Federal Budget 2026-27: What Every Australian Business Owner, Vehicle Buyer and Property Investor Needs to Know

Category: Budget & Policy  |  Read Time: 14 minutes  |  Updated: 13 May 2026
Budget delivered: Tuesday 12 May 2026  |  Treasurer: Jim Chalmers  |  Deficit: $28.3 billion (2025-26)

Treasurer Jim Chalmers delivered the 2026-27 Federal Budget on Tuesday evening, describing it as the most ambitious reform budget in 26 years. It arrives at a moment of serious economic stress. The Middle East conflict has pushed global oil prices above US$100 per barrel for two months. Inflation is forecast to peak at around 5% by mid-2026. The RBA has hiked rates three times this year, taking the cash rate to 4.35%. GDP growth has slowed to 1.75%. And Australian households and businesses are navigating the combined pressure of higher fuel costs, higher interest rates and rising input prices across the board.

The budget contains substantial reforms to capital gains tax, negative gearing, discretionary trusts, electric vehicle incentives, small business depreciation rules, and the personal income tax system. Many of these changes are phased in over two to three years, but several take effect within weeks. This article breaks down every measure that matters if you run a business, are buying or financing a vehicle, are considering a novated lease, or own investment property in Australia. We present the facts as announced. What you do with them is a conversation for you and your accountant.

The $20,000 Instant Asset Write-Off Is Now Permanent

This is the single biggest headline for small business owners. The $20,000 instant asset write-off, which has been extended on a temporary basis each year since July 2023, will become a permanent feature of the simplified depreciation rules from 1 July 2026. It is no longer a temporary measure that expires every June and creates annual uncertainty about whether it will be renewed.

The rules remain the same as the current temporary version. Businesses with aggregated turnover under $10 million can claim an immediate deduction for depreciating assets costing less than $20,000 (excluding GST). The threshold applies per asset with no cap on the number of eligible assets. Both new and second-hand assets qualify. The asset must be first used or installed ready for use. Assets costing $20,000 or more enter the small business depreciation pool at 15% in the first year and 30% each year thereafter.

What this means in practice: the annual scramble to buy equipment before 30 June in case the threshold drops is over. You can now plan capital expenditure with certainty, knowing the $20,000 threshold will be there next year and the year after. However, the threshold is not being indexed to inflation, so the $20,000 limit will erode in real terms over time.

Crucially, the write-off still requires ownership of the asset. A chattel mortgage or hire purchase qualifies because you own the asset from settlement. A finance lease does not qualify because the lender owns the asset. This distinction has not changed. For a full breakdown of which structures work, see our EOFY equipment finance guide.

The EV FBT Exemption Is Being Phased Out

The Electric Car Discount, which has been one of the strongest financial incentives for novated leasing in Australian history, is being wound back in three phases. Since its introduction in July 2022, the full FBT exemption on eligible electric vehicles financed through a novated lease has helped put over 100,000 EVs on Australian roads. Nearly 23% of new cars sold in March 2026 were electric or plug-in hybrid, up from less than 2% when the policy was introduced.

Here is what is changing and when.

Phase 1: Until 31 March 2027

No change. The full FBT exemption continues as it is today for eligible battery electric vehicles (BEVs) and hydrogen fuel cell vehicles (FCEVs) below the luxury car tax threshold ($91,387 for 2026/27). If you enter a novated lease before 1 April 2027, the full exemption applies for the life of that lease, regardless of what happens afterward. This is the window that matters most.

Phase 2: 1 April 2027 to 31 March 2029

The full FBT exemption will only apply to eligible EVs costing $75,000 or less. For EVs priced between $75,001 and the LCT threshold, the exemption is replaced with a 25% FBT discount (effectively a 15% statutory rate instead of the standard 20%). This reduces the benefit for premium EVs but retains a meaningful saving. Importantly, EVs under $75,000 that commence a lease during this phase still receive the full exemption for the life of that lease.

Phase 3: From 1 April 2029

No new EV novated lease will receive the full FBT exemption, regardless of price. All eligible EVs below the LCT threshold will receive a permanent 25% FBT discount (15% statutory rate). This is still a meaningful benefit compared to a petrol or diesel vehicle at 20%, but the annual saving is substantially reduced. For a top-bracket earner driving an $80,000 EV, the transition from full exemption to the 25% discount adds over $8,000 per year in out-of-pocket costs.

The Grandfathering Rules

Existing leases are protected. If you entered a qualifying novated lease before the relevant phase cutoff, the exemption or discount that applied at the time of entry continues for the life of that lease. The government has explicitly designed the phase-out to avoid disadvantaging people who made financial decisions based on the existing incentive. PHEVs remain excluded and the budget did not reinstate them.

What This Means If You Are Considering a Novated Lease

If you have been thinking about an EV through a novated lease, the financial case for acting before 1 April 2027 is now explicit. Any eligible EV leased before that date locks in the full FBT exemption for the entire lease term, typically 3 to 5 years. Once the phase-out reaches Phase 3 in 2029, the annual saving difference between the current full exemption and the new 25% discount is thousands of dollars per year. For premium EVs above $75,000, the window closes even sooner, on 1 April 2027.

We arrange novated leases across our panel and can model the before-and-after comparison for your specific salary, vehicle and lease term. If the numbers work for you, locking in now secures the maximum benefit. If they do not, we will tell you. See our EV loans page for all electric vehicle finance options.

Capital Gains Tax Reform From 1 July 2027

The 50% CGT discount, which has been in place since 1999, is being abolished for gains arising on or after 1 July 2027. It will be replaced with a system of inflation-based cost base indexation and a minimum 30% tax rate on net capital gains.

Under the current rules, if you hold an asset for more than 12 months, you receive a 50% discount on the capital gain. Under the new rules, the cost base of the asset will be indexed for inflation (based on CPI), and only the real gain after adjusting for inflation will be taxable. A minimum tax rate of 30% will apply to net capital gains, regardless of the taxpayer's marginal rate. This means a taxpayer on the 15% marginal rate will still pay 30% on their capital gains.

The government says the change ensures only real capital gains are taxed (removing the inflationary component), and aligns the capital gains tax rate with the average worker's marginal rate. Gains arising before 1 July 2027 continue to receive the existing 50% discount. The main residence exemption is unaffected. Superannuation CGT arrangements are unchanged.

For business owners who hold assets in their own name or through a trust, this is a significant change that warrants a detailed conversation with your accountant or financial adviser, particularly around the timing of any planned asset disposals. The small business CGT concessions will remain available.

Negative Gearing Limited to New Builds From 1 July 2027

From 1 July 2027, negative gearing for residential investment property will be limited to new builds. Investors who purchase existing residential property after that date will not be able to deduct rental losses against their other income.

Properties held at 7:30pm AEST on 12 May 2026 (budget night) are grandfathered. If you owned the property before that date, the existing negative gearing rules continue to apply to that property indefinitely. Investments in new housing, government housing programs and affordable housing initiatives are also exempt from the restriction.

The government says these changes, combined with the CGT reform, will help 75,000 more first home buyers into the market over the next decade by reducing demand-side pressure from investors competing for existing housing stock.

Discretionary Trust Reform From 1 July 2028

From 1 July 2028, a minimum tax rate of 30% will apply to the taxable income of discretionary trusts. This directly affects the estimated one million family and small business trusts in Australia that currently distribute income to beneficiaries on lower marginal tax rates.

Fixed trusts, special disability trusts and charitable trusts are not affected. The government will provide three years of rollover relief from 1 July 2027 to allow small businesses and others to restructure out of discretionary trust arrangements into alternative vehicles such as companies, without triggering immediate capital gains or other tax consequences.

For small business owners who operate through a discretionary trust, this is arguably the most consequential change in the budget. The detail of how the minimum tax will interact with existing trust structures, family trust elections and the existing small business CGT concessions will need careful analysis as the legislation is developed. If you operate through a trust, this is a conversation to have with your accountant sooner rather than later, particularly given the three-year rollover window commencing July 2027.

Loss Carry-Back Reintroduced

The government is reintroducing loss carry-back from the 2026-27 income year. This measure, which was used during the COVID-19 period, allows eligible companies that make a tax loss in the current year to use that loss to get a refund against tax paid in the prior two income years. The government estimates this will benefit up to 85,000 companies, mostly small businesses.

The budget included a practical example: a small business that invested in new equipment using the instant asset write-off, reported a $15,000 tax loss as a result, and then carried that loss back against the previous year's tax to receive a $3,750 refund. This is a direct cash flow benefit that did not exist before this budget.

A separate measure, loss refundability for startups, will allow new businesses in their first two years of operation to receive a refund for tax losses from the 2028-29 income year, up to the value of FBT and withholding tax paid on employee wages.

The $10.7 Billion Fuel Security Package

The budget's centrepiece non-tax measure is the Australian Fuel Security and Resilience Package, worth $10.7 billion. This includes a $10 billion investment to increase the national fuel stockpile from the current level of approximately 29 to 32 days to 37 days of total supply, with diesel and jet fuel specifically targeted at 50 days. The package also establishes a government-owned Australian Fuel Security Reserve holding 1 billion litres of emergency diesel and aviation fuel, and funds the assessment of new fuel refineries.

For businesses, the immediate relief is the fuel excise cut already in effect since 1 April 2026. Excise on petrol and diesel has been reduced from 52.6 cents per litre to 20.6 cents per litre for three months. The heavy vehicle road user charge has been temporarily suspended. The Fair Work Commission has also been empowered to make orders allowing road transport businesses and owner-drivers to recover higher fuel costs through adjusted rates.

The longer-term fuel security measures are significant for any business that depends on diesel, including construction, transport, agriculture and mining. A more resilient fuel supply chain reduces the risk of future supply shocks of the kind that has driven diesel above $3.10 per litre in cities and $3.80 in remote communities over the past two months. For a practical guide to managing fuel costs through finance, see our diesel crisis finance guide.

Tax Cuts and Cost of Living Measures

The budget includes several rounds of tax relief for individual workers. From 1 July 2026, the tax rate on income between $18,201 and $45,000 drops from 16% to 15%, delivering an effective saving of up to $268 per year for someone on average earnings. A further round of cuts is legislated from 1 July 2027, reducing the same bracket to 14%.

From the 2027-28 income year, a new permanent $250 Working Australians Tax Offset (WATO) will apply to over 13 million Australian workers. This increases the effective tax-free threshold by nearly $1,800 to $19,985. Combined with the already-legislated tax cuts and the new $1,000 instant tax deduction for work-related expenses (no receipts required), the government says the total annual saving for a worker on average earnings could be up to $2,816 per year, equivalent to approximately $54 per week.

The $1,000 instant tax deduction for work-related expenses is available from the current 2025-26 income year. Workers can lower their taxable income by $1,000 without keeping receipts when lodging their return. The government estimates 6.2 million workers, or 42% of taxpayers, will benefit from an average saving of $205.

Economic Forecasts and What They Mean

Treasury is forecasting GDP growth of 1.75% for 2026-27, down from 2.25% last year. Inflation is expected to peak at around 5% by mid-2026, driven primarily by the fuel crisis. Growth is expected to recover to 2.25% the following year, assuming global oil prices decline from July 2026.

The budget also presents a more severe scenario: if oil prices peak at US$200 per barrel and take three years to fall, inflation would peak above 7% and unemployment would spike to pre-pandemic levels, though Australia would still avoid a recession. This worst-case scenario underscores the importance of the fuel security package and the risk that elevated energy costs pose to Australian businesses for the next 12 to 24 months.

The underlying cash deficit for 2025-26 is estimated at $28.3 billion, an improvement of $8.5 billion compared to the mid-year update. Over five years, the fiscal position has improved by a cumulative $44.8 billion, driven largely by a $41.1 billion windfall in tax receipts from higher energy export prices.

Other Measures Relevant to Business Owners

Payday Super takes effect from 1 July 2026, requiring employers to pay superannuation at the same time as salary rather than quarterly. This has been legislated and was not changed by the budget. It adds to the cash flow burden on small businesses and should be factored into financial planning alongside the write-off and other measures.

The government announced a $10.2 billion annual reduction in regulatory costs through a productivity package that includes abolishing nuisance tariffs, faster environmental approvals, streamlined border biosecurity, and simplified engagement between businesses and government. Payroll tax administration reform is being developed in partnership with the states.

Expanded R&D tax incentives will apply from 1 July 2028, with a roughly 25% increase in the offset rate for experimental core research and development. Venture capital tax incentives are being expanded from 1 July 2027 to align with modern company valuations. Monthly PAYG instalment reporting will be available from 1 July 2027 for eligible businesses, calculated using ATO-approved formulas in accounting software and automatically adjusted to reflect current financial position.

What This Means for Your Finance Decisions Right Now

The budget has created several time-sensitive windows that business owners, vehicle buyers and employees need to be aware of.

The instant asset write-off is permanent, so the 30 June deadline pressure has eased for the first time in three years. However, with the RBA at 4.35% and the possibility of further hikes, locking in equipment finance rates sooner rather than later still makes financial sense. A chattel mortgage approved now locks in today's rate for the life of the loan.

For novated leases on EVs, the window for the full FBT exemption is now explicitly defined. The full benefit is available for eligible EVs entering a lease before 1 April 2027 for vehicles at any price below the LCT threshold, and before 1 April 2029 for vehicles at $75,000 or below. After 2029, the benefit drops to a 25% discount. If you have been considering a novated lease, the financial case for acting within these windows is clear. See our novated lease page.

For ute buyers, the budget does not change the fundamentals of ute finance, but the permanent write-off gives business buyers certainty that assets under $20,000 (mainly used utes, accessories and ancillary equipment) will always receive an immediate deduction. For new utes above $20,000, the depreciation pool rules continue unchanged.

For property investors, the grandfathering of negative gearing and CGT rules on properties held before budget night means existing investors are not immediately affected. But anyone considering a new investment property purchase after 1 July 2027 needs to model the impact of losing negative gearing on existing stock and the new CGT rules before committing.

For businesses operating through discretionary trusts, the 30% minimum tax from 1 July 2028 and the three-year rollover relief from 1 July 2027 create a window for restructuring. This is a conversation to have with your accountant now, not in 2028.

Need Help Navigating the Budget Changes?

Whether you need to lock in equipment finance before rates rise further, explore a novated lease before the FBT exemption narrows, or compare vehicle and business finance options across 50+ lenders, the team at Australian Finance & Loans can help.

We are an independent brokerage. We do not sell our own products. We compare the market and work for you.

Book a Free Call  |  Call 1300 194 926  |  Email info@australianfinanceloans.com

Frequently Asked Questions

Is the $20,000 instant asset write-off being extended again?

Better than extended. The 2026-27 budget makes the $20,000 instant asset write-off permanent from 1 July 2026. It is no longer a temporary measure requiring annual renewal. The rules are unchanged: businesses with turnover under $10 million can claim an immediate deduction for assets costing less than $20,000 (excluding GST) that are first used or installed ready for use. The threshold is not indexed, so it will not increase with inflation.

Is the EV FBT exemption ending?

It is being phased out, not ended immediately. The full FBT exemption continues as-is until 31 March 2027. From April 2027, the full exemption only applies to EVs costing $75,000 or less. From April 2029, no new lease receives the full exemption. All eligible EVs will instead receive a permanent 25% FBT discount (15% statutory rate vs the standard 20%). Existing leases are grandfathered. If you lock in a qualifying novated lease before the relevant phase cutoff, the exemption continues for the life of that lease.

When do the negative gearing changes take effect?

From 1 July 2027. Negative gearing for residential investment property will be limited to new builds. Properties held at 7:30pm AEST on 12 May 2026 (budget night) are grandfathered and continue under existing rules indefinitely. Investments in new housing, government housing programs and affordable housing initiatives are exempt from the restriction.

When do the capital gains tax changes take effect?

From 1 July 2027. The 50% CGT discount is replaced with inflation-based cost base indexation and a minimum 30% tax rate on net capital gains. Gains arising before 1 July 2027 continue to receive the existing 50% discount. The main residence exemption and superannuation CGT arrangements are unaffected. The small business CGT concessions remain available.

How does the trust reform affect my business?

From 1 July 2028, a minimum tax rate of 30% will apply to the taxable income of discretionary trusts. This affects the estimated one million family and small business trusts in Australia. Fixed trusts, special disability trusts and charitable trusts are excluded. Three years of rollover relief from 1 July 2027 will allow restructures into alternative vehicles such as companies without triggering immediate tax consequences. Speak to your accountant about the implications for your specific structure.

What is the loss carry-back measure?

From the 2026-27 income year, eligible companies that make a tax loss can carry that loss back against tax paid in the prior two income years and receive a cash refund. This benefits businesses that have invested in equipment (using the instant asset write-off, for example), reported a loss as a result, and want to recover tax paid in a profitable prior year. Up to 85,000 companies are expected to benefit.

What happened to fuel excise?

Fuel excise was temporarily halved from 52.6 cents per litre to 20.6 cents per litre for three months from 1 April 2026. The heavy vehicle road user charge was suspended for the same period. The budget also includes a $10.7 billion fuel security package to increase national stockpiles and establish a government-owned fuel reserve. The Fair Work Commission can now make orders to help road transport businesses recover higher fuel costs.

What tax cuts are coming?

From 1 July 2026, the tax rate on income between $18,201 and $45,000 drops from 16% to 15%. A further cut to 14% is legislated from 1 July 2027. A permanent $250 Working Australians Tax Offset applies from the 2027-28 income year for all workers. A $1,000 instant tax deduction for work-related expenses (no receipts) is available from the current 2025-26 income year. Combined, the government says a worker on average earnings could save up to $2,816 per year.

Does the budget affect car loan or equipment finance rates?

Not directly. Interest rates are set by the RBA and individual lenders, not the budget. However, the budget's forecast of inflation peaking at 5% and the possibility of further oil price shocks reinforce the expectation that rates will remain elevated through 2026. Locking in a fixed rate on a chattel mortgage, car loan or novated lease now protects you from any further increases.