Australia’s Federal Budget 2026–27 has introduced some of the most significant proposed tax reforms in recent years, with measures impacting individuals, investors, discretionary trusts and employer provided electric vehicles (EVs).
For employers, payroll teams and internationally operating organisations, the announcements signal a period of change that could influence workforce planning, remuneration strategies, mobility programmes and broader investment decisions.
While several measures still require legislation before becoming law, businesses should begin assessing how the proposed reforms may affect employees, executive reward structures and long-term tax planning.
Personal Income Tax Changes Continue
The Federal Budget confirmed previously legislated personal income tax cuts aimed at reducing pressure on lower- and middle-income earners.
From 1 July 2026, the 16% marginal tax rate applying to income between AUD18,201 and AUD45,000 will reduce to 15%, with a further reduction to 14% planned from 1 July 2027.
For employers and payroll teams, this may require:
The Government has also announced additional cost of living support measures intended to improve affordability and workforce participation.
Electric Vehicle FBT Changes
One of the most closely watched announcements for employers has been the proposed reform to Fringe Benefits Tax (FBT) concessions for electric vehicles.
Under the current rules, eligible electric vehicles can receive a full FBT exemption. However, the Government has proposed a phased transition to a discounted FBT model over the coming years.
The proposed framework includes:
The reforms reflect the rapid growth of Australia’s EV market and the Government’s intention to shift from broad incentives toward more targeted support.
For employers, the changes may affect salary sacrifice arrangements, fleet procurement strategies and employee benefit programmes.
Major Changes Proposed for Discretionary Trusts
The Budget also introduced significant proposed reforms to the taxation of discretionary trusts. From 1 July 2028, the Government intends to introduce a minimum 30% tax on taxable income distributed through discretionary trusts, with some exceptions expected to apply.
Key proposed measures include:
The reforms are designed to reduce income splitting arrangements and align trust taxation more closely with individual income tax rates.
Capital Gains Tax and Investment Reform
The Budget also proposed major changes to capital gains tax (CGT) concessions and negative gearing arrangements.
Under the proposed reforms:
For employers and internationally mobile employees, these reforms may influence executive investment planning, cross border assignment considerations and equity reward structures.
Businesses with employee share plans or trust based reward arrangements should also assess whether future CGT reforms could affect participation structures or retention strategies.
What Employers Should Consider Now
Although many measures remain subject to legislation and further consultation, organisations should begin evaluating how the proposed reforms may affect payroll operations, workforce planning and employee benefits.
Area’s worth reviewing include:
The reforms also reinforce the growing importance of proactive tax governance and workforce planning as Australia’s tax landscape continues to evolve.
Australia – Global Insights
For further guidance on Australian payroll compliance, employment taxation, global mobility and workforce management, visit the Australia Global Insights section on the activpayroll website.
Next Steps
As the Federal Budget measures continue to develop, early planning and clear compliance strategies will remain essential for employers managing a modern global workforce.
If you require support navigating the proposed Federal Budget 2026–27 tax changes in Australia, please get in touch. Complete our Contact Us form and a member of our expert team will be happy to assist with your payroll, tax and compliance queries.