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Audit | Tax | Advisory
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UHY Haines Norton · Sydney · Australia
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| Federal Budget Paper
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Budget Measures.
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| A UHY Haines Norton analysis of reforms announced on Budget Night. |
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Delivered · 12 May 2026
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Section 01 · The Overview
Why this Budget is different.
Three big reforms — to capital gains, negative gearing and trust taxation — reshape the architecture clients have used for decades.
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Treasurer Jim Chalmers handed down the Albanese Government's fifth federal Budget on Tuesday 12 May 2026 — the first since Labor's re-election.
The reforms to negative gearing, the capital gains tax regime and the taxation of discretionary trusts, together represent the most ambitious rewrite of Australian tax architecture since the 1985 reforms. They are not just headline changes, they will reshape future investment decisions, investment returns and also holding structures, including discretionary trusts, for years to come.
Other measures are welcome for businesses – a permanent $20,000 instant asset write-off and reinstated loss carry-back are the most durable certainty SMEs have had in five Budgets. The R&D Tax Incentive reforms — a 4.5 percentage-point lift in the refundable rate combined with a threshold increase for the refundable R & D offset will be of benefit. The reinstatement of the loss carry back rules is also a plus.
Employees and sole trader businesses also benefit with $1,000 annual deductions without receipts and a newly introduced modest $250 annual tax offset.
It is important to remember that many of the measures outlined in the following are proposals only and will require passage through Federal Parliament before they become law.
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Section 02 · Executive Summary
Executive summary.
Three structural reforms from Budget night.
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Housing & property rewrite
Negative gearing limited to new builds from 1 July 2027. CGT 50% discount replaced with cost-base indexation for assets held for more than 12 months, with a 30% minimum tax rate on capital gains.
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Trust taxation
Discretionary trusts taxed at a minimum 30% rate, paid by the trustee, from 1 July 2028. Fixed, special-disability and charitable trusts exempt.
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Business taxation
$20,000 instant asset write-off made permanent. Loss carry back for revenue losses of companies from 1 July 2026. Loss refundability for small start-up companies from 1 July 2028. Increasing the R & D turnover threshold for the refundable offset to $50m for the 2028-29 income year and also increasing the offset for core R & D expenditure by around 25 to 50%.
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Section 03 · Fiscal & Economic Information
Key economic information.
Treasury frames the package as “a hard road of reform.”
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| Measure |
2026–27 |
2027–28 |
2028–29 |
| Real GDP growth |
1.75% |
2.25% |
2.5% |
| Headline CPI |
5.0% |
3.0% |
2.5% |
| Unemployment |
4.5% |
4.75% |
4.5% |
| Wage Price Index |
3.25% |
3.25% |
3.5% |
| Net debt (% of GDP) |
22.4% |
23.6% |
24.1% |
Source: Budget Paper No. 1.
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The fiscal shape.
Total spending of $833.2 billion is up $47.5 billion on the prior year. The underlying cash deficit of $28.3 billion is wider than the pre-election forecast but narrower than the worst-case scenario circulated in March. Real GDP growth has been revised down from 2.25% to 1.75%; global growth is now forecast at 3.0%.
Inflation tells the most consequential story. Headline CPI is forecast to peak at around 5% in mid-2026 before returning to the RBA's target band by mid-2027. Treasury's modelled adverse case assumes a protracted Middle East conflict, oil at US$200 / barrel, and an inflation peak closer to 7%.
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Section 04 · Major Reform — Negative Gearing, CGT and Trusts
The property rewrite.
Australian property investment has rested on negative gearing and a 50% CGT discount for twenty-five years. Both are being replaced.
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Negative gearing — limited to new builds.
From 1 July 2027, investors who acquire established residential property after Budget night will only be able to deduct losses against residential property income or capital gains from the sale of residential properties — not against wages or other income. Unused losses can be carried forward and are available to offset residential property income in future years.
Existing properties held (including contracts entered into but not yet settled) at 7:30 pm AEST on 12 May 2026 are grandfathered to the existing rules, thereby allowing negative gearing.
Investment in new builds are exempt from the changes, as are affordable / community housing investments and properties held in widely held trusts and in superannuation funds.
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Example
A high-income earner today offsetting a $25,000 annual rental loss against salary saves up to $11,750 in tax (assuming 47% marginal tax rate). From 1 July 2027 the same loss against an established property delivers no immediate benefit and instead sits as a carried-forward deduction.
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Capital Gains Tax — 50% discount replaced.
The 50% CGT discount for individuals, trusts and partnerships will be replaced with two changes working together:
| Cost-base indexation — inflation-adjusted gains will be taxed for assets held for more than 12 months; and |
| 30% minimum rate — applied to net taxable capital gains regardless of marginal tax rates. |
Gains accrued before 1 July 2027 retain the existing 50% discount for assets held for more than 12 months under transitional rules. The new cost-base indexation then applies using the market value of the asset as at 1 July 2027.
Capital gains on pre-September 1985 assets arising before 1 July 2027 will be exempt from capital gains tax. Those pre-September 1985 assets will then apply cost-base indexation from that date using the market value of the asset as at 1 July 2027.
To maintain incentives for new housing supply, investors in new residential properties will be able to choose either the 50% CGT discount, or cost base indexation and the minimum tax upon sale.
Income support payment recipients, including Age Pension recipients will be exempt from the 30% minimum tax, marginal tax rates instead will apply.
83% of the CGT discount flows to the top 10%.
The replacement — indexation plus a 30% flat rate — aligns CGT with the marginal rate of the average worker. For top-bracket sellers, the 30% floor is below the existing 23.5% effective rate, but only after indexation strips out inflation, which materially reduces the taxable base on long-held assets.
Transitional arrangements.
For all assets owned by individuals, trusts and partnerships other than new residential properties:
| Assets purchased and sold prior to 1 July 2027 — no changes in arrangements. |
| Assets purchased after 1 July 2027 — will be treated wholly under the new arrangements. |
| Assets owned prior to 1 July 2027 and sold after 1 July 2027 — will be treated under current arrangements on gains made prior to this date, and under new arrangements for gains made after this date (no tax impact until the gains are realised upon sale). |
The 50% CGT discount will apply to the difference between the asset's cost base and its value at 1 July 2027. Indexation and the minimum tax will be used to calculate the CGT on gains accruing from 1 July 2027 (using the asset's value at 1 July 2027 as the asset's cost base).
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Property rewrite example
Impacts on existing property investors.
Michael owns an investment property purchased before 12 May 2026 that is negatively geared. He can continue to negatively gear this property in future years by using losses from his investment property against other income.
Michael sells the property two years after the policy commences for $560,000. Michael still receives the 50% CGT discount for the capital gain he makes on the property between the purchase date and 1 July 2027. He uses ATO tools to determine its value on that date was $500,000.
After adjusting for two years of inflation of 2.5%, his taxable capital gain for the period after 1 July 2027 is $34,688, slightly more than if he had applied a 50% discount (which would have resulted in a taxable capital gain of $30,000).
Assuming a 47% tax rate, the tax on his gain since 1 July 2027 is $16,303 (instead of $14,100 with a 50% discount). Michael does not pay any tax on the capital gain until he sells his property.
Source: Budget 2026–27 Fact Sheet: Negative Gearing and Capital Gains Tax Reform.
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Major Reform · Trusts
Discretionary trusts reform.
Changing the trust distribution of income landscape.
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Minimum 30% tax on discretionary trusts.
The government will introduce a 30% minimum tax on discretionary trusts.
From 1 July 2028, trustees will pay a minimum tax of 30% on the taxable income of discretionary trusts (i.e. non-fixed trusts). Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax paid by the trustee.
Trusts not subject to the tax
The minimum tax will not apply to other types of trusts such as:
| fixed and widely held trusts (including fixed testamentary trusts) |
| complying superannuation funds |
| special disability trusts |
| deceased estates, and |
| charitable trusts. |
Trust income to be excluded
The following types of income will be excluded:
| 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. |
Roll-over relief to restructure
An expanded roll-over relief will be available for 3 years from 1 July 2027 to support small businesses and others that wish to restructure out of discretionary trusts into another entity type such as a company or a fixed trust.
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UHY Comment
The classic strategy of streaming income to lower-rate beneficiaries collapses. For trusts whose beneficiaries are predominantly above 30%, the change is broadly neutral; below 30%, the effective rate rises sharply. Restructuring into a corporate structure, a fixed trust, or accelerating pre-1 July 2028 distributions are all on the table.
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Section 05 · Personal Tax Measures
Personal tax measures.
Two measures reach virtually every working Australian.
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| Measure |
Detail |
Commencement |
| $1,000 instant tax deduction |
Work-related deductions without receipts for employees and sole trader businesses. |
2026–27 income year |
| Working Australians Tax Offset (WATO) |
$250 non-refundable offset for employees and sole trader businesses. |
2027–28 income year |
| Medicare levy threshold lift |
Thresholds raised 2.9%: singles to $28,011; families to $47,238. |
1 July 2026 |
| Private Health Insurance Rebate capped |
Aged based uplifts of rebate percentage will be removed, with a single rebate rate for all. |
1 April 2027 |
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Whilst not specifically mentioned in the budget, previously announced tax cuts for all Australians will commence from 1 July 2026. The changes are to the marginal tax rate applicable to taxable income in the range from $18,201 to $45,000, which will be reduced from 16% to 15% from 1 July 2026, and then further reduced to 14% from 1 July 2027.
Reading the package.
The Budget's relief for households is modest in dollar terms but broad in reach. By 2028, almost every working Australian will be touched by at least one of the personal measures — and over six million by both.
The $1,000 instant deduction is a procedural simplification rather than a cash bonanza: a salaried worker earning $90,000 with no other deductions saves roughly $325 in tax. Clients who already substantiate deductions above $1,000 should retain their records — the instant deduction is a floor, not a cap.
The Working Australians Tax Offset (WATO) is the more durable measure. Permanent, indexed, and worth $250 a year. Because it is non-refundable, taxpayers below the tax-free threshold see no benefit.
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Section 06 · Business
Business measures.
A long-standing concession made permanent.
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| Measure |
Detail |
Commencement |
| $20,000 instant asset write-off |
Made permanent for entities with turnover under $10m. |
1 July 2026 |
| Loss carry-back (companies) |
Reintroduce loss carry back rules for revenue losses for companies with an aggregated turnover of less than $1b allowing a refund of up to two years' prior tax, subject to a limit equal to the company's franking account balance. |
1 July 2026 |
| Loss refundability (start-ups) |
Small start-up companies with under $10m turnover that generate a loss in their first 2 years of operation will be able to utilise the loss to generate a refundable tax offset – limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year. |
1 July 2028 |
| FBT — electric cars |
Wind back of FBT exemption to a permanent 25% FBT discount. |
1 April 2029 |
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Section 07 · Innovation, R&D & Capital
Innovation, R&D & capital.
A 4.5 percentage-point uplift in the refundable R&D rate, expanded venture capital concessions, and the Pillar Two side-by-side package finally settled.
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R&D Tax Incentive — reformed.
A number of changes have been announced to the R&D Tax Incentive regime, with effect from 1 July 2028.
The threshold for access to the refundable R&D tax incentive will be raised from aggregated turnover of $20 million up to $50 million. For firms under this $50 million threshold refundability will be limited to firms under 10 years of age.
The cap on eligible expenditure will also be increased from $150 million to $200 million.
The offset rate for core R&D expenditure will be increased by around 25 to 50% through a 4.5 percentage point increase in core R&D offset rates.
The intensity threshold will also be reduced from 2% to 1.5% enabling more firms that engage in substantial core R&D to qualify for higher offset rates.
There will also be a removal from eligibility of supporting R&D expenditure for the R&D tax incentive.
Venture capital — expanded concessions.
The venture capital tax incentives have been expanded by increasing a number of caps that apply to the schemes.
The Venture Capital Limited Partnership (VCLP) cap on the asset size of the investee business at the time of investment will increase from $250 million to $480 million.
The Early Stage Venture Capital Limited Partnership (ESVCLP) cap on the asset size of the investee business at the time of investment will be increased from $50 million to $80 million.
The ESVCLP tax incentive cap on the asset size of the investee business, at which investment returns can be fully tax exempt, will increase from $250 million to $420 million.
The maximum fund size of ESVCLPs will be increased from $200 million to $270 million.
The increases will apply to new and existing funds and to new investments they make, including where funds make further investments to businesses already held. ESVCLPs must remain in compliance with their existing investment plans or seek approval for a replacement plan.
But note, the eligible venture capital investor program will be closed to new applications from 7.30pm (AEST) 12 May 2026.
Pillar Two side-by-side package.
The Government will amend the current global and domestic minimum tax legislation in order to incorporate the side-by-side package agreed by the OECD/G20 in January 2026. This will ensure consistency of Australia's rules with those applying across all participating jurisdictions.
The package includes simplifications, and extensions of transitional safe harbour rules. These changes will apply from 1 January 2026.
International tax.
For international groups with consolidated revenue above €750 m, the safe-harbour formula offers a material compliance saving. A review of your existing GloBE position against the safe-harbour outcomes is recommended before the applicable lodgement deadlines.
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Section 08 · Other Receipts & Integrity
Other receipts & integrity.
Eight further revenue measures — none individually large but together raising $5.6 billion over the forward estimates.
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| Measure |
Detail |
Window |
Revenue |
| Graduate visa charge — temp. |
Temporary fee on subclass 485 graduate visa holders. |
2026–27 to 2028–29 |
+$1.2 b |
| Passenger Movement Charge |
Increase from $70 to $80 per departure. |
From 1 Jan 2027 |
+$0.42 b |
| Fuel excise — temporary cut |
Excise reduced by 32c/L for 3 months from April 2026. |
Apr–Jun 2026 |
–$2.95 b |
| Foreign investment ban |
Ban on foreign purchase of established dwellings extended to 2029. |
Until 30 Jun 2029 |
— (regulatory) |
| ATO compliance program |
Permanent funding for tax-avoidance taskforce — multi-national, GST, shadow economy. |
Ongoing |
+$3.1 b |
| Tobacco — anti-illicit |
Border Force / ATO illicit tobacco enforcement. |
From 2026–27 |
+$0.78 b |
| HELP indexation cap |
HELP loans indexed at lower of CPI / WPI; backdated to June 2023. |
Backdated |
–$0.21 b |
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What stands out.
ATO compliance program. $3.1 billion is the largest single integrity measure. Clients should expect intensified ATO data-matching — particularly on intercompany pricing, capital gains, and shadow-economy activity.
Fuel excise. The 32c/L temporary reduction is a three-month relief valve targeted at the inflation peak. Not a structural change.
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Section 09 · Payments & Spending
Payments & spending.
$11.0 billion of net new payment commitments — partly offset by the largest single saving on the payments side in two decades.
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| Programme |
Detail |
4-year net |
| NDIS reset |
Growth target reduced from 8% to 5.5% pa. ~160,000 fewer participants. Eligibility tightening; plan-management reform. |
–$37.8 b |
| Strengthening Medicare |
Bulk-billing incentive expansion; 12 new Urgent Care Clinics; mental health Better Access reform. |
+$8.5 b |
| Cheaper medicines |
PBS general-script max cost reduced from $31.60 to $25; pensioner co-payment frozen. |
+$1.8 b |
| Defence — AUKUS & capability |
Capability uplift; submarine construction; cyber; sovereign munitions manufacturing. |
+$10.6 b |
| Housing supply |
$2.0 b housing infrastructure; community-housing youth pilot; build-to-rent. |
+$2.06 b |
| Free TAFE |
Made permanent; 100,000 additional places per year from 2027. |
+$1.4 b |
| Early childhood |
Three-day childcare subsidy guarantee; ECE workforce wages package. |
+$3.2 b |
| Climate & energy |
Capacity Investment Scheme expansion; Hydrogen Headstart top-up; transmission. |
+$4.9 b |
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The NDIS reset, in context.
The $37.8 billion NDIS saving over four years is the largest single payment-side measure in this Budget and the largest cut to a major social programme in two decades. The Government has framed it as “moderation of growth,” not a cut: the scheme still grows, at 5.5% rather than 8% annually. Around 160,000 fewer Australians than previously projected will be NDIS participants by 2030.
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UHY · Social-sector clients
For our NDIS-provider and disability-services clients, the reset materially changes the medium-term revenue assumption underpinning service-mix planning. We recommend a structured review of forward funding assumptions, particularly for providers with concentrated participant cohorts in the cut categories.
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At UHY Haines Norton we view our clients as part of our team and offer advice that is valuable, informative, trustworthy and functional. We don't just seek a solution — we seek, and implement, a workable, intelligent solution.
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UHY Haines Norton Sydney
Level 9, 1 York Street, Sydney NSW 2000
+61 2 9256 6600
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sydney@uhyhnsyd.com.au
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uhyhnsyd.com.au
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Disclaimer
This UHY Budget Paper is based on Budget announcements made on 12 May 2026 and reflects measures subject to the passage of legislation. It is general in nature and does not constitute personal financial, tax or legal advice. Clients should obtain advice specific to their circumstances before acting on any matter in this Paper.
UHY Haines Norton ABN 85 140 758 156 in Sydney (“the Firm”) is an independent member of UHY Haines Norton (“the Association”) across Australia and New Zealand. The Association is an independent member of Urbach Hacker Young International (“UHY International”), a UK company. Liability limited by a scheme approved under Professional Standards Legislation.
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