On Tuesday 12 May, Australian Treasurer Jim Chalmers delivered his fifth Federal Budget and the first since the Labor Party’s election victory in May 2025.
This Budget was delivered amid ongoing global economic uncertainty.
Last year, President Trump’s tariffs were creating a difficult and unpredictable economic climate. This year, conflict in the Middle East is doing much the same thing, adversely affecting consumer and business confidence and creating cost-of-living challenges for many Australians.
The macroeconomic background to this Budget statement
As a result of the global uncertainty, the government was forced to deliver this Budget in a challenging environment defined by inflationary pressures, rising interest rates, and slowing growth.
Due to the sharp increase in oil and fuel prices, Australia’s annual inflation rate rose from 3.7% to 4.6% in the 12 months up to the end of March 2026. The Guardian reported expectations that it could exceed 5% in the near term, intensifying cost-of-living pressures on households.
On 5 May, the Reserve Bank of Australia (RBA) raised its cash rate to 4.35%. This third consecutive rate increase signals further fiscal tightening, with forecasts suggesting rates could rise further, even as economic growth slows.
Read on for some of the key Budget announcements that could affect your personal finances and wealth planning.
The Treasurer announced big changes to Capital Gains Tax
Probably the biggest announcement from a financial planning perspective was the changes the Treasurer announced to Capital Gains Tax (CGT).
Currently, if you hold an asset for more than 12 months before disposing of it, you will generally receive a 50% CGT discount, which means that only half of the capital gain is taxed at your marginal rate of Income Tax.
However, the Treasurer proposed replacing that system with an inflation-indexation model from 1 July 2027.
This means that, instead of the gain automatically being halved, the taxable amount will be the full capital gain minus an inflation adjustment.
Importantly, the reforms will only apply to gains made after 1 July 2027, with any gains made before that date still qualifying for the 50% discount.
The Treasurer also announced that you will pay at least 30% tax on gains under a new minimum rate, regardless of your marginal rate of tax.
Your primary residence remains exempt, and pensioners will be exempt from the 30% rate.
Please note: This is only a summary of the announced changes to CGT. More detailed announcements will follow, and these changes remain subject to legislation.
We intend to produce a more detailed article on this subject in a future newsletter.
“Negative gearing” for new build properties will be limited immediately
The CGT changes announced in the Budget are accentuated by additional changes announced to “negative gearing”.
Negative gearing allows investors to offset the costs of owning assets such as residential property against their tax bill.
But this will cease for all properties purchased after Budget night (12 May). As a result, speculative investment in residential property is likely to become less attractive.
However, newly built houses will still be eligible for negative gearing, and investors in new builds may be able to choose between the old CGT discount and the new indexation approach.
Changes to Capital Gains Tax could make superannuation a more attractive option
There were no direct superannuation changes announced in this Budget, as contribution rates and access rules remain unchanged.
However, the announced changes to CGT mean that property and share investing outside super may become less tax-efficient.
As a result, super funds – which will remain largely protected from the higher CGT changes – could become more tax-efficient than investing outside super, as investment earnings within your super can still be taxed at the concessional rate of 15%.
You should also be aware that, from 1 July 2026, super balances above AUD$3 million will transition to the new Division 296 tax, which applies a higher tax rate to earnings on amounts above that threshold.
Both of these changes should prompt you to review your super funds and wider investment strategy to ensure they are as tax-efficient as possible.
The ban on foreign purchase of residential property is extended until 2029
The temporary ban on foreign purchases of established residential dwellings will be extended by 2
years and 3 months until 30 June 2029.
The ban, announced as a measure in the 2025/26 Budget, was originally implemented for 2 years, from 1 April 2025.
Current limited exceptions to the ban for purchases of established dwellings that support housing supply will continue.
General exemptions from foreign investment screening will also continue to apply to purchases of established dwellings, including those by permanent residents and New Zealand citizens.
Some trusts will be subject to a 30% tax charge
Families and some businesses primarily use discretionary trusts to protect assets, manage wealth, and mitigate tax.
However, from July 2028, they will become a less attractive tax planning option, as they will be subject to a new 30% tax.
Small businesses and other taxpayers will have three years from 1 July 2027 to restructure discretionary trusts into alternative arrangements.
As a result of this announcement, we recommend that you review your trust arrangements and seek expert advice on the best way to manage your assets.
The Budget includes positive news if you own a small business
Under a new scheme announced by the Treasurer, if you own a small business, you will be able to reduce the profits you reported in the previous two years as a result of recent losses.
That could result in a reduced retrospective tax bill in those years, and in some cases, a refund from the ATO.
The policy, known as a “loss carry-back”, will become a permanent facility for companies with up to $1 billion in turnover.
Additionally, the $20,000 small-business instant asset tax write-off that was announced in last year’s Budget has been made permanent.
Income Tax cuts announced last year will take effect from 1 July 2026
The first of two cuts to the lowest Income Tax rate announced in last year’s Budget will take effect from 1 July 2026, reducing the 16% rate to 15%.
Then, from 1 July 2027, the rate will be reduced further to 14%.
This means that anyone earning above $45,000 will benefit by $268 in 2026/27, rising to $536 in 2027/28.
In addition, in this year’s Budget, the Treasurer confirmed a new annual worker tax offset of $250, which will also start from the 2026/27 tax year.
Get in touch
We will cover any key Budget issues that may affect you at your next annual review, but if you have any particular concerns in the meantime, please get in touch with us.
Please note
These changes are currently only proposals and are subject to legislation.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All content is based on our understanding of ATO legislation and the Budget report, which are subject to change.