Federal Budget 2026-27

Corporate tax

Loss carry back

To support resilience and investment, the Government has announced that it will permanently reintroduce the loss carry back rules, allowing companies to carry back a tax loss and apply it against income tax paid in earlier income tax years. These provisions were last seen during the COVID years.  

Under these provisions, companies with an aggregated global annual turnover less than $1b will be able to carry back income tax losses incurred in the income tax years commencing 1 July 2026 to offset against income tax paid up to two years earlier. The loss carry back will apply to income tax losses only. The amount of the carry back will be limited by the company’s franking account balance. 

Loss refundability

To help new businesses invest and grow in their first two years, the Government has announced it will introduce loss refund provisions for small start-up companies. For income tax years commencing on or after 1 July 2028, start-up companies in the first two years of operation with an aggregated annual turnover of less than $10m will be entitled to convert tax losses generated into a refundable tax offset. The offset is limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the relevant loss year. 

Foreign resident Capital Gains Tax

Expanding the tax net retrospectively

Following the end of the consultation period, the Government has introduced draft legislation to give effect to amendments first announced in the 2024-25 Budget. These changes enhance the integrity and certainty of the foreign resident CGT rules in Division 855 of the Income Tax Assessment Act 1997 (ITAA 1997): 

• Clarifying and broadening the types of assets subject to CGT for foreign residents by amending the definition of ‘real property’ retrospectively;
• Amending the point-in-time principal asset test (PAT) to a 365-day testing period;
• Requiring foreign residents disposing of shares and other membership interests exceeding $50m in value to notify the Australian Taxation Office (ATO) in the approved form before executing the transaction. 

The commencement date for the provisions has again been deferred until the legislation is passed by Parliament. The amendment clarifying and broadening the types of assets subject to CGT for foreign residents will operate with retrospective application from 12 December 2006. 

Rewarding non-residents investors for their faith in Australian renewable energy 

The Government has also introduced draft legislation to provide a 50 per cent CGT discount on disposals on or before 30 June 2030 for investments made by foreign residents in assets located in Australia that produce renewable energy.

Corporate reporting relief

Reporting relief for large propriety companies

The Government has announced it is looking to reduce reporting obligations by raising monetary thresholds for large proprietary companies from $50m to $100m of consolidated revenue and $25m to $50m of consolidated gross assets. As a result, Australian businesses that fall under these amounts will no longer need to lodge an annual audited financial report, directors’ report or sustainability report.

International tax

Pillar Two – Side-by-Side Package implementation

Consistent with jurisdictions that have adopted the OECD/G20 Global Anti-Base Erosion (GloBE) rules, the Government announced it will amend the Pillar Two provisions by implementing the side-by-side package. The side-by-side package will apply from 1 January 2026. 

Capital and investment

Capital Gains Tax  

The Government announced it intends to introduce legislation to amend the Capital Gains Tax (CGT) discount. The current law allows individuals, partners in partnerships, and trusts to discount capital gains realised on the disposal of CGT assets held for more than 12 months by 50 per cent.   
 
Under the proposed legislation, from 1 July 2027, the 50 per cent discount will be replaced by a cost-base indexation method. This method will allow taxpayers to index the cost base of CGT assets held for more than 12 months. Additionally, a 30 per cent minimum tax on net capital gains will apply for capital gains made by individuals, trusts and partners in partnerships.  
 
The changes will apply to all CGT assets, including pre-CGT assets disposed from 1 July 2027. Under the transitional arrangements, the impact on existing investments will be limited by ensuring the changes only apply to gains arising on or after 1 July 2027. The 50 per cent CGT discount will continue to apply to gains arising before 1 July 2027, and capital gains on pre-CGT assets arising before 1 July 2027 will continue to be exempt from CGT. Investors in new residential housing will be able to choose between applying the:  

• 50 per cent CGT discount, or  
• the cost-base indexation method and 30 per cent minimum tax on the capital gain.    

In addition, income support payment recipients, including aged pension recipients, will be exempt from the minimum tax.

Negative gearing

From 1 July 2027, losses relating to established residential investment properties acquired after 7.30pm (AEST) on 12 May 2026 will no longer be deductible against an individual’s broader taxable income. Instead, these losses will be quarantined such that they can only be offset against rental income or capital gains derived from residential properties. Any excess losses will only be carried forward and applied against future residential property income or gains.

As a transitional measure, the established residential properties acquired between 7.30pm (AEST) on 12 May 2026 and 30 June 2027, current negative gearing arrangements will continue to be eligible until 30 June 2027. However, from 1 July 2027, any rental losses attributable to these properties will be subject to the new quarantining rules.

These changes will not apply to the following:

• Eligible new builds.
• Established residential properties acquired before 7.30pm (AEST) on 12 May 2026 up to the point of disposal.
• Properties in widely held trusts (for example, most managed investment trusts).
• Properties in superannuation funds (including SMSFs). 

Amendments to venture capital tax incentives

The Government announced its intention to expand the venture capital tax incentives from 1 July 2027.

These changes will also apply to existing funds, as well as follow-on investments in businesses that they already own.

The amendments expand the following thresholds:

• The maximum value of an investee entity’s assets immediately prior to receiving investment by a venture capital limited partnership from $250m to $480m;
• The maximum value of an investee entity’s assets immediately prior to receiving investment by a venture capital limited partnership from $50m to $80m;
• The cap on total asset value of an entity whose shares are owned by an early-stage venture capital limited partnership tax for fully tax-exempt investment returns from $250m to $420m;
• The maximum value of early-stage venture capital limited partnerships to be increased from $200m to $270m.

The early venture capital investor program will be closed to new applications from Budget night (12 May 2026).

Overall, these changes are welcome changes, as they increase the usefulness of Early Stage Venture Capital Limited Partnerships (ESVCLPs) and Venture Capital Limited Partnerships (VCLPs). Previously, if an investor sought to invest in a business that exceeded the EVCI thresholds, the fund would resort to incorporating additional alternative investment vehicles, resulting in additional set up and compliance costs for investors and investment managers. Under the proposed amendments, ESVCLPs and VCLPs may invest in a wider range of businesses by themselves. 

Trade & customs

Tariff abolition  

The government has announced the abolition of a further 497 nuisance tariffs from 1 July 2026, bringing the cumulative total abolished to approximately 1,000 since the Government came to office. The removal of these tariffs is estimated to reduce compliance costs for Australian businesses by $157m per year. The government has also indicated its intention to consult on the abolition of additional tariffs to further cut costs. These measures build upon the conclusion of free trade agreement negotiations with the European Union. By reducing tariff complexity and administrative burden, these changes support faster border processing and lower transaction costs for importers, contributing directly to productivity gains across trade‑exposed sectors.  

Broader administration and Trusted Trader

The Government has committed $7.6m to expand the Australian Trusted Trader (ATT) program. The ATT program provides accredited importers and exporters with streamlined border processes and reduced compliance obligations. Alongside this, the Government will streamline biosecurity border processes to facilitate the importation of fertiliser and other agricultural inputs, reducing delays for primary producers. The budget also includes measures to simplify the administration of trade regulations and business interaction with the Australian Border Force at the border. The expansion of risk‑based and trusted trader arrangements further aligns Australia’s border management framework with global trade facilitation best practice.  

Supply chain resilience  

In response to global supply chain disruptions arising from the Middle East conflict, the Government has established a $7.5b Fuel and Fertiliser Security Facility, through which Export Finance Australia has secured over 450m litres of additional diesel and approximately 100m litres of jet fuel. The Government has also facilitated the delivery of 250,000 tonnes of agricultural urea for Australian farmers and has entered landmark supply chain commitments with Japan, the Republic of Korea, Singapore, Malaysia and Brunei Darussalam to keep critical goods flowing.  

To improve domestic freight resilience, $55m has been allocated for a Transport Resilience and Capacity Kickstart pilot program, designed to incentivise greater freight volumes by rail and sea, improving fuel efficiency and supply chain redundancy. Cost recovery charges for agricultural export services have also been deferred, providing $8.2m in direct relief for exporters. Collectively, these initiatives embed trade and border policy within Australia’s broader economic resilience and supply chain security framework.

Fuel and cash flow relief  

The Government has delivered a $2.9b package to more than halve the fuel excise and reduce the heavy vehicle road user charge to zero for a period of three months from 1 April 2026, reducing cost pressures on businesses in transport-intensive industries. Interest-free loans are available through the National Reconstruction Fund's $1b Economic Resilience Program for eligible manufacturing and logistics businesses experiencing market disruption. The Australian Taxation Office has also been directed to provide temporary relief from tax obligations, including more generous payment plans and remission of interest and penalties, for businesses unable to meet obligations due to fuel supply issues. These measures collectively reduce the immediate cost burden on manufacturers reliant on road and freight networks to move goods domestically and to port.  

Domestic gas reservation  

The Government has announced a 20 per cent domestic gas reservation requiring Liquefied Natural Gas (LNG) exporters to supply an equivalent proportion of their production to the Australian domestic market from 1 July 2027. Alongside the reservation, the Australian Domestic Gas Security Mechanism will be removed and the Gas Market Code reformed to streamline the regulatory framework. Final consultation on the enabling legislation is anticipated during June and July 2026. While not a customs measure directly, the reservation has downstream implications for energy‑intensive, trade‑exposed industries and domestic manufacturing competitiveness.  

Skills and workforce for industry  

The Government is investing $85.2m to accelerate skills assessments for migrant trades workers and integrate the assessment process with occupational licensing, cutting the time taken to enter the workforce by up to six months. The Australian Apprenticeships Incentive System is being reformed from 1 January 2027, with employer incentives prioritised for small and medium employers and Group Training Organisations to address skills shortages in trade and manufacturing industries. National Competition Policy reforms also include progressing nationally harmonised licensing for workers in electrical and engineering occupations, reducing the cost of labour mobility for manufacturers operating across state and territory borders.  

Digital adoption and Artificial Intelligence  

Round 3 of the Digital Solutions program will launch on 1 July 2026, offering coaching, workshops and webinars for small businesses with a new focus on Artificial Intelligence (AI) and emerging technologies. The National Artificial Intelligence Centre launched AI.gov.au on 8 May 2026 as the Government's central resource for AI adoption guidance, with a particular focus on the needs of small-to-medium enterprises. Up to $70m in AI Accelerator grants will be made available through the Cooperative Research Centres program, and the Government has entered Memoranda of Understanding with Anthropic and Microsoft to advance AI adoption across the economy. These measures aim to accelerate the integration of AI into manufacturing processes, supply chain management, quality control and product development, helping Australian businesses compete with larger international counterparts.  

National Reconstruction Fund and Economic Resilience Program 

The National Reconstruction Fund Corporation (NRFC) has opened its $1b Economic Resilience Program, providing zero-interest loans to Australian manufacturing and logistics businesses materially impacted by global supply chain disruptions arising from the Middle East conflict. The program targets businesses in the freight, fuel, plastics and fertiliser sectors, with loans of up to $5m available through participating banks, including ANZ, Commonwealth Bank, NAB, Westpac, Bendigo Bank, and Bank of Queensland, for businesses with annual turnover below $100m, and larger loans available directly through the NRFC for businesses seeking more than $5m.

Investments and incentives

Infrastructure Investment

In response to the ongoing conflict in the Middle East, the Budget includes targeted spending of over $8.6b for new and ongoing nationally significant Australian road, rail and freight projects. This includes:  

• $3.8b for Victoria's Suburban Rail Loop East to enable more homes and transport in the right places  
• $1.75b in equity for the Australian Rail Track Corporation to upgrade Australia's rail freight network    
• Various road projects including $812.5m for the Bruce Highway upgrade between the Gateway Motorway and Dohles Rocks Road in Queensland

Aged Care Investment

Against a backdrop of Australia's aging population, the Government has targeted Medicare and aged care support. This includes committing significant investment to Australia’s public hospital system including:  

• An additional $25b for public hospitals  
• Increasing spending to $220.3b over 5 years  

Furthermore, the government has committed $3.7b to deliver better aged care. This investment includes the construction of up to 5,000 aged care beds a year, introduction of new capital subsidies for aged care providers, and delivery of up to 20 additional Specialist Dementia Care units.

Science and Innovation  

The Government is investing $1.5b in our research and scientific institutions including:

• CSIRO  
• National Measurement Institute  
• Square Kilometre Array

To maximise value from its innovation investment, the Government is establishing the National Resilience and Science Council to coordinate and align public innovation investments.

The Government has also provisioned $508.5m to increase disbursements for medical research from the Medical Research Future Fund.  

Small business tax

Instant Asset Write Off

The Government will introduce legislation to retain a permanent instant asset write off for small businesses. From 1 July 2026, business entities with an aggregated annual turnover no greater than $10m will be entitled to an immediate income tax deduction for the acquisition of depreciable capital assets with a value of up to $20,000.

In addition, the provision that prevented small business entities from re-entering the simplified depreciation regime for five years if they had previously opted out of the system will continue to be suspended until 30 June 2027.

Fringe Benefits Tax

EV exemption

The Government announced it will amend the operation of the FBT exemption for electric vehicles (EV). The changes are as follows:

• All eligible cars provided prior to 1 April 2027 will retain the current FBT exemption.
• All EVs valued up to $75,000 and provided prior to 1 April 2027 will continue to be FBT exempt.
• All EVs valued in excess of $75,000 up to the fuel-efficient luxury car tax threshold provided between 1 April 2027 and 1 April 2029 will have a 25 per cent discount on FBT by way of a 15 per cent rate in the FBT statutory formula.  
• All EVs provided on or after 1 April 2029 will have a permanent 25 per cent discount on FBT by way of a 15 per cent rate in the FBT statutory formula.