Federal Budget measures for business

Australia’s economic outlook

The global energy crisis will weigh heavily on Australia’s economy, as the effects of higher prices for petrochemical products (fuel, fertilisers, plastics and industrial commodities) is passed through supply chains. New Treasury economic forecasts expect that:

• GDP growth will slump by half a percentage point to 1.75% p.a. next financial year
• Inflation (CPI) will surge to 5.0% by the middle of 2026, then taking a year to return to their target level of 2.5%
• Real household consumption growth will fall from 2.25% to 1.75% p.a. next financial year, as fuel-related inflation erodes spending power
• Business investment growth rises to 4.0% next financial year, driven by renewables and datacentre builds

The budget also countenances a more severe scenario, where an escalation of the energy crisis drives global oil prices to $200 a barrel. This scenario would see inflation instead peak at 7.25%, GDP growth slump by a full rather than half percentage point, and unemployment increase from 4.2% to 5.0%. This scenario cannot be ruled out, depending on the severity and duration of the conflict underpinning the crisis.

Taxes on investment – capital gains, negative gearing and trusts

CGT indexation: From 1 July 2027, the 50% CGT discount for assets held for over one year will be replaced by cost-based indexation, with a minimum 30% rate. This will apply to all assets (irrespective of when acquired) but only on capital gains arising from 1 July 2027. Income support payment recipients (including the Aged Pension) will be exempt from the 20% minimum rate.

Negative gearing restrictions: Negative gearing for residential property will be limited to investment in new builds. This will apply to all properties acquired before 12 May 2026. Properties in widely-held superannuation trusts, build-to-rent schemes and government housing programs will be exempt.

Discretionary trusts taxation: Introducing a 30% minimum tax on discretionary trusts from 1 July 2028.

Together, these tax measures will increase tax receipts by $8.1 billion over five years from 2025-26.

Income tax changes

Working Australians Tax Offset: A new tax offset valued at $250 per year for income derived from work (wages or sole trader business income). This will also increase the tax-free threshold by $1800 to $19985. This measure will cost $6.4 billion over five years from 2025-26.

$1000 Instant tax deduction: Taxpayers will be able to claim a $1000 tax deduction against without itemising work-related expenses. This will simplify tax filing for small claimants. Taxpayers who have work-related deductions in excess of $1000 can continue to deduct as usual. This measure will cost $2.6 billion over four years from 2025-26.

Business tax reforms

Permanent Instant asset write-off: The budget makes permanent the $20,000 instant asset write-off for small businesses with turnover under $10 million. The measure will cost $832 million over five years from 2025-26.

Two-year loss carry back provisions: Businesses with turnover under $1 billion will be able to carry back losses and offset it against tax paid over the last two financial years. This will provide immediate support to businesses which suffer financial losses due to impacts of the energy crisis. The measure will cost $2.3 billion over five years from 2025-26.

Fuel security, energy and environment

Fuel security and resilience: A combined package of fuel security measures:

• Fuel and Fertiliser Security Facility to increase private reserves of fuel and fertiliser products
• An Australian Fuel Security Reserve to hold 1 billion of government-controlled fuel reserves
• A $1 billion Economic Resilience Program extending interest-free loans to transport and manufacturing industries impacted by the energy crisis
• Support for domestic production of low carbon liquid fuels, such as biodiesel or sustainable aviation fuel, for longer term fuel security and emissions reduction
• Funding for several energy and transport sector program to improve fuel security regulation, management and industry practices
• These measures will cost $11.9 billion over five years from 2025-26, with the majority of these costs incurred during the early years of the program.

Fuel excise reduction: The budget has not extended the temporary halving in the fuel excise and suspension of the heavy vehicle road user charge. These measures were put in place in response to surging fuel prices, and will be in operation between 1 April to 30 June 2026, at a net cost of $2.5 billion. Assuming no further policy announcements, the full excise rate will recommence from 1 July.

Domestic Gas Reservation: Establishment of a Domestic Gas Reservation Mechanism, which will see gas equivalent of 20% of exports reserved for the local market. This will help to de-link domestic gas prices from volatile international gas markets and increase supply to the local market. The domestic reservation scheme will commence on 1 July 2027, with final consultation on program design throughout June and July.

Electric vehicles tax concessions: Adjustments to tax arrangements will reduce the FBT concession for electric vehicles from 100% to 25%. This will commence from 1 April 2027 for vehicles valued over $75,000, and from 1 April 2029 for vehicles of lesser value. This measure will increase tax revenues by $1.9 billion over five years from 2025-26.

Hydrogen: The Hydrogen Headstart program will proceed to a Round 2 but funding for this has been reduced to $1 billion, with savings from the previous commitment helping offset the costs of other new initiatives

National Environmental Protection Agency (NEPA): Significant administrative funding to implement the recent reforms to environmental approvals and establish the NEPA. This should have benefits in faster decision making and ease reaching agreements with the States to accredit them to run single-touch approvals on behalf of the Commonwealth. This measure will cost $328 million, though it anticipates that some funding will be delivered via new cost-recovery arrangements from 2028-29 onward.

Skills and migration

Apprentice incentives for employers: From 1 January 2027, the value of apprentice incentives paid to employers will be reduced, via:

• Excluding large businesses (over 200 employees) from access to incentives for employing apprentices and trainees.
• Small and medium businesses and Group Training Organisations will continue to have access to employer incentives:
• For the Key Apprenticeship Program (covering clean energy and housing construction) the incentive will reduce from $5,000 to $4,000.
• For other priority occupations, the incentive will continue to be $2,500, noting that a new priority list will be put in place from 1 January 2027 to direct incentives to occupations aligned with government priorities.
• These changes do not affect existing apprenticeships or sign ups that occur prior to 31 December 2026.
• These measures will save $266 million over four years from 2026-27.

Jobs and Skills Australia: Jobs and Skills Australia will continue providing advice under its legislated requirements on Australia’s labour market and skills and training needs, supported by $35.2 million over four years from 2026–27 (and $9.1 million per year ongoing).

Recognition of migrant skills: Additional resourcing will be provided to improve the recognition of migrant skills, via new assessment systems for Trades Recognition Australia, greater regulatory oversight of assessing authorities, and the potential appointment of a national Skills Migration Commissioner. These measures will cost $85.2 million over four years from 2026-27.

Migration program levels: The 2026-27 permanent migration planning level will be set at 185,000 places, with 132,240 places allocated to the skills stream. The government anticipates that total net overseas migration will fall from 295,000 to 245,000 in the 2026-27 financial year.

Permanent migration points test: The points tests for permanent migration will be reformed to provide greater emphasis on selecting higher-qualified, higher-skilled and younger migrants.

Research & development and innovation

R&D Tax Incentive: Several reforms will be made to the R&D Tax Incentive (RDTI), comprising:

• Increase the tax offset for “core” R&D activities by 4.5 percentage points
• Reduce the intensity threshold for from 2% to 1.5% to widen eligibility for core R&D offsets
• Removing “supporting” R&D activities from RDTI eligibility
• Increase the top turnover threshold for the refundable RDTI offset from $20 to $50 million
• Lift maximum RDTI expenditure threshold from $150 to $200 million
• Lift minimum RDTI expenditure threshold from $20,000 to $50,000
• The measures are expected to lower the cost of the RDTI program by $700 million in net terms over five years from 2025-26

Venture capital tax incentives: Tax incentives for venture capital will be reformed by:

• Closing the existing Eligible Venture Capital Investors (EVCI) program
• Raising asset size caps for the Venture Capital Limited Partnerships (VCLP) and Early Stage Venture Capital Limited Partnerships (ESVCLP) programs to allow access to larger investors
• These measures will cost $24.7 million over five years from 2025-26.

Building and construction

Local Infrastructure Fund: A $2 billion fund to help local and state governments ‘last mile’ infrastructure (water, power sewage and roads) required for new housing developments. Funding contingent on states committing to reforms to improve productivity in the housing sector, including faster and simpler approvals, releasing more land ready to build homes, and delivering a genuinely national construction code

Free standards: All mandatory Australian Standards will be free to access, covering construction, occupational health and safety, and product safety. This measure will cost $42.7 million over four years from 2026-27.

Trade and export

Trusted Trader expansion: The Trusted Trader program will be expanded be establishing a new business development function and implementing an Approved Exporter Scheme. The latter will enable accredited exporters to obviate the need to obtain certificates for origins for the AANZFTA and RCEP agreements. This measure will cost $7.4 million over four years form 2026-27.

Nuisance tariffs: The budget confirms the second tranche of abolition of nuisance tariffs announced in August 2025. This measure will cost $70 million over five years from 2025-26, and when combined with the first tranche from 2024 takes the total number of nuisance tariffs abolished to around 1000. The government will also consult on a further round of abolition for the remaining 500 nuisance tariffs identified.

Illicit tobacco

State-level compliance activities: $14 million of funding will be extended to state and territory governments to support compliance and enforcement measures against the illicit tobacco market.