INFORMATION FOR INDIVIDUALS

The 2026–27 Budget introduces significant changes for individuals, combining cost-of-living relief with major tax reforms that could reshape personal investment and tax planning strategies. 

Individual taxpayers will need to review major proposed reforms to the CGT regime and significant changes to negative gearing with some small future sweeteners of new tax cuts for Australian workers, including a Working Australian Tax Offset of $250 and a $1,000 instant tax deduction

A Working Australian Tax Offset (WATO) will be introduced to provide a permanent annual $250 tax offset from 1 July 2027, for Australians in respect of their income derived from work, such as wages and salaries and the business income of sole traders.

The WATO will increase the effective tax-free threshold for those eligible by nearly $1,800 to $19,985 (or up to $24,985 for workers eligible for the low-income tax offset (LITO).

The WATO will be available automatically when eligible taxpayers lodge their tax return.

The WATO is in addition to the already legislated tax cuts that will apply from 1 July 2026 and 1 July 2027.

Separately, a $1,000 instant tax deduction will be introduced for work-related expenses from 1 July 2026 to offset employment income and allows employees to reduce their taxable income by up to $1,000 without keeping receipts when they lodge their tax return. Taxpayers claiming more than $1,000 in work-related deductions are still able to do so in the usual way. Deductions such as charitable donations, unions fees, professional association memberships and other non-work-related deductions can be claimed on top of the $1,000 instant deduction. 

From 1 July 2027, negative gearing for residential property investments will be limited to new residential builds.

Losses from established residential investment properties will no longer be able to be deducted against other forms of taxable income, such as salary and wages. Instead, these losses will be quarantined.

Where losses cannot be fully utilised in a particular year, they will be carried forward indefinitely and can be applied against residential property income or capital gains in future years.

Importantly, grandfathering provisions will apply. Owners of existing residential investment properties held prior to 7:30pm AEST on 12 May 2026 (includes contracts entered into but not settled) will be able to continue to negatively gear those properties under the current rules until the property is sold. Residential investment properties purchased between the announcement and 30 June 2027 may be negatively geared during that period, but not from 1 July 2027.

New residential builds will be exempt from the negative gearing restriction. Investors who purchase qualifying new builds will continue to be able to deduct rental losses against other income.

In addition, on disposal, these investors may choose between applying the 50% CGT discount or the proposed cost base indexation and minimum tax regime.

Eligible new builds are limited to properties that genuinely increase housing supply, such as dwellings constructed on vacant land or developments where existing dwellings are demolished and replaced with a greater number of dwellings.

Knock‑down rebuilds or substantial renovations that do not increase supply will not qualify.

The proposed changes will apply to individuals, partnerships, companies and most trusts. Widely held trusts (such as most managed investment trusts) and superannuation funds, including SMSFs, are excluded.

The Government has announced major proposed reforms to the CGT regime, intended to apply from 1 July 2027.

The key change announced in the Budget is replacement of the 50% CGT discount for individuals, trusts and partnerships, with a cost base indexation regime, along with the introduction of a 30% minimum tax rate on realised capital gains. Superannuation funds appear to retain access to the one third CGT discount.

Rather than having access to the 50% CGT discount for assets held for more than 12 months, taxpayers would broadly be taxed on real gains above inflation, with indexation based on movements in the CPI.

A notable and unexpected element is the proposed extension of the CGT regime to now include pre-CGT assets which are disposed of from 1 July 2027.  While gains accrued on pre-CGT assets before 1 July 2027 remain exempt or not subject to tax, gains accruing from 1 July 2027 would come within the new regime. This is likely to be significant for taxpayers holding long‑dated assets, including farmland.

The key transitional rules to be aware of are:

• Assets acquired and sold before 1 July 2027 will remain fully subject to current rules.
• Assets acquired after 1 July 2027 will be entirely subject to the new arrangements.
• Assets acquired prior to 1 July 2027 and sold after that date will have their gains effectively ‘split’ with gains which accrued up to 1 July 2027 taxed under current rules (including the 50% discount); and the portion of the gains which accrue from 1 July 2027 calculated using an indexed cost base starting from the asset’s 1 July 2027 value, and subject to the minimum tax.

This is a significant change and further detail and explanation of these rules will be released in due course.

For assets held prior to 1 July 2027 and disposed of subsequently, taxpayers will need to determine an asset’s value on 1 July 2027, either by obtaining a valuation or using an ATO‑specified apportionment formula.

New residential builds receive special treatment: investors may choose between the 50% CGT discount or indexation plus the minimum tax on disposal. However, this concession is limited to genuine additions to housing supply and does not extend to subsequent purchasers.

Importantly, the main residence exemption and the small business CGT concessions are proposed to remain unchanged.