, shares or a business asset, timing matters more than ever. Talk to us before you act.

NEXT STEPS

This is a significant Budget with real consequences for many of our clients. We strongly recommend booking a meeting with us to discuss: 

•         Whether your trust structure needs to be reviewed before the July 2028 deadline.

•         Using the $20,000 Instant Asset Write-Off before 30 June 2026 to reduce this year’s tax.

•         How the CGT and negative gearing changes affect any planned property sales or purchases.

•         Your overall tax planning for 2026 to keep your tax bill as low as possible.