TAX TIME 2026

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(Source Australian Taxation Office)

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       Tax time essentials 2026   (Click to navigate ATO website)

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Individual Tax returns.

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- Working Australians Tax Offset.

The Government will deliver new tax cuts for every working Australian taxpayer by introducing a $250 Working Australians Tax Offset (WATO). Over 13 million Australian workers will benefit from the WATO for income earned from 1 July 2027. This is on top of the first round of tax cuts that were rolled out in 2024 and two further tax cuts already coming into effect over the next two years.

The WATO will provide a permanent annual tax offset of up to $250 for income earned by Australian workers from 1 July 2027, increasing the effective tax-free threshold for workers by nearly $1,800 to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset). This is the largest permanent increase in the effective tax-free threshold since 2012–13.

The WATO will reduce tax on income from work – helping workers keep more of what they earn. The WATO will be available automatically after workers lodge their tax return. The WATO will also be available to sole traders running their own business.

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- $1,000 Instant Tax Deduction

The Government is also introducing a $1,000 instant tax deduction for work-related expenses to offset employment income. The instant tax deduction will make tax time simpler and deliver more cost‑of-living relief for workers from the 2026–27 income year. Around 6.2 million workers (42 per cent of taxpayers) will benefit in 2026–27, with an average tax saving of $205.

The instant tax deduction allows employees to reduce their taxable income by up to $1,000 without keeping receipts when they lodge their tax return.

Taxpayers claiming more than $1,000 in work‑related deductions will still be able to do so in the usual way. Charitable donations, union and professional association membership fees and other non‑work related deductions can still be claimed on top of the instant tax deduction.

These changes provide further cost-of-living relief and allow Australian workers to keep more of what they earn.

An Australian worker on average earnings would receive a combined benefit of $2,496 from the 2027–28 income year from the WATO and three rounds of tax cuts relative to 2023–24, as well as up to $320 from the instant tax deduction, for a total benefit of up to $2,816.

These reforms are part of a tax package which, as a whole, is broadly revenue neutral over the forward estimates so will not add to the outlook for inflation.

The ATO has clearly indicated across its various media channels that, this Tax Time, it will be focusing on the accuracy of claims for work-related expenses, rental properties and capital gains tax liabilities.

 

The following checklist may assist:

 

    Motor Vehicle cent per kilometer rates.The rate is:  

- 91 cents per kilometer for 2026-27

- 88 cents per kilometer for 2024–25.

- 85 cents per kilometer for 2023–24.

- 78 cents per kilometer for 2022–23.

 You cannot claim both fuel and electric cents per kilometer rates together.

    There are limited circumstances in which claims for conventional clothing are allowable, such as occupation-specific clothing, protective clothing, compulsory work uniforms and registered non-compulsory work uniforms (plus the cleaning of such clothing).

    The $250 non-deductible threshold for self-education expenses was removed from 1 July 2022 and therefore is now deductible from the first cent.

    The fixed rate for work from home expenses for 2024–25 is 70c per hour. 

You can claim a fixed rate for each hour you work from home during the relevant income year. The rate includes the additional running expenses you incur for:

• home and mobile internet or data expenses

• mobile and home phone usage expenses

• electricity and gas (energy expenses) for heating, cooling and lighting

• stationery and computer consumables, such as printer ink and paper.

The rate per work hour includes the total deductible expenses for the above additional running expenses. If you're using this method, you can't claim an additional separate deduction for these expenses.

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The fixed rate method (52 cents per hour) and the temporary shortcut method (80 cents per hour) for working from home (WFH) expenses both ended on 30 June 2022. From 1 July 2022, the ATO’s administrative approach in PCG 2023/1 indicates that the ATO will not apply compliance resources if taxpayers claim WFH expenses at the rate of 67 cents per hour. From 1 March 2023 to 30 June 2023 (and later income years), taxpayers must keep a record of the total number of actual hours WFH, while from 1 July 2022 to 28 February 2023 only, the ATO will allow taxpayers to keep a representative record of the total number of hours WFH. 67c cent rate is applicable for FY 2024.

    The ATO’s Occupation and industry specific guides are a useful reminder to tax payers about what they can and cannot claim.

    Ensure all rental income received, and do not declare net rent (instead of gross rent) then claim expenses (such as property management fees) again against the net rent.

    Ensure that interest expenses are correctly apportioned where the property is used for private use, the property is not genuinely available for rent or there is mixed use of borrowed funds.

    Correctly apportion borrowing expenses over the five-year period (but not on a straight line basis), or the term of loan if less.

    Correctly characterize building expenditure as a deductible repair, a non-deductible initial repair or capital works.

    The limitation on travel expenses and second-hand depreciate assets relating to residential rental properties applies from 1 July 2017. 

    Ensure all capital gains on cryptocurrency, shares and properties (as well as other CGT assets) are correctly calculated and reported. Record keeping is essential to this.

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​Negative Gearing and Capital Gains Tax Reform

The Government is reforming negative gearing and capital gains tax (CGT) arrangements. These reforms will limit the benefits of negative gearing to new residential properties, re-introduce capital gains tax cost base indexation, and introduce a 30 per cent minimum tax on capital  gains.

Since 1999, housing prices have risen more than twice as fast as average full time earnings and, since 2001 to 2021, the home ownership rate for households 25 to 34 years old has declined by seven percentage points.

These changes will help level the playing field for first home buyers, preserve the gains investors have made, and support investment in new housing supply.

From 1 July 2027, the Government will:

• limit negative gearing for residential property investments to new builds; and

• replace the 50 per cent CGT discount for individuals, trusts and partnerships with cost base indexation and a 30 per cent minimum tax rate on capital gains.

These changes will rebalance our tax system, allowing the Government to take pressure off wage earners and first home buyers.
The impact of these changes on existing investments will be limited. Properties held before announcement (7:30pm AEST 12 May 2026) will be exempt from the negative gearing changes. The CGT reforms will only apply to gains accruing after 1 July 2027.

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Rental losses can only reduce income from residential properties.

Under current tax settings, losses from a rental property can be used to reduce other forms of taxable income (e.g. salary and wages). This encourages leveraged property investments that can lead to investors receiving greater tax advantages than those available to owner occupiers.

From 1 July 2027, losses related to existing residential investment properties purchased from 7:30pm AEST 12 May 2026 will only be deductible against other income from residential properties, including capital gains.

However, when an investor has excess losses, they will be able to carry forward that excess to offset residential property income in future years. Enabling losses to be carried forward ensures investors remain able to claim a deduction in the future for costs such as maintenance.

These changes will apply to individuals, partnerships, companies and most trusts. Widely held trusts (for example, most managed investment trusts) and superannuation funds (including SMSFs) will be excluded.

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Cost base indexation

The current 50 per cent CGT discount was introduced in 1999, allowing taxpayers to reduce their taxable capital gain by half rather than adjusting for inflation. As a result, the 50 per cent discount does not accurately approximate the inflation component of gains, meaning investors are undercompensated or overcompensated depending on their returns.

Returning to indexation based on the Consumer Price Index (CPI) aligns with the original intent of the CGT regime and supports productivity over time by ensuring that investment decisions are taken for economic reasons, not due to tax outcomes.

Indexation will be calculated using CPI in a similar manner to arrangements previously in place between 1985 and 1999. The ATO will provide guidance and tools to support calculation of this adjustment.

These changes will apply to all CGT assets (including property and shares) held by individuals, partnerships and trusts for at least 12 months. Applying these changes broadly across assets ensures the CGT settings are broadly asset neutral with only targeted exemptions.

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Minimum tax on capital gains

A minimum tax rate of 30 per cent will apply to real capital gains accruing from 1 July 2027 (with no impact until the income is realised). This will not affect people whose capital gains are already taxed at rates of at least 30 per cent.

The introduction of the minimum tax reduces the benefit of taxpayers deferring capital gains realisation to years where their marginal tax rates are low. It ensures their gains are subject to a tax rate closer to the rate they faced during their working life and is commensurate with the tax rate paid by most workers.

Recipients of means-tested income support payments, such as the Age Pension or JobSeeker, will be exempted from the minimum tax if they receive any payment in the financial year in which they realise the capital gain.

 

30 per cent minimum tax on discretionary trusts

Minimum tax on discretionary trusts

The Government is introducing a 30 per cent minimum tax on discretionary trusts from 1 July 2028.

The tax will be paid by the trustee as it is the trustee who controls distributions. Beneficiaries will still need to declare their trust income in their tax returns, but beneficiaries, other than corporate beneficiaries, will receive non‑refundable credits for the tax payable by the trustee.

The introduction of a 30 per cent minimum rate will mean a fairer rate of tax paid on discretionary trust income, better aligning the tax rate on trust income with the tax rates paid by workers.

Growing use of discretionary trusts is increasingly unsustainable. Since 2001–02, the number of discretionary trusts in Australia has doubled, exceeding the growth in companies (which have grown by 70 per cent).

Australia now has over one million trusts, of which around 840,000 (80 per cent) are discretionary trusts.

In 2022–23, discretionary trusts distributed $142.4 billion in income to other entities, with average annual growth in income of 7.8 per cent since 2011–12.

The majority of trust income flows to the top earning 10 per cent of families and approximately 90 per cent of total private trust wealth is held by the wealthiest 10 per cent of households (those with net worth above around $2.3 million).

Trusts, including discretionary trusts, can assist with asset protection and succession planning. However, discretionary trusts also allow lower tax rates to be achieved through ‘income splitting’, where trustees of discretionary trusts allocate all or part of their income to others who have a lower marginal tax rate, while often retaining the income. Treasury analysis shows that in 2022–23, on average, families with discretionary trusts faced an average tax rate around 4 percentage points lower compared with families with similar incomes who do not use a trust.

This flexibility is not available to individuals without a trust, including workers who pay tax on wages at marginal rates. Numerous reviews of the tax system over the past 50-years have raised concerns that different structures used to hold assets or earn an income can result in different tax outcomes for people with similar levels of income (see Table 1).

Introducing a 30 per cent minimum tax brings the tax outcome on income earned in a discretionary trust closer to that of wage and salary earners who pay a 30 per cent marginal rate on incomes between $45,001 and $135,000. This improves the fairness and sustainability of the tax system.

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How it works

Trustees currently pay tax on any income that is retained in the trust, as well as paying tax on behalf of particular beneficiaries (including children). The trustee determines which beneficiaries are to be made presently entitled to the income of the trust and the beneficiary pays tax based on that entitlement at their marginal tax rate.

Under these changes, the trustee of a discretionary trust will continue to determine the trust income that beneficiaries are entitled to each year, and beneficiaries will continue to be responsible for including trust distributions in their income tax returns.

However, the trustee will now pay 30 per cent tax on the taxable income of the trust (unless higher rates apply). Individuals and other non‑corporate beneficiaries will receive non‑refundable tax credits for the tax payable by the trustee, which reduces their income tax payable. This recognises the tax already paid, while ensuring the tax paid on that income is not lower than 30 per cent.

Trustees will be required to calculate, report and pay the minimum tax, as well as to notify beneficiaries of their entitlements and associated tax credits. The mechanism for collecting the minimum tax will be subject to consultation, but is expected to be consistent with established collection mechanisms.

To ensure the use of refundable franking credits does not undermine the minimum tax:

• trustees that receive franked dividends will be required to use their franking credits to pay the minimum tax; and

• corporate beneficiaries will not receive non‑refundable credits for tax payable by the trustee, to avoid them converting these to refundable franking credits to avoid the minimum tax.

Key aspects of the changes will be finalised following consultation with stakeholders. As well as the mechanism for collecting the minimum tax, stakeholder views will also be sought on how the trustee uses franking credits that exceed the minimum tax liability, and on the rollover relief provided to support restructuring.

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Rollover relief

Rollover relief will be available to assist small businesses and others that wish to restructure out of a discretionary trust into other arrangements, such as a company or a fixed trust.

This will provide expanded relief from income tax consequences, including capital gains tax, for those who choose to restructure, and will be available for three years from 1 July 2027.

From 1 January 2027, the Australian Small Business and Family Enterprise Ombudsman will be available to assist small businesses to understand the options available to them and where they can get further advice. Specific arrangements will be put in place by the Australian Securities and Investments Commission to support small businesses that wish to incorporate.

 

Instant asset write-off for eligible businesses.

Eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use.

The instant asset write-off can be used for:

• multiple assets if the cost of each individual asset is less than the relevant limit

• new and second-hand assets.

For an asset for which you have claimed an immediate deduction under the simplified depreciation rules in a prior income year, small businesses can also immediately deduct an amount included in the second element (cost addition) of that asset's cost, where the amount is:

• the first deductible amount of second element cost incurred after the end of the income year in which the asset was written off

• less than the relevant limit amount for the income year it is being claimed.

If you are a small business, you need to apply the simplified depreciation rules to claim the instant asset write-off. It cannot be used for assets that are excluded from those rules.

The instant asset write-off eligibility criteria and limit have changed over time. You need to check your business's eligibility and apply the relevant limit amount. The income year in which you may claim an instant asset write-off depends on when the asset was purchased, first used or installed ready for use.​

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Instant asset write-off limits for small businesses Please click her

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Private health insurance statements

​From 1 July 2019, health insurers are no longer required to send private health insurance statements. Previously they were required to send statements by 15 July each year, it is now optional to send this information.

Private health insurance information will be available in the pre-fill report, usually by mid-August. If it is not populated by then, taxpayers may need to request a statement from their health insurer.

It is important to correctly report private health insurance information as we use it to calculate:

• private health insurance rebates taxpayers are entitled to

• the Medicare levy surcharge, if applicable.

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Research and development tax incentive amendments

On 8 May 2018, the government announced it would reform the research and development (R&D) tax incentive to encourage additional investment in R&D while ensuring the integrity and fiscal affordability of the incentive. These changes are expected to apply for income years commencing on or after 1 July 2018.

We will accept tax returns as lodged during the period up until the proposed law change is passed by parliament. After the new law is passed, taxpayers will need to review their position and, if required, seek an amendment.

See also:

• Research and development tax incentive - ATO

​Changes to the thin capitalization rules to prevent double gearing structures

​On 5 April 2019, legislation was passed to improve the integrity of the income tax law by modifying the thin capitalization rules to prevent double gearing structures. Double gearing structures involve the use of multiple layers of ‘flow-through’ entities (such as trusts and partnerships) to issue debt against the same underlying asset.

These changes apply to income years starting on or after 1 July 2018.

The changes will affect entities with interests in trusts (other than public trading trusts) and partnerships, as the threshold for the purposes of the associate entity debt, associate entity equity, and the associate entity excess amounts has been reduced from 50% to 10%.

The changes also affect how the arm’s length debt amount is calculated. To determine both the independent lender and independent borrower amounts of the test, an entity must consider the debt-to-equity ratios of any other entity in which it has an interest.

 

 

Foreign resident capital gains withholding payments - impacts on foreign and Australian residents.

 

Foreign resident capital gains withholding applies to vendors disposing of certain taxable Australian property. A 12.5% non-final withholding is applied to these transactions at settlement.

The assets subject to the withholding tax are:

• taxable Australian real property with a market value of $750,000 or more

• an indirect Australian real property interest

• an option or right to acquire such property or interest.

Where the seller of these Australian assets is deemed a foreign resident, the buyer must pay 12.5% of the purchase price to the ATO as a foreign resident capital gains withholding payment.

The foreign resident seller can claim a credit for the foreign resident capital gains withholding payment by lodging a tax return for the relevant year.

See also:

• Foreign resident capital gains withholding payment.

 

Background

 

Broadly, where a foreign resident disposes of certain taxable Australian property, the purchaser is required to withhold an amount from the purchase price (see note below) and pay that amount to the Australian Taxation Office (ATO).

Note: the legislation specifies that the withholding is actually on the "first element of the cost base". However, as purchase price is understood by vendors and purchasers, and in many instances will equate with the "first element of the cost base", we have used the term purchase price for simplicity.

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Annual charge on foreign owners of under utilized residential property.

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The vacancy fee is part of the Government's comprehensive housing affordability plan that was announced on 9 May 2017. This measure is intended to encourage foreign owners of residential dwellings to make them available for rent where they are not used as a residence and so increase the number of dwellings available for Australians to live in. The reporting and notification requirements are also expected to provide greater visibility of vacancy rates for foreign owned residential dwellings.

On 30 November 2017 the Treasury Laws Amendment (Housing Tax Integrity) Act 2017 received royal assent. The Act amends the Foreign Acquisitions and Takeovers Act 1975 to require foreign owners of residential dwellings to annually inform the ATO whether the dwelling is residentially occupied or genuinely available on the rental market as a residence for at least six months per year. If the person fails to notify the ATO or notifies the ATO that the dwelling is not residentially occupied or genuinely available on the rental market as a residence for at least six months per year they will be liable for a fee. The fee will be equivalent to the relevant foreign investment application fee for the property at the time it was acquired by the foreign investor.

The obligations under the Act apply to foreign persons who make a foreign investment application for residential property from 7:30PM (AEST) on 9 May 2017. The obligations also apply to foreign purchasers who acquire residential dwellings utilising a New Dwelling Exemption Certificate where the certificate was applied for from 7.30PM (AEST) on 9 May 2017.

Legislation and supporting material

The Treasury Laws Amendment (Housing Tax Integrity) Act 2017External Link received royal assent on 30 November 2017

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Black Economy Task force - prohibition on sales suppression technology and software.

On 9 May 2017, the Government announced that the manufacture, distribution, possession, use or sale of electronic point of sale (POS) sales suppression technology and software will be prohibited. Sales suppression technology and software allows businesses to understate their incomes by untraceably deleting selected transactions from electronic records in POS equipment.

Source: Australian Tax office - www.ato.gov.au