How the 2026 Australian Federal Budget Impacts Australians Living Overseas

The 2026–27 Australian Federal Budget introduces some of the most significant proposed tax reforms in recent years, with major changes to capital gains tax (CGT), negative gearing and discretionary trusts. While much of the media attention has focused on how these measures may affect Australians living domestically, there are also important considerations for Australians living overseas.

Understanding how the Australian Federal Budget impacts Australians living overseas is becoming increasingly important for Australian Expats managing investments, property ownership, superannuation and future plans to return to Australia. Although many of the headline measures are aimed at the domestic property market and wealth taxation, the Budget also highlights the continued importance of strategic tax planning for Australians with cross-border financial interests.

Below is a summary of the key announcements from the 2026–27 Federal Budget and what they may mean for Australian Expats.

The Big Picture

The Federal Government handed down the 2026–27 Australian Federal Budget on 12 May 2026 with a strong focus on cost-of-living relief, housing affordability and long-term tax reform.

The Budget remains expansionary, with significant government spending aimed at supporting households and the broader economy.

Key Budget figures include:

• A budget deficit of $28.3 billion for the 2025–26 financial year is forecast, and approximately $122.2 billion over the next four years;

• Gross Commonwealth debt expected to exceed $1 trillion from 2026–27.

While government spending remains elevated, the Budget also introduces several proposed tax reforms that may affect investment and wealth planning strategies over the coming years.

Several measures stand out as structurally significant:

• From 1 July 2027, the long-standing 50% CGT discount will be replaced by a cost base indexation method, together with a 30% minimum tax on net capital gains;

• From 1 July 2027, the Government proposes limiting negative gearing benefits for newly purchased established investment properties;

• From 1 July 2028, a 30% minimum tax will apply to discretionary trusts;

• A new $250 Working Australians Tax Offset will commence from the 2027–28 income year.

These reforms represent a meaningful recalibration of how income, capital and investment activity may be taxed in Australia over the medium term.

Personal Income Tax Cuts

The Government confirmed further personal income tax cuts for lower and middle-income earners.

From:

• 1 July 2026, the 16% tax rate will reduce to 15%;

• 1 July 2027, the rate will reduce further to 14%.

In addition, a new permanent $250 Working Australians Tax Offset is scheduled to commence from the 2027–28 income year.

These measures are intended to provide modest but ongoing relief to Australian taxpayers.

Small Business Measures

For business owners, the Budget included:

• an extension of the $20,000 instant asset write-off;

• expanded research and development incentives; and

• renewed business loss carry-back provisions.

These measures may provide opportunities for eligible businesses to improve tax efficiency and support investment in growth.

Tax on Discretionary Trusts

One of the more significant structural announcements was the introduction of a proposed minimum 30% tax rate on discretionary trusts.

Currently, trust income is generally taxed in the hands of beneficiaries at their individual marginal tax rates. Under the proposed changes, from 1 July 2028, trustees of discretionary trusts will be required to pay a minimum tax of 30% on the taxable income of the trust.

This proposal represents a substantial departure from the long-standing approach to trust taxation in Australia and may have implications for family groups and investment structures that utilise discretionary trusts for income distribution and asset management purposes.

Changes to Negative Gearing and Capital Gains Tax (CGT)

The Budget announced significant proposed reforms to property and investment taxation that may affect future investment decisions.

Negative Gearing Changes

From 1 July 2027, the Government proposes to limit negative gearing benefits for newly purchased established investment properties.

Currently, investors can generally deduct rental property losses against other income, such as salary or business income, reducing their overall tax liability.

Under the proposed changes:

• losses on newly acquired established properties will no longer be deductible against other personal income;

• those losses will instead only be offset against future rental income or capital gains from property;

• unused losses can be carried forward to future years.

Importantly:

• existing investment properties are expected to be grandfathered under current rules, meaning they will be exempt from the new rules;

• contracts entered into before Budget night on 12 May 2026 are also expected to remain exempt; and

• newly built properties will continue to qualify for traditional negative gearing concessions as part of the Government’s housing supply strategy.

Commercial property and other asset classes, such as shares, are not expected to be impacted by these proposed negative gearing changes.

Changes to the 50% Capital Gains Tax Discount

The Government also announced plans to replace the current 50% CGT discount for individuals and trusts from 1 July 2027 with a new inflation-indexation model.

Currently, investors who hold an asset for more than 12 months generally receive a 50% discount on capital gains tax when the asset is sold.

Under the proposed system:

• the 50% discount would be replaced with an inflation-indexation model;

• only the “real” gain above inflation would be taxable; and

• a 30% minimum tax would apply to net capital gains after indexation.

The proposed reforms would also make assets acquired before 1985 taxable on gains accrued from July 2027 onwards.

Importantly, investors purchasing newly built properties are expected to have the option of choosing either:

• the existing 50% CGT discount; or

• the new inflation-indexation method;

depending on which produces the more favourable tax outcome.

These proposed reforms represent one of the most significant changes to investment taxation in recent decades and may influence future decisions around property ownership, portfolio structuring and long-term wealth accumulation.

Shares, ETFs, Managed Funds and Cryptocurrency

The proposed CGT changes are expected to apply broadly across other investment assets, including shares, ETFs, managed funds and cryptocurrency.

Currently, investors holding assets for more than 12 months generally receive the 50% CGT discount. From 1 July 2027, this is proposed to be replaced by an inflation-indexation model, where tax would apply only to gains above inflation.

While periods of higher inflation may reduce taxable gains for some investors, long-term growth investors could potentially pay more tax over time compared with the current 50% discount system.

Importantly, negative gearing on shares and other investment assets is expected to remain available under the proposed reforms.

Superannuation

There were no major new superannuation measures announced in this year’s Budget.

However, the previously announced additional tax on earnings for individuals with total superannuation balances above $3 million is already in place and remains scheduled to apply from 1 July 2026.

Importantly:

• superannuation funds will retain their existing one-third discount on capital gains; and

• no broader structural changes to superannuation taxation were announced.

This provides some stability for retirement planning strategies, with superannuation continuing to remain one of the most tax-effective long-term investment structures available for many Australians.

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Implications for Australian Expats

The Australian Federal Budget impacts Australians living overseas in several important ways, particularly for those who continue to hold Australian property, maintain investment portfolios or plan to return to Australia in the future.

Negative Gearing

Australian Expats may still be affected by the proposed negative gearing changes, where they have Australian-sourced income from sources other than rental income or capital gains.

However, income losses are still expected to remain available to offset income from other residential property investments, which is commonly how many non-resident Australians utilise negative gearing strategies.

Capital Gains Tax

The proposed changes to the 50% CGT discount may have a more limited immediate impact on Australian Expats.

This is because the 50% CGT discount generally does not apply to property acquired after 8 May 2012 where the owner has held the property while a non-resident for tax purposes.

As a result, many Australian Expats may not be significantly affected by the new rules unless they later return to Australia and resume Australian tax residency. At that point, the new inflation-indexation method would likely become relevant.

Importantly, shares, ETFs and other investments classified as “non-taxable Australian property” generally remain outside the Australian CGT regime for non-residents.

Superannuation Rules

No major superannuation changes were announced in this Budget. Superannuation funds were excluded from any CGT reform and will continue to receive the existing one-third discount on capital gains where assets have been held for at least 12 months.

The absence of major changes to superannuation may place renewed focus on superannuation planning for Australian Expats intending to return to Australia in the future.

Superannuation continues to provide a highly tax-effective long-term investment environment for retirement planning and wealth accumulation.

Australian Tax Residency Rules

Importantly, no changes were announced to Australia’s existing tax residency rules. This means the current residency framework under ITAA36, together with Tax Ruling TR 2023/01, remains the primary basis for determining Australian tax residency status for Expats living overseas.

Conclusion

The 2026–27 Federal Budget proposes wide-ranging reforms to investment taxation, property ownership and trust structures that may reshape long-term financial planning strategies for many Australians.

The Australian Federal Budget impacts Australians living overseas differently from Australian residents due to the interaction between non-resident tax rules, CGT treatment, property ownership and superannuation planning. For Australian Expats, understanding how these proposed measures fit within a broader cross-border financial strategy will be increasingly important over the coming years.

As many of the measures remain proposed and subject to future legislation, obtaining personalised advice will remain important for Australians with international financial interests, particularly where investment structures, Australian property holdings or future residency changes are involved.

If you would like to discuss how these proposed Budget changes may affect your personal circumstances as an Australian living overseas, please feel free to contact our office.

Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.

If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the link below:

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General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.