2026 Federal Budget: What Changes for Everyday Australians

A note on authorship: The research, analysis, and opinions in this article are the author's own. Claude (Anthropic's AI) assisted with drafting and editing the prose.

Every May, the Treasurer delivers a Federal Budget. And every May, you wonder whether any of it actually affects you. This year, it does — in three ways that are worth understanding before you make any financial decisions.

Your tax bill is going down

Good news first. From 1 July 2026, income tax rates are dropping across the board.

The rate on income between $18,201 and $45,000 drops from 16% to 15%. On its own, that's worth about $268 extra in your pocket per year for an average earner on $81,000. From 1 July 2027, the rate drops again to 14% — worth up to $536 a year compared to where rates were in 2024–25.

The upper thresholds are also shifting. The 30% bracket now runs all the way to $135,000 (previously $120,000), and the 37% bracket extends to $190,000 (previously $180,000). If you're earning in that $120k–$135k band, you've dropped from a 37% marginal rate to 30%. That's a meaningful difference — around $4,500 less tax per year at that income level.

There's also a new $1,000 instant work expense deduction from the 2026–27 financial year. You can reduce your taxable income by $1,000 for work-related costs — phone, uniform, tools, home office — without keeping a single receipt. For most people, that's worth around $150–$320 at tax time depending on which bracket you're in. That said, if your actual work-related expenses exceed $1,000, you're better off tracking them and claiming the higher amount — the instant deduction is a floor, not a cap. Always go with whichever is larger.

Thinking of buying an investment property? The rules just changed

For a long time, owning a negatively geared property has been one of Australia's most popular tax strategies. Here's the idea: if your investment property costs you more than it earns in rent — say your mortgage interest and maintenance come to $3,500 a month but you only collect $3,000 in rent — that $500 monthly loss used to reduce your taxable salary income. At a 32% marginal rate, that's worth around $1,920 back from the ATO each year.

From 1 July 2027, that changes — but only for established properties purchased on or after 12 May 2026 (Budget night).

Under the new rules, rental losses can no longer be offset against your salary. Instead, they're quarantined. You carry them forward and use them against future rental income from the same property, or against the capital gain when you eventually sell. They're not lost — they just don't give you an immediate tax refund while you're holding the property.

Who isn't affected:

• Existing investors who purchased before 12 May 2026 — your negative gearing deductions are fully grandfathered. Note: this only applies to negative gearing. CGT rules do change for these properties when sold after 1 July 2027 — see the section below.
• Buyers of brand new properties — new builds are exempt from the restriction and remain fully deductible

Who is affected:

• Anyone purchasing an existing (established) investment property from 12 May 2026 onwards

The practical impact: buying a negatively geared established property can still make sense in some scenarios, but the cash flow maths has changed. You're no longer receiving that annual tax top-up while you hold it. If you're weighing up a purchase right now, it's worth running the numbers with and without the deduction to understand what you're actually committing to.

Capital gains tax is being overhauled

Capital gains tax (CGT) is what you pay when you sell an asset — shares, an investment property, cryptocurrency, or most other investments — for more than you paid for it. For the past 25 years, the deal for Australian investors has been simple: hold an asset for more than a year, and the taxable gain is halved. That's the 50% CGT discount.

For assets acquired after 12 May 2026, that discount is gone.

The replacement: your original purchase price gets indexed for inflation, and you pay tax on whatever gain remains — at a minimum rate of 30%.

Here's a concrete example. You invest $100,000 today and sell in 10 years for $200,000 — a $100,000 nominal gain.

• Old rules: you pay tax on $50,000 (half the gain). At a 32% marginal rate, that's $16,000 in CGT.
• New rules: your $100,000 cost base is indexed for inflation — at 2.5% p.a. over 10 years, that's roughly $128,000. You pay 30% on the remaining $72,000 gain. That's $21,600 in CGT.

For high-growth assets — property in sought-after areas, strong-performing shares — the old 50% discount was clearly better. But for lower-growth assets where most of the nominal gain was just inflation keeping pace, the new rules can actually produce a lower tax bill. The crossover depends on how much real growth your investment achieves above inflation.

What about assets you already own? Assets bought before 12 May 2026 keep the 50% discount — but only for gains accrued up to 1 July 2027. After that date, a split rule applies: gains from before 1 July 2027 use the old 50% discount, and gains from after that date use the new indexation approach. If you sell before 1 July 2027, the old rules apply in full.

What to do now

These three changes don't all land at once — the tax cuts start 1 July 2026, while the investment property and CGT rules shift from 1 July 2027. But the date that determines which properties and assets are affected is already here. If you're planning a property purchase, weighing up an investment, or just curious what your take-home pay looks like under the new rates, the time to model it is now — before you commit, not after.