Federal Budget 2026-27: a preview

With the 2026-27 Federal Budget due to be delivered next week, the federal government faces a challenging task in setting its policy and tax agenda for the coming year during a period of geopolitical and macroeconomic uncertainty. 

This Budget was initially framed as one of ambition, with the Treasurer identifying three guiding principles: addressing intergenerational unfairness, incentivising productive business investment, and making the Australian tax system simpler and more sustainable. However, expectations have since been reset, with the Prime Minister subsequently reframing the Budget as one directed towards building and strengthening Australia’s national resilience. 

This tension between ambition and caution seems likely to be the defining feature of this Budget. Some tax measures, including amended anti-avoidance provisions, may be included alongside more naturally high profile measures like changes to the capital gains tax (CGT) regime. 

In this Insight, we recap the corporate tax measures that have been rumoured to date, and what business should keep an eye out for on 12 May when the Budget is released.

Capital gains tax 

Arguably the most significant rumoured reform concerns the CGT discount. It was reported that Treasury initially modelled a reduction of the discount from 50% to 33% for investment properties. However, the conversation has now shifted to a wholesale replacement of the CGT discount in favour of a return to the pre-1999 inflation indexation model.

Under the former indexation model, cost base was indexed to CPI so that in effect, only gains in real terms are taxed at a taxpayer’s marginal rate. Given the recent uptick in inflation, this may not be all that punitive of an outcome, especially for taxpayers planning a long-term hold. To this end, under the former indexation model, an effective reduction of capital gains in excess of 50% was achievable on certain long-term holds. 

In addition to the proposed discount model (if adopted), other key unknowns include: 

• whether the measure will be grandfathered (i.e. will it only apply to assets acquired following the announcement or introduction of the change); 
   
• whether the new discount method will apply to all CGT assets equally, or whether it will be limited to real property assets or investment properties; and 
   
• whether the discount or indexation method will apply equally to all taxpayers (i.e. will there be delineated methods for individual, corporate and trustee taxpayers, as is currently the case).

Considering recently proposed changes to the foreign resident CGT regime, which introduced uncertainty as to the outer boundaries and retroactivity of other amendments to the CGT regime, businesses are keen for certainty in the CGT space. The availability of a discount will have a significant impact on investment modelling and transaction structuring, which may reach beyond the real estate and infrastructure sectors. For example, if changes extend beyond real property CGT assets, changes to the regime will also impact employee and management incentive modelling. 

Trust changes

It is increasingly rumoured that the government will introduce a minimum tax rate of 25% or 30% on trust distributions. This would effectively align the tax rate imposed on trust distributions with the rate that applies to companies. 

Although this measure, if introduced, may not meaningfully increase the tax impost on distributions made to companies (noting they are already subject to tax at equivalent rates), it would disincentivise the use of trusts to distribute income to individual beneficiaries that may otherwise benefit from lower marginal tax rates.

Businesses should monitor whether these changes are limited to ‘family’ (i.e. discretionary) trusts, or whether they will also apply to other concessional trust vehicles. Any change to the taxation of trusts may also impact preferred holding structures of privately-owned businesses going forward. 

Other recent announcements and measures

Negative gearing

There has been varying amounts of discourse around decreasing the availability of negative gearing. It may be the case that the government concludes that the CGT discount reform partially addresses revenue concerns arising from the interaction of negative gearing and the 50% CGT discount. 

Resources tax

Despite political pressure, including from Dr Ken Henry, who in submissions in response to the Senate Select Committee on the Taxation of Gas Resources, advocated for the introduction of a windfall profits tax, the government has seemingly ruled out a new tax on existing gas exporting contracts in this Budget. The government has not, however, ruled out future changes, including the imposition of a windfall tax on future profits. 

Uncertainty in the Budget lead up

The CGT discount changes, if implemented, could represent the most significant shift in the taxation of capital gains in nearly three decades. However, the decision to seemingly rule out a new resources tax suggests the 2026-27 Budget is shaping up as one that will, by necessity, pursue reform within significant constraints. 

In any event, this lead up to the Budget has been marked by considerable uncertainty, and taxpayers will welcome any certainty as to tax policy settings going forward. 

As always, there may be some surprises on Budget night – keep an eye out for our Budget publication.