Budget 2026: What HR needs to know

Treasurer Jim Chalmers has unveiled the federal budget for 2026, which he said would include “big, bold, ambitious and responsible” measures. Find out here how this year’s budget will impact human resources professionals.

On the evening of Tuesday 12 March, Treasurer Jim Chalmers handed down his fifth federal budget, one that he told reporters earlier in the day would be “very ambitious, it will be very responsible, and it will take on some of the issues which will lift living standards over time”.

The Albanese Government, the treasurer said, has chosen the “hard road on reform, not the path of least resistance” in determining measures for this year’s budget – including making “a number of difficult decisions…to reform our tax system”.

In his speech to the House of Representatives, Treasurer Chalmers said “the most important and ambitious budget in decades” aims to do five things: get through the global oil shock and build resilience; relieve pressure on Australians; make the economy more productive to lift living standards over time; reform the tax system for workers, businesses, and future generations; and make the federal budget “stronger, more sustainable, and helping to take the pressure off inflation by saving more than we spend”.

Tax cuts for workers

In response to the fuel crisis that has exacerbated cost-of-living pressures, the federal government is offering a new $250 Working Australians Tax Offset (WATO), which will begin from the second half of 2027.

The WATO, the treasurer said, targets workers and “represents the most meaningful, permanent increase to the effective tax‑free threshold since Labor last increased it more than a decade ago”.

There are also two more cuts for taxpayers: firstly, from July, the 16 per cent tax rate on taxable income between $18,201 and $45,000 will drop to 15 per cent, and from next July, the tax rate will drop to 14 per cent.

“Every Australian taxpayer will receive a tax cut of up to $268 from 1 July 2026, then up to $536 every year from 1 July 2027, compared to the 2024–25 tax settings,” the budget noted.

The federal government is also introducing a $1,000 instant tax deduction to deliver lower and simpler taxes for workers from 2026–27. Two in five taxpayers, the papers noted, will benefit from an average tax saving of $205 for the next financial year.

The various tax cuts made by the Albanese Government will benefit the average worker by up to $2,816 in 2028, he said.

Tax changes for businesses

Chalmers told the House of Representatives: “We’re building a better tax system for businesses, with over $3.5 billion in new measures that lower taxes, to encourage investment and innovation.”

From 2026–27, the budget outlined, eligible companies that make a loss in the current income year will be able to use that loss to get a refund against tax paid in the prior two income years, which will benefit up to 85,000 businesses.

The budget permanently extends the $20,000 instant asset write‑off from 1 July 2026. Small businesses with turnover up to $10 million will be able to immediately deduct eligible assets costing less than $20,000, which is “estimated to improve cash flow for small businesses by around $890 million over the next five years”.

The Government is boosting business cash flow by making it easier for businesses to change their pay as you go (PAYG) instalments when business conditions change, by providing businesses with flexibility to opt in to monthly PAYG instalments from 1 July 2027, and expanding access to the ATO’s dynamic instalments pilot using business software to more accurately calculate PAYG instalments.

The budget also flagged that the federal government will work with states on reforms to payroll tax administration.

Also among the announced measures was a permanent introduction of a two‑year loss carry‑back for all companies up to $1 billion in turnover, and the introduction of a loss refundability for start‑ups, to help new businesses invest and grow in their first two years. Elsewhere, the government is expanding tax incentives for venture capital and better targeting the Research and Development Tax Incentive to support higher‑impact innovation.

“The new revenue raised will be returned to workers and businesses over the next four years – so more Australians can earn more and keep more of what they earn,” Chalmers said.

CGT changes

As widely reported in the lead up to the budget, the government plans to introduce a 30 per cent minimum tax on discretionary trust distributions.

Treasury confirmed that the minimum tax would not apply to other types of trusts such as fixed and widely held trusts, including fixed testamentary trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts.

It also stated that some types of income such as primary production income, certain income relating to vulnerable minors, amounts to which non-resident withholding tax applies, and income from assets of discretionary testamentary trusts existing at announcement would also be excluded.

Under the changes, the government will also provide expanded rollover relief for three years from 1 July 2027 to support small businesses and others that wish to restructure out of discretionary trusts into another entity type, such as a company or a fixed trust.

“These changes will be prospective, and new builds will retain the option to use the 50 per cent discount,” Chalmers said in his speech. “This is about better aligning the taxes paid on these types of income with the taxes paid on wages.”

Negative gearing

From tonight, changes to the negative gearing tax regime will take effect, reshaping how investors build their property portfolios.

Under the new policy, negative gearing will apply only to new dwellings, in a bid to boost supply.

The Treasurer said that the move will help younger Australians access the property ladder.

The changes mean that anyone who doesn’t already own a property won’t be able to purchase and negatively gear an existing dwelling to access the short-term tax concessions in the same way as before.

Investors who buy established housing after Budget night will still be able to deduct losses against residential property income for unused losses to future years, but won’t be able to offset them against other income, such as wages.

However, landlords currently negatively gearing properties in Australia will be “grandfathered” and exempt from the changes, as the reforms won’t apply retrospectively, sparing existing investors.

Investors buying new builds will still be able to offset losses against other income.

“This will help rebalance a system which is more generous to assets than it is to labour,” Chalmers continued.

“And help rebalance a system where house prices have decoupled from incomes.”

Boosting productivity

The federal government’s productivity plan, Chalmers said, starts with incentivising investment and innovation through the tax system for businesses, start‑ups and venture capital.

“We’re cutting the unnecessary red tape holding us back, including $780 million every year in the financial sector alone,” he said.

“We’re also making tax time simpler for small businesses which will save them 376,000 hours a year.”

“And we’re making the government simpler to deal with, through a “tell us once” approach so Australians don’t have to keep submitting the same information, and expanding the Digital ID. We will speed up approvals so businesses can quickly move from an investment decision to shovels in the ground.”

Supporting gender equality

Elsewhere, Chalmers proclaimed that the gender pay gap “has never been narrower”, and women’s workforce participation hit record highs last year.

“We are proud to have backed $21 billion in wage rises for women working in sectors like aged care and child care which have been undervalued for too long,” he said.

“This Budget includes hundreds of millions of dollars for front‑line services and to make our child support system safer, so children get the financial support they need and women are protected from abuse.”

Jerome Doraisamy

Jerome Doraisamy is the managing editor of Momentum Media’s professional services suite, encompassing Lawyers Weekly, HR Leader, Accountants Daily, and Accounting Times. He has worked as a journalist and podcast host at Momentum Media since February 2018. Jerome is also the author of The Wellness Doctrines book series, an admitted solicitor in NSW, and a board director of the Minds Count Foundation.

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