On Tuesday 12 May, Treasurer, Jim Chalmers announced the 2026 Federal Budget. Michael Fox discusses the 10 most important changes you should know about:
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- 1. New $1,000 Instant Tax Deduction
Commencing 1 July 2026 individual and sole trader taxpayers will be allowed a tax deduction of $1,000 on their returns for work-related expenses without receipts.
According to the government charitable donations, association memberships and union fees are excluded from this measure. This raises some questions about the operation of the instant asset write-off because charitable donations are not a form of work-related expenses.
Presumably, taxpayers can claim the instant tax deduction and also car expenses, travel deductions, uniform costs, self-education expenses, interest and dividend deductions, tax agent fees and other deductions, however the details of the measure are not yet final.
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- 2. SBE Instant Asset Write-Off (IAWO) to be Permanent
After years of uncertainty, involving numerous changes to the threshold and eligibility criteria, the IAWO will be made permanent for new and second-hand assets up to a value of $20,000 each for small businesses with turnovers of less than $10 million.
Artworks will continue to be eligible for IAWO as long as the useful life criteria is not reduced to less than the ATO useful life of a depreciating artwork.
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- 3. Capital Gains Tax (CGT)
Indexation of capital gains returns after a hiatus of 28 years and the government is seeking to tax capital gains at a minimum tax rate of 30% as well as bringing all investment assets into the CGT regime by including assets owned before the original commencement date of the legislation in 1985.
These changes take place from 1 July 2027 and it will be imperative for owners of all classes of investments – equities, real estate, intangibles, artworks and collectibles – to have their investments valued at market value on this date.
Note that superannuation funds will continue to enjoy a 50% discount on capital gains, effectively taxing such gains at 10%.
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- 4. Negative Gearing
From last night, negative gearing, where the deductions on a rental property are greater than its income, will be disallowed for established residential homes.
However, the government has provided an exemption for investors in established residential homes owned before Budget night – 7.30PM AEST 12 May 2026.
Newly built residential houses will continue to be eligible for negative gearing as well as commercial property.
Disallowed negative gearing losses will be eligible to be added to the cost base of assets in determining the capital gain or loss on their disposal.
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- 5. Discretionary Trust Distributions Tax (DTDT)
For the first time, Australians who receive distributions from a discretionary trust, will pay tax on these distributions at a rate of 30%.
The DTDT operates as a tax offset for the trust beneficiaries because it is a non-refundable tax credit. In other words, it will reduce income tax but it will not produce a tax refund on its own head, which is similar to the way foreign tax offsets operate.
The measure will not apply to fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts.
Primary production income and certain income relating to vulnerable minors that are distributed through a discretionary trust will be excluded.
The DTDT will commence on 1 July 2028.
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- 6. Loss Carry Back
Commencing in the 2027 tax year, companies with a turnover of up to $1 billion will be able to carry back a tax loss and offset it against tax paid in the previous two years. This measure applies to revenue losses only.
Commencing in the 2029 tax year, early-stage SME businesses that generate a tax loss in their first two years will be able to use that loss to generate refundable tax offset.
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- 7. Low income superannuation tax offset (LISTO)
The maximum LISTO amount will increase from $500 to $810, reflecting the superannuation guarantee rate of 12% of ordinary time earnings.
The LISTO eligibility threshold will increase from $37,000 to $45,000 to align with the lowest income tax threshold after the tax-free threshold.
The above measures take effect in the 2028 tax year.
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- 8. Fringe Benefits Tax (FBT) Exemption for Electric Vehicles
From 1 April 2029 there will be a permanent 25% discount on FBT for electric vehicles.
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- 9. WATO – Working Australians Tax Offset
From the 2028 tax years a new tax measure called WATO will be worth $250 for eligible individual taxpayers and sole traders.
It will increase the effective tax-free threshold by nearly $1,800 to $19,985. For those eligible to receive the low income tax offset, the effective tax-free threshold will be lifted to $24,985.
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- 10. Private Health Insurance for Over 65
Under the current law, entitlement to the private health insurance rebate depends on the taxpayer’s circumstances, income, and policy. The rate of rebate also depends on the age of the oldest person covered by the policy – the rate is uplifted if the oldest person is over 65 years of age.
As part of the 2026–27 Federal Budget, the Government announced that it will remove the age‑based uplift of the Private Health Insurance Rebate (the PHI Rebate) from 1 April 2027.
Effectively this means an increase to the cost of private health insurance for those over 65 years of age who are currently receiving a reduction in their premiums due to the operation of the rebate.
- 10. Private Health Insurance for Over 65
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- 9. WATO – Working Australians Tax Offset
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- 8. Fringe Benefits Tax (FBT) Exemption for Electric Vehicles
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- 7. Low income superannuation tax offset (LISTO)
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- 6. Loss Carry Back
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- 5. Discretionary Trust Distributions Tax (DTDT)
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- 4. Negative Gearing
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- 3. Capital Gains Tax (CGT)
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- 2. SBE Instant Asset Write-Off (IAWO) to be Permanent
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- 1. New $1,000 Instant Tax Deduction