Australia's 2026-27 Tax Reforms - What's Changed As The New Financial Year Begins

From 1st July 2026, the tax rate on income between $18,201 and $45,000 has dropped from 16% to 15%, with a further cut to 14% due from 1st July 2027. Rates remain unchanged for earnings over $45,000. This table summarises rates:

It's also worth mentioning that from 2027-28, a new $250 Working Australians Tax Offset will apply to every worker earning a wage, salary, or sole trader income.

A $1,000 instant deduction for work-related expenses has been introduced, removing the need to keep receipts for smaller claims. This simplifies taxes for many individuals. For those with actual expenses over $1,000, it is still possible to claim for itemised expenses with receipts.

Two changes stand out for anyone holding residential investment property. These are aimed at helping more Australians get into the housing market. 

Negative gearing happens when a rental property's costs (mortgage interest, maintenance, management fees and depreciation) exceed its rental income. The resulting loss can currently be deducted against an owner's other income, such as wages or salary, reducing their overall tax bill.

First, negative gearing will be limited to new builds from 1^st July 2027. Any property already held at 7:30pm AEST on 12 May 2026 is grandfathered and can continue to be negatively geared as before. Property bought between the Budget announcement and 30 June 2027 can still be negatively geared until that date. After that, losses on established housing bought from 1^st July 2027 can only be offset against rental or property-related income, not against wages or other income, meaning the loss is carried forward rather than used to reduce tax on other earnings straight away.

Second, the 50% capital gains tax discount is being replaced by cost base indexation, alongside a new 30% minimum tax on net capital gains, from 1st July 2027. In practice, this means the cost base of an asset is adjusted upwards in line with inflation, and tax is charged on the gain above that adjusted figure, rather than a flat 50% of the gain being ignored as before. 

Whether this works out better or worse than the old discount depends on the individual case - it tends to favour longer holding periods and more modest, inflation-tracking returns, and to disadvantage shorter holds or assets with strong real growth. Crucially, the change is not retrospective: for assets already held, the 50% discount continues to apply to gains that built up before 1^st July 2027, with indexation and the minimum tax only applying to the portion of the gain that accrues after that date, using the asset's value at 1^st July 2027 as the new starting point. 

That value will need to be established either through a formal valuation or an ATO-approved formula, so anyone planning a sale after this date should factor valuation evidence into their timeline. The rules apply broadly, not just to property but to shares and other capital assets too, with new-build residential property the main exception, where investors can choose between the old and new treatment. Gains that accrue before 1^st July 2027 retain the old treatment regardless, so timing matters for anyone considering a sale of property or shares in the near term.

From 1^st July 2028, if proposed changes are passed into law, trustees of discretionary trusts will pay a minimum 30% tax on the trust's taxable income, regardless of how that income is distributed. Beneficiaries other than companies will get a non-refundable credit for tax the trustee has paid. Those on a marginal rate above 30% will need to pay top-up tax, while those below 30% will simply lose the excess credit rather than receiving it back as a refund.

Superannuation funds, fixed and widely held trusts, charitable trusts, deceased estates, and testamentary trusts already in existence at the 12^th May 2026 announcement are excluded. A three-year rollover window from 1^st July 2027 will allow restructuring out of a discretionary trust into a company or fixed trust without triggering income tax or capital gains tax.

From 20^th September 2026, the government will extend payment of the full pension supplement from six weeks to twelve weeks of overseas travel, benefiting an estimated 92,000 pensioners who spend extended periods overseas each year. 

At the same time, the pension supplement will no longer be paid to retirees who live permanently overseas or who are temporarily overseas for more than twelve weeks. In those cases, payment of the supplement will cease on departure. Around 88,000 pensioners already living overseas permanently are expected to see their payments reduced as a result.

A handful of further measures round out the picture. The Medicare levy low-income thresholds are increasing by 2.9% from the 2025-26 year, giving modest relief to lower earners. The $20,000 instant asset write-off for small businesses has been made permanent from 1^st July 2026, and loss carry-back has been reintroduced for eligible companies from 2026-27. Electric vehicle fringe benefits tax concessions are also being wound back to a permanent 25% discount from 1 April 2029.

Several of these reforms carry particular weight for Australians living overseas.

The personal tax cuts and new offsets are aimed at Australian tax residents. If you have become a non-resident for Australian tax purposes while living abroad, the resident tax-free threshold and offsets described above generally do not apply to you in the same way, so it is worth confirming your residency position before assuming these cuts change anything for you.

The property and capital gains timing rules are especially relevant if you own Australian investment property from overseas. Whether to sell before or after 1^st July 2027, or whether new-build stock makes more sense than established housing, is now a genuine planning question rather than a formality.

The trust reforms matter for expat families who use discretionary trusts to hold Australian assets or manage intergenerational wealth, including arrangements where superannuation death benefits are directed into a testamentary trust. Structures set up before the announcement retain some protection, but anything established or restructured afterwards will not, so this is worth reviewing well ahead of 2028.

None of this is a reason to panic, but the value of getting good advice before deadlines like 1^st July 2027 and 1^st July 2028 arrive is higher than it has been for some time. 

If you would like to understand exactly how these changes apply to your residency status, property holdings, or estate structure, our advisers work with Australian expats around the world every day and can talk you through what action, if any, makes sense for your circumstances.

Contact us today for a free consultation.