Source: Prime Minister of Australia
he Albanese Labor Government is delivering a new round of tax cuts, helping more Australians realise the dream of home ownership and supporting investment and innovation through the most significant tax reform package in more than a quarter of a century.
This is about tax relief and tax reform to make our economy work in the interests of more Australians, businesses and future generations.
This tax package is pro-aspiration, pro-worker and pro-investment.
It’s about helping workers, first home buyers and businesses so more Australians can earn more, keep more of what they earn, get into the housing market and get ahead.
We are reducing the tax burden for over 13 million workers, supporting 75,000 more homeowners into the housing market, delivering over $3.5 billion in new measures that lower taxes for businesses and reducing compliance costs by $540 million a year.
We’re doing this through a tax reform package with three parts:
- A fairer tax system for workers, first home buyers and future generations
- A better tax system for business by encouraging investment and innovation
- A simpler and more sustainable tax system
Our changes will build a better, fairer, simpler tax system for all Australians.
A fairer tax system for workers, first home buyers and future generations
This is all about backing the Australian ambition of owning your own home.
Right now, it’s too hard for too many Australians to get into the housing market and get ahead.
That’s why we’re providing tax relief to workers and delivering reforms to give more Australians the opportunity to own their own home by making our tax system fairer.
These changes build on our existing housing reforms to help level the playing field for first home buyers, help preserve the gains investors have made and incentivise productive investment in areas like new housing supply.
They will bring tax outcomes for trusts closer to the rates that apply to the vast majority of Australian workers, help pay down debt and help fund tax relief for every Australian worker and the services they rely on.
We are:
- Delivering a new Working Australians Tax Offset (WATO) to provide a permanent annual $250 tax offset to all eligible Australian workers. This begins to apply for income earned from work for the second half of 2027 and will automatically reduce workers’ tax liability for the 2027-28 income year. The Government is also introducing a $1,000 instant tax deduction to allow workers to deduct up to a thousand dollars off their taxable income without keeping receipts. These measures build on the legislated tax cuts starting in July 2026 and July 2027.
- Limiting negative gearing for residential property to new builds from 2027-28. Arrangements will remain unchanged for all existing investments made before 7:30pm AEST on 12 May 2026.
- Replacing the 50 per cent capital gains tax (CGT) discount with inflation-adjusted indexation from 1 July 2027 to restore the taxation of real gains, with a minimum tax rate of 30 per cent on realised gains. This will apply to all assets except new builds, where both new and old arrangements will be available to choose from. It will be prospective, with gains accrued on existing investments prior to the start date to retain the 50 per cent discount.
- Applying a minimum 30 per cent tax rate on discretionary trusts from 2028-29, to create a more equal and sustainable treatment between workers and families who earn a living from wages and people with income from assets held in trusts.
Our new Working Australians Tax Offset (WATO) will benefit 13.3 million Australian workers and lift the effective tax-free threshold for eligible workers by almost $1,800 – the largest permanent increase to the effective tax-free threshold since 2012-13 – helping to support workforce participation.
Changes to the tax system will help around 75,000 homeowners into the market over the next decade, equivalent to reversing around a decade of declines in Australia’s home ownership rate, and when combined with our other housing reforms in the Budget, will support another 30,000 new homes over 10 years.
These changes are prospective, respect past investment decisions, won’t change tax arrangements for the family home or superannuation and support investment in new housing supply.
They sensibly manage housing market and broader economic impacts including through fair and reasonable transitional arrangements.
Our changes to the taxation of discretionary trusts will make the tax system fairer and more sustainable by aligning tax paid by trusts more closely to the income tax rates paid by the vast majority of Australians.
Together, these changes are all about making our tax system better and fairer for all Australians.
A new $250 Working Australians Tax Offset
The Government will deliver a new round of tax cuts for 13.3 million working Australian taxpayers through a new $250 Working Australians Tax Offset (WATO).
The new offset will provide responsible cost of living relief and help make the tax system fairer for workers.
The offset will be available for all workers for tax years starting on or after 1 July 2027, paid automatically in workers’ tax returns at the end of the year.
The new offset will help Australian workers to keep more of what they earn, incentivise participation for lower-income workers and help with the cost of living.
This builds on the twin tax cuts legislated by the Albanese Government that are still to come in 2026 and 2027 and our $1,000 instant tax deduction.
The combined benefit to an Australian worker on average earnings of our three tax cuts, new tax offset and instant tax deduction will be up to $2,816 from 2027-28.
Reforming negative gearing to support new housing supply
We are limiting negative gearing for residential property from 2027-28 so it can only be used for new builds.
Over 80 per cent of new investor lending goes to existing homes, and we want more investment to back the construction of new supply.
Our negative gearing changes put homeowners first and will help more Australians get a foothold in the housing market.
Existing arrangements will remain unchanged for all properties purchased before 7:30pm AEST tonight, 12 May 2026, until they are sold.
This means all Australians who currently negatively gear or own an investment property will not see any change to these arrangements. They will still be able to deduct rental losses on these properties against other taxable income, like a salary, to reduce their overall tax liability.
For people who want to invest in existing property after the start date, they will still be able to deduct losses against residential property income, like rent or capital gains, but not broader income like a salary.
Investors will be able to carry forward losses to offset residential property income in future years. People who invest in eligible new builds after the start date will still be able to deduct rental losses from those properties against other taxable income.
Improving tax arrangements for capital gains
We’re fixing the tax treatment of capital gains so that it operates as originally intended, helping to ensure investment flows where it’s most productive.
Returning to indexation will mean in future, only real capital gains are subject to tax, supporting investment in assets like medium-density housing.
We’ll also introduce a minimum tax of 30 per cent to capital gains accrued from 1 July 2027, after indexation has been applied.
These changes will apply to all assets except new builds, where both new and old arrangements will be available to be chosen from 1 July 2027.
Further consultation will be undertaken with stakeholders to settle the details for implementation, including the treatment of early-stage and start-up businesses given the unique features of the tech and start-up sector.
These changes apply prospectively from the start date. The 50 per cent discount will still apply to gains accrued on eligible existing investments prior to the start date, regardless of when the gain is realised.
Most capital gains are made by people with high lifetime income, but because gains are taxed on realisation, there’s flexibility to sell assets when it’s most tax advantageous.
About a third of all net capital gains income is realised by people who are in the top one per cent of earners during their working life, and more than half of net capital gains income is earned by those in the top 10 per cent.
Introducing a minimum 30 per cent rate will ensure everyone pays a fair share when they make a capital gain. Income support recipients, including pensioners, will be exempt from the minimum rate.
A minimum tax rate on capital gains will reduce the incentive to hold onto an asset to realise a gain when it’s most tax advantageous and ensure a fair amount of tax is paid on capital gains, in line with lifetime incomes.
Overall, these reforms will mean some investors with lower gains relative to inflation pay less tax, while some with large gains well above inflation will pay more, and the tax treatment of capital gains will be more consistent regardless of when assets are sold.
Since the Howard Government introduced the 50 per cent CGT discount in 1999, house prices have increased by more than 400 per cent – almost twice as fast as average full-time earnings – and the home ownership rate among 25-34 year olds declined by 7 percentage points from 2001 to 2021.
This reflects a broad range of forces. Supply has not kept pace with rising demand, but tax settings have also played a role.
Since the discount was introduced, the share of Australians owning shares outside of super has also declined almost 20 percentage points.
These reforms are also expected to improve the efficiency of investment decisions, as they are more likely to be made for economic reasons rather than tax outcomes.
Around 83 per cent of the benefit of the current CGT discount goes to those in the top 10 per cent of taxpayers by income.
These changes will help more Australians into homes and make our tax system fairer and more sustainable.
Fairer tax arrangements for discretionary trusts
The introduction of a 30 per cent minimum rate will mean a fairer and more sustainable rate of tax paid on discretionary trust income.
Currently, discretionary trusts allow some Australians, often high wealth individuals and families, to plan their tax affairs in ways that aren’t available to most people.
In 2022–23, on average, families with discretionary trusts faced an average tax rate around 4 percentage points lower compared with families on similar incomes that don’t use trusts.
There are legitimate reasons to use trusts, such as succession planning and asset protection, but the current settings are becoming unsustainable with the number of discretionary trusts more than doubling over the past 20 years.
These reforms won’t change or limit the use of trusts for legitimate reasons, but will more closely align the tax rates for trusts with the rates paid by workers and families who earn a living from wages.
This will help fund important reforms like the latest round of income tax cuts and mean ordinary workers carry less of the burden in the tax system.
The minimum tax won’t apply to other types of trusts that don’t offer the same flexibility like fixed and widely held trusts, charitable and special disability trusts, or complying superannuation funds. It also won’t apply to deceased estates, primary production income, certain income relating to vulnerable minors, and income from assets of discretionary testamentary trusts existing at announcement.
We will provide expanded rollover relief for three tax years starting on 1 July 2027 so that businesses and individuals using a trust can restructure their affairs ahead of the start date if they want to.
The overwhelming majority of Australians don’t receive income from a trust, and they shouldn’t be disadvantaged because of it.
Over 90 per cent of private trust wealth is held by the wealthiest 10 per cent of households.
These reforms will make the tax system fairer, more sustainable and help fund tax cuts as well as the essential services Australians rely on.
A better tax system for business by encouraging investment and innovation
Business investment and innovation are crucial to lifting productivity, real wages, jobs and overall living standards.
Australia has experienced two decades of slow productivity growth and the Government is delivering a significant productivity package to help turn this around, including $3.5 billion in new measures that lower taxes for businesses.
Tax settings are crucial to productivity – influencing business investment, risk taking, innovation and dynamism.
That’s why we’re introducing significant tax reforms that help businesses invest, innovate and grow, and support small businesses.
We are:
- Permanently introducing two-year loss carry back for all companies up to $1 billion in turnover from 2026-27, to support resilience, investment and sensible risk taking by Australian firms. This will benefit up to 85,000 businesses each year.
- Introducing loss refundability for start-ups from 2028-29, to help new businesses invest and grow in their first two years. Refundability will be capped at the amount of fringe benefits tax and PAYG withholding from employees’ wages. This will benefit up to 25,000 start-ups each year.
- Expanding tax incentives for venture capital from 2027-28, by increasing some asset caps not adjusted for over 20 years, to unlock more investment in venture capital by global and local investors – including super funds – supporting the next wave of innovative Australian businesses to start up and scale up.
- Better targeting and simplifying the Research and Development Tax Incentive from 2028-29, to support more high-impact innovation.
- Making the $20,000 small business instant asset write-off permanent, to support small businesses to invest and deliver around $890 million in cash flow support over the next five years.
These reforms will support a more dynamic and resilient economy by encouraging investment, sensible risk-taking and innovation through the economy.
A simpler and more sustainable tax system
We are making the tax system simpler to reduce compliance costs for businesses and individuals by $540 million a year while also ensuring the system is set up for the long term.
The Government’s reform package includes substantial new measures to bring down compliance costs, and make trade and investment simpler and easier.
We are:
- Delivering the $1,000 instant deduction for work-related expenses from 2026‑27, making tax time simpler for 6.2 million workers with an average tax saving of $205.
- Making the $20,000 small business instant asset write-off permanent to slash compliance costs for small businesses by around $32 million a year, saving them 366,000 hours on record keeping.
- Working with the ATO to expand access to dynamic monthly business tax payments from 1 July 2027, so more businesses can opt in to use tax software to make their tax instalments line up with actual business activity each month, saving them time and money.
- Abolishing 497 more nuisance tariffs from 1 July 2026 and consulting on abolishing another set of tariffs to cut costs for Australian businesses, strengthen competitiveness and enhance productivity. This means we have removed almost 1,000 tariffs in two years, streamlining $23 billion of trade and saving businesses $157 million a year in compliance costs.
- Transitioning to a permanent 25 per cent discount on fringe benefits tax for eligible electric cars over $75,000 from 1 April 2027 and for all eligible electric cars from 1 April 2029. This will ensure we continue providing targeted support for Australians switching to electric cars while also ensuring more sustainable long-term tax settings.
Tax reform for today, and for the long term
This is the most significant tax reform package for more than a quarter of a century and it continues the Albanese Labor Government’s record of responsible economic management.
The new revenue raised will be returned to workers and businesses in the near term and, together with our substantial expenditure savings, will improve budget sustainability over the medium term.
The Government will introduce tranches of legislation to implement these changes as soon as possible, with further consultation to settle the details for implementation where appropriate.
We’re taking further steps in this Budget to restore the great Australian dream of home ownership for more Australians, give more workers permanent cost of living relief and help businesses grow and invest.
Our reforms will make our tax system better, fairer and simpler and make our economy and our tax system work in the interests of more Australians.
This Budget is all about resilience and reform, which is why our tax relief for workers and businesses and our plans for a fairer housing market and fairer tax system are so important.