The Labor Government released the 2026-27 Federal Budget. Treasurer Jim Chalmers has positioned this Budget as a reform‑focused, inflation‑aware budget, balancing cost‑of‑living relief with long‑term tax, housing and productivity reform.
There are however, some important changes that are likely to impact Australian businesses, households, and non-profits.
From 1 July 2028, the taxable income of discretionary trusts will be taxed at 30% (excluding fixed and widely-held trusts, superfunds, special disability trusts, deceased estates, charitable trusts). The trustee pays the tax and the beneficiaries (other than corporate beneficiaries) receive non-refundable credits to offset their own tax.
The proposed changes will effectively discourage the use of corporate beneficiaries, given the potential for double entity taxation.
From 1 July 2027, small businesses and others will have three years of temporary relief to move to alternative structures (e.g. company or fixed trust).
Existing trust arrangements and distribution strategies within a family group’s tax planning framework should be reviewed.
From 1 July 2026, the $20,000 instant asset write-off will be a permanent feature for small businesses with turnover up to $10 million. For the current financial yare
Assets costing more than $20,000 can continue to be placed into a simplified depreciation pool. The provisions that prevent re-entry into the simplified depreciation system for five years will remain suspended until 30 June 2027.
From 1 July 2026, companies with global turnover under $1 billion can carry-back a tax loss and offset it against tax paid up to two years earlier (limited to its franking account balance).
Loss refundability for start-ups
From 1 July 2028, small start-ups can claim a refundable tax offset on losses in their first two years of operation (limited to the value of FBT and PAYG withholding paid on employee wages). Otherwise, it can choose to carry forward losses as usual.
From 1 July 2027, the 50% CGT discount is replaced with cost base indexation (using CPI) for assets held more than 12 months, with a 30% tax on net capital gains.
Transitional arrangements will limit the impact on existing investments by ensuring the changes only apply to gains made after 1 July 2027.
For example: asset owned pre-1 July 2027 and sold post this date, CGT is calculated as follows:
The measure does not apply retrospectively and will apply to all CGT assets, including pre-1985 CGT assets, held by individuals, trusts and partnerships.
To maintain incentives for new housing supply, investors who bought new residential properties can choose either the 50% CGT discount or apply the new rules, when they sell.
The reforms will not affect the main residence CGT exemption or taxation settings for superfunds.
The Government is reducing FBT concessions available for employers who provide electric vehicles to employees. From 1 April 2029, a permanent 25% discount on FBT will be available for all electric cars valued up to and including the luxury car threshold.
Transitional arrangements:
Whilst this change was not announced in the Federal Budget, it has been proposed to stop employees from receiving a tax benefit by salary packaging certain expenses.
Under the proposal:
Where these expenses or items are provided through salary packaging, the employer may be liable to pay FBT on the full value, unless another exemption applies.
From 1 July 2028, the Research & Development tax offset will increase by around 25% to 50%. More companies will qualify, with the intensity threshold reduced from 2% to 1.5%. The turnover threshold for the highest refundable offset will also increase from $20 million to $50 million, allowing more growing companies to benefit.
The small business lending exemption is extended for another 10 years, making it easier to access finance. The ATO will also provide eligible businesses with a temporary tax relief until 30 June 2026, including flexible payment plans, remission of interest and penalties, and lower PAYG instalments where business income has decreased.
From 1 July 2027, negative gearing will be limited to new builds only.
Existing investment properties held at 7:30pm (AEST) on 12 May 2026 are grandfathered, so current investors are unaffected.
Post 12 May 2026, losses on established residential properties are quarantined against rental income or capital gains from residential properties. Losses can be carried forward to offset rental income or capital gains from residential properties in future financial years.
New builds can continue to apply negative gearing against the individual’s other income.
Certain investments linked to Government housing programs (e.g. affordable housing) will remain exempt.
From 2027-2028 income tax year, the Government will introduce a new (permanent) $250 Working Australians Tax Offset. It will automatically be applied after workers lodge their tax return.
From 2026-2027 income tax year, the Government will introduce an instant tax deduction of up to $1,000 for eligible Australians who earn income from work. It will cover $1,000 of work-related expenses without requiring expenses to be itemised or receipts kept. If the individual has work-related expenses more than $1,000, they can claim those costs, however normal substantiation requirements apply.
As detailed above in the Business update, the Government announced changes to the treatment on Capital Gains that is likely to impact investments held by individuals or in other corporate structures.
Outside the NDIS measures, the 2026–27 Federal Budget contains limited new funding or structural reform for the broader charity sector, with continued policy emphasis on areas such as gender-based violence and child safety. For many not-for-profits, the more significant issue is the growing gap between funding settings and the rising cost of service delivery.
This pressure is likely to be felt most acutely in sectors such as aged care, disability, early childhood and community services. The Treasurer highlighted earlier wage increases in care-based sectors, and further wage pressure are likely when the Fair Work Commission announces the wages changes as a result of the gender-based undervaluation under the SCHADS Award. Combined with inflationary increases in operating costs, many charities may need to reassess budgets, contract viability and funding assumptions for the year ahead
The proposal to tax discretionary trusts is likely to negatively impact future giving and philanthropy. As explained within the budget, many higher wealth individuals and families have discretionary trust structures. These structures allow flexibility in distributions of income which would often include (in effect pre-tax) distributions to income tax exempt charities. The proposed taxing of Trustees on 30% of income prior to distribution will both disincentivise giving and reduce available funds for giving by 30% within discretionary trusts. We anticipate this will directly impact income for non DGR charities like religious and education entities as well as distributions to many charitable trusts which pass through funds in future periods to charities.
The absence of any new Budget measures aimed at encouraging philanthropy suggests limited immediate policy support for increasing private giving to the sector.
The deductible gift recipient (DGR) category for community charities was established from July 2024. Community charities provide money, property or benefits to a DGR (other than to ancillary funds or other community charities) for any of their DGR purposes and can engage in either a principal activity or pursue a purpose that is the same as a DGR. Consequently, community charities are a flexible DGR category that can support or undertake activities across a broad range of DGR categories.
However, the use of community charities has been impeded by the requirement to obtain ministerial approval before DGR endorsement can be sought. This results in lengthy delays in establishing and registering these types of DGRs.
The Government has announced its intention to remove the ministerial declaration requirement. This is a very positive change and will make the process of establishing a community charity faster and simpler.
The Federal Budget included widely reported cutbacks and changes to the NDIS budget with the government looking to reduce the projected 2030 cost of the program from $70 billion to $55 billion by tightening eligibility and reducing “social and community participation” supports.
Budget Cuts to Intermediaries: The Government is cracking down on unscheduled plan reassessments, which currently affect 20% of plans each year and heavily drive-up costs. Furthermore, spending on third-party intermediaries (like certain plan managers and support coordinators) will be cut by 30%, shifting the open market to a panel-style shortlist of approved, quality-checked providers.
The 2026–27 Budget reinforces the Government’s commitment to expanding early childhood education and care (ECEC) supply through the $1 billion Building Early Education Fund, which provides capital funding to build or expand ECEC services, particularly in underserved, outer‑suburban and regional areas.
Importantly for providers, the Building Early Education Fund is positioned as a supply‑side complement to demand‑side reforms such as Cheaper Child Care and the 3 Day Guarantee, recognising that increased affordability and access must be matched by new physical capacity. While no fundamentally new eligibility rules were announced this year, the Budget signals ongoing rollout, making the Building Early Education Fund a key medium‑term growth lever for the sector.
Whilst the large-scale capital grant round recently closed, the small-scale grant package round is now open until 29th May 2026 and the supplemental operational funding round is also open right up until 30 June 2029.
See our article for more information. Government Launches $1B Early Education Fund to Expand Community Access – Saward Dawson
The 2026 Federal Budget introduces a material shift toward addressing long‑standing capacity constraints in residential aged care, with a $3 billion package centred on funding an additional 5,000 beds per year through to 2029. This expansion is supported by targeted capital subsidies and enhancements to the Accommodation Supplement, including tiered payments and additional funding for facilities with a higher proportion of supported residents. These measures represent a direct response to the Independent Review of Residential Aged Care Accommodation Pricing and acknowledge the structural under‑investment in bed supply, particularly for lower‑income cohorts. However, the Government will be paying for this through savings from cuts to private health rebates for over 65’s. For providers, the changes are likely to improve development feasibility and operating viability—especially within the not‑for‑profit sector—although they stop short of addressing broader sustainability concerns such as long‑term funding settings, cost recovery pressures and workforce cost increases.
The Budget also includes a targeted investment of over $200 million to expand dementia care, including additional specialist dementia care units and enhancements to existing support programs. This continues the policy trend of directing funding toward higher‑acuity and more complex care needs as the resident profile in both residential and home care settings becomes increasingly clinical. From a sector perspective, the increased focus on dementia aligns with demographic projections and Royal Commission findings regarding gaps in specialist services, while also reinforcing the expectation that providers invest in capability, workforce training and clinical governance. However, as with other elements of the Budget, the funding is targeted rather than systemic, and does not materially alter the broader financial pressures associated with delivering high‑acuity care in a regulated funding environment.
The Budget further reinforces the structural shift toward in-home care through additional funding to accelerate access to Support at Home places and a significant policy change to the funding of personal care services. Specifically, approximately $1 billion has been allocated to include services such as showering, dressing and continence management within fully funded clinical care, removing or reducing out-of-pocket contributions for care recipients. This change broadens what the Government fully funds in-home and is expected to lift demand while improving affordability and access. The Budget also points to ongoing growth in home care packages and quicker access pathways to help reduce system-wide waiting lists. For providers, these reforms reinforce the strategic pivot toward homebased models of care, but may also introduce margin pressures through pricing controls and increased service expectations as the Government takes a more active role in defining and funding care inputs.
The Budget proved to be a quiet night from a superannuation perspective, with announcements essentially confirming the recent passing of the Division 296 legislation which increases the tax payable on balances over $3m and the impending commencement of Payday Super reforms.
Importantly announcements relating to family trust distributions and capital gains tax discounts do not apply to Self-Managed Super Funds (SMSFs). The current 1/3 capital gains discount continues to apply to SMSF assets held for more than 12 months and in the accumulation phase.
Please note the following changes come into effect from 1 July 2026:
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