2026 Budget Tax Changes: What Every Australian Worker Needs to Know

At a glance: the five measures

Sources throughout this page link to the Budget 2026-27 tax reform pages on budget.gov.au and the relevant ATO guidance. Now the detail.

1. The 15% tax rate from 1 July 2026

The second tax bracket — the slice of income from $18,201 to $45,000 — drops from 16% to 15% from 1 July 2026. This was legislated back in 2025, so it is locked in (and the rate falls again to 14% from 1 July 2027). It applies to the 2026-27 income year, so you first see it in the return you lodge in 2027 — not your current return.

Worked example — earning $60,000: the cut applies to the whole $18,201–$45,000 band, which is $26,800 of income. One percentage point off that band is $268. Because you earn above $45,000, you get the full $268 back over the year compared with the old 16% rate. Someone earning, say, $30,000 only gets the cut on the part of their income inside the band, so they save less than $268.

See the current and upcoming Australian tax brackets, or put your own salary into the free tax calculator to see the effect. Source: ATO — tax rates for residents.

2. The $1,000 instant tax deduction (from 2026-27)

From the 2026-27 income year, Australian residents who earn wages or other labour income get a standard deduction of up to $1,000 for work-related expenses — applied automatically, with no receipts and no records. It isn't available if your only income is from investments or a business.

How it interacts with your own claims: the $1,000 is reduced dollar-for-dollar by any work-related expenses you claim instead. Claim $550 of work expenses and you get $450 of standard deduction on top — still $1,000 in total. Claim more than $1,000 (with records) and the standard deduction drops to nil. So in practice you end up with whichever is higher. Union fees, professional memberships, donations and the cost of managing your tax affairs don't reduce it — you claim those on top as usual.

Timing and status: it's law (Treasury Laws Amendment (Tax Reform No. 1) Act 2026, royal assent 26 June 2026) and applies from the 2026-27 income year — so it first appears in the return you lodge from July 2027, not your current 2025-26 return.

Worked example — earning $75,000: a $1,000 deduction lowers your taxable income by $1,000. At that income that saves $300 in income tax (30%) plus $20 in Medicare levy (2%) — about $320 in total. Crucially, it is a deduction, not a $1,000 cash refund: the cash benefit equals your marginal rate.

To see which is bigger for you, use our standard deduction calculator: it compares both options on your own wages and job. Our deductions checklist covers what counts as a work-related expense. Sources: ATO — standard deduction for work-related expenses and budget.gov.au tax-cuts factsheet.

3. The $250 Working Australians Tax Offset (from 2027-28)

From the 2027-28 income year, a new permanent Working Australians Tax Offset (WATO) gives working Australians a tax offset of up to $250 a year. An offset is a dollar-for-dollar reduction in the tax you owe, applied automatically when you lodge. The Government says it lifts the effective tax-free threshold to about $19,985 for workers. You would first claim it in the return you lodge in 2028.

It is the furthest-away measure, so we keep it brief for now. It is law (Schedule 3 of the Tax Reform No. 1 Act 2026). Source: budget.gov.au — cost of living.

4. Negative gearing reform (from 1 July 2027)

This change is narrower than the headlines suggest, so here are the facts. From 1 July 2027, negative gearing on established residential properties bought after 7:30pm AEST on 12 May 2026 (Budget night) will be quarantined: rental losses can only be offset against rental income or capital gains from rental property, and can be carried forward — but not against your wages or salary.

• Bought before Budget night? Fully grandfathered — nothing changes. You keep deducting rental losses against all your income under the current rules.
• New builds? Remain fully negatively gearable, to keep encouraging new housing supply.
• Established property bought after Budget night? From 1 July 2027, the loss is quarantined to property income.

If you already own a rental, see how the current rules work in our rental property & negative gearing guide. This is law (Tax Reform No. 1 Act 2026), applying from 1 July 2027. Source: ATO — reforming negative gearing and CGT.

5. CGT discount reform (from 1 July 2027)

The 50% capital gains tax discount is being replaced, but only for gains that accrue from 1 July 2027 onward. Gains that built up before that date keep the 50% discount. In its place: cost base indexation plus a 30% minimum tax rate on the taxable gain.

What is “cost base indexation”? In plain English, your original purchase cost is lifted in line with inflation before the gain is worked out — so you are only taxed on the real gain above inflation, not the part that is just rising prices. It is an older mechanism the tax system used before 1999, now being brought back as the replacement for the flat 50% discount.

Two important carve-outs: the main residence exemption (your family home) is unchanged, and certain income support recipients are exempt from the 30% minimum tax. One change people miss: the new rules also cover gains that accrue from 1 July 2027 on pre-CGT assets — assets bought before 20 September 1985, which were previously exempt. Whether this helps or hurts a given investor depends on their hold period and inflation — we walk through that in Should I sell my investment property before June 2027?

For how CGT works today, see our capital gains tax guide. This is law (Tax Reform No. 1 Act 2026); a second bill with technical rules for complex cases is still in consultation. Sources: ATO — CGT reform and budget.gov.au — tax reform.

What should you actually do now?

For the return you lodge this year, nothing changes — claim your 2025-26 deductions as normal. The 15% rate and $1,000 deduction simply mean a bit more back next year. The property reforms only matter if you are buying an established rental after Budget night or weighing up selling an asset around mid-2027, and because those are genuinely complex (with some technical detail still being finalised), that is the point to talk to a registered tax agent.