Federal Budget May 2026: Critique Private Clients Perspective

Good Afternoon,

The federal budget for 2026 is definitely not the innocuous affair we have seen in previous years. This budget has not just been handed down, it has crash landed with a thud, especially for those trying to utilise residential property, or using a personally owned investment portfolio to build wealth. The result of this fiscal lever pulling will create a class of winners, and unfortunately, losers as well. I do feel that the proposed changes will create a lot more losing going on than winning in my eyes.

Trying to keep it positive, lets start with the winners:

1. The Australian tax office: Lets not beat around the bush, the ATO will do more ‘winning’ than Donald Trump. They have opened more avenues to tax different assets and individuals than ever before.
2. Employees/low income earners: The $1,000 instant work expenses tax deduction, working Australians tax offset, and lowering of Medicare levy thresholds should provide some benefit to lower income Australians. 
3. Superannuation: The absence of any taxation changes for superannuation promotes this particular investment structure above most others. It is one of the only remaining avenues to build wealth and be taxed concessionally i.e.. 10% on investment gains in accumulation phase, or 0% within pension phase. Concessional contributions to super also enable the reduction of taxable income and only attract 15% contributions tax.
4. The family home: The family home now occupies one of the few spots left at CGT-free status table. The multi million dollar question is if the changing of the taxation status for investment properties will lead to families focusing all of their cashflow/purchasing power into buying more expensive homes and consequently lifting the price of all properties.
5. Investors with existing investment properties: Investors with existing residential properties in existence pre-budget night will continue to benefit from grandfathered negative gearing, and will also be able to use the 50% capital gains tax discount for increases in value since the date of purchase to 1 July 2027. From 1 July 2027, any gain from this date will be subject to the indexation method.
6. Property developers: New builds will benefit from a continuation of the negative gearing benefit and the option for investors to use the 50% CGT discount upon the sale of these assets.
7. Aged care residents/In home care recipients: Additional funding is being provided for both in home care packages and for fully funded aged care beds. This should theoretically help people remain in their homes for longer and assist those without the means to enter aged care with assistance from the government.

Losers:

1. All investment assets held outside of super/the family home: Taxable gains related to the period that the asset is owned from 1 July 2027 will be worked out using the indexation approach. Under the indexation approach, the original purchase price is adjusted for inflation before tax is calculated. This applies to all assets, not just property. If inflation continues to rise, all asset owners will pay more on gains from 1 July 2027 than under the current 50% discount arrangement.
2. Individuals trying to sell personally owned investment assets once they are retired or within a low income financial year: The budget proposals seek to apply a minimum 30% tax rate for all capital gains accrued using the indexation method (from 1/7/26) regardless of the actual marginal tax rate of the individual. This effectively is the death knell for waiting until retirement to realise personally owned assets at lower taxable incomes.
3. Older Australians with private health cover: Changes to insurance rebates will mean premiums are expected to rise for some within the over age 65 cohort. This not ideal given cost of living pressures could force older Australians to choose between health insurance and other essentials.
4. Small business owners/Beneficiaries of family trusts: The imposition of a flat 30% tax rate on trust income severely limits the effectiveness of using family trusts to redistribute income to different family members on lower incomes. Thankfully, this proposal is only due to come into effect from 1 July 2028 so maybe commonsense will have enough time to rein by that point.  
5. FBT and novated lease electric vehicle owners: The success of the FBT exemption for EVs using novated leases has been the cause of its downfall. Oversubscription to the scheme has given the government no choice to hit the brakes, but savvy owners could still enter a lease pre 31 March, purchase a vehicle costing less than $75,000 and continue to enjoy the benefits of the FBT exemption for the full lease period.   

If you have got this far, well done. I think the takeout message for our clients is that this budget will require a considered approach to investment strategies going forward. While these proposals are not yet enshrined in law, if they do come to fruition, it could be a critical time to revisit your longer term planning. 

A more detailed summary is listed here

Cheers

Robert