The 2026–27 federal budget was handed down on 12 May 2026. Several of its measures change how much tax everyday Australians pay — some from this coming July, others not until 2027. Here's a plain-English run-through of the ones that matter, and when each takes effect.
Income tax: a rate cut and a new deduction
Two changes here will reach a large number of taxpayers.
First, the rate cut. From 1 July 2026, the lowest tax rate — which applies to income between $18,201 and $45,000 — drops from 16% to 15%. This was legislated before the budget, so it's locked in. For anyone earning above $45,000, it's worth a few hundred dollars a year.
Second, a new $1,000 standard deduction for work expenses, also from 1 July 2026. Instead of itemising small work-related costs, you'll be able to claim a flat $1,000 deduction without keeping receipts. It's aimed at the millions of workers whose genuine work expenses are modest — for them it's simpler, and often a slightly bigger deduction than they'd otherwise claim. Anyone with larger expenses can still itemise as normal.
Looking further ahead, the budget also announced a new Working Australians Tax Offset — worth up to around $250 — for people earning salary, wages or sole-trader income, starting from the 2027–28 financial year.
Capital gains tax: the 50% discount is being replaced
This is the budget's biggest tax change, and it's worth understanding properly.
At the moment, if you're an individual and you hold an asset for more than 12 months, only half of any capital gain is taxed — the 50% CGT discount. From 1 July 2027, that discount is being replaced by two new mechanisms:
- Cost-base indexation. Instead of halving the gain, the asset's original cost is lifted in line with inflation before the gain is worked out. You're then taxed only on the "real" gain — the part above inflation.
- A 30% minimum tax on gains. Many capital gains will face an effective tax rate of at least 30%, regardless of the investor's normal marginal rate. People on income support, such as pensioners, are exempt from this minimum.
It applies broadly — to CGT assets held by individuals, trusts and partnerships. Two important protections remain: the family home stays fully exempt from CGT, untouched by any of this; and for an asset you already own on 1 July 2027, the gain is split — the part that built up before that date keeps the current 50% discount, and only the part after is taxed under the new rules.
For most investors selling shares, crypto or an investment property after mid-2027, this is likely to mean more tax on long-held assets than the current discount delivers. But it is an announced measure only — not yet law — so the detail may shift before it takes effect.
Medicare levy and superannuation
The budget lifts the Medicare levy low-income thresholds by 2.9%. In practice, that means a little more room before low-income earners start paying the 2% levy — modest relief for over a million people.
On superannuation, a separate measure already set to begin on 1 July 2026 applies an extra tax to earnings on the part of a super balance above $3 million. It affects only a small number of people with very large balances, but it's worth knowing if that's you.
When each change takes effect
- 1 July 2026 — the lowest tax rate falls to 15%; the $1,000 standard work-expense deduction begins; Medicare levy low-income thresholds rise; the new tax on super balances over $3 million starts.
- 1 July 2027 — the 50% CGT discount is replaced by cost-base indexation and the 30% minimum tax.
- 2027–28 — the Working Australians Tax Offset begins.
What it means for you
For most people, there's nothing to do right now. None of these changes affect your 2025–26 tax return — the earliest start any of them, the income tax cut and the $1,000 deduction, take effect from 1 July 2026. The capital gains changes are more than a year away, which leaves time to understand them before selling any long-held investment. As each measure passes into law, we'll update the calculators on this site to match.