Australia Federal Budget 2025-2026 – Key Tax Measures

The key tax measures in the 2025-2026 Australian Federal Budget are summarised below.

Election… What election?

It's the Federal Budget no one was expecting, until an imperfect storm (named Alfred) visited our fair shores. This explains why, from a tax viewpoint, it may be one of the least ambitious budgets in recent memory.

Nevertheless, with the election so close, continuing cost-of-living pressures, and deficits stretching out beyond the horizon, the Labor Government has pulled a few surprise rabbits out of its Akubra.

These include an additional tax cut from 1 July 2026 and further energy bill relief for all Australians. The tax cut was a budget night surprise but is a modest A$268 in 2026/27. Less than A$5 a week won’t even buy a pie and beer combo (even taking account of the potential price drop for the beer under the excise indexation pause also announced tonight).

Treasurer Jim Chalmers has stressed the Budget is all about providing relief from rising prices and, in the case of the tax cut, addressing bracket creep. Introducing indexation of tax thresholds could have been a game changer in seriously tackling bracket creep but sadly the Treasurer did not go that far.

The A$268 question is whether Australian voters agree that he has done everything he could to ease their hip pocket pain when they go to the polls in May.

Personal tax

The Government has announced two personal income tax measures intended to address cost-of-living pressures.

Income tax cuts

The Government has announced personal income tax cut measures for certain taxpayers. These tax cuts are in addition to previous tax cuts announced in the 2024-25 May Budget.

The measures reduce the tax rate applying to taxable income earned between A$18,201 - A$45,000. Specifically, the 16% tax rate will be reduced:

• from 1 July 2026, to 15%; and
• from 1 July 2027, to 14%.

To summarise, the following personal income tax rates and thresholds will apply as a result of this measure:

This measure is estimated to decrease receipts by A$17.1 billion over five years from 2024–25.

Increasing the Medicare levy low income thresholds

The Government has increased the Medicare levy low-income thresholds by 4.7%, to assist low-income earners battling the cost of living. This change ensures low-income earners remain exempt from paying the levy, or will pay the levy at a reduced rate.

These increases are estimated to decrease Treasury receipts by A$648 million over five years from 2024–25.

Restricting foreign ownership of housing

From 1 April 2025, foreign persons (including temporary residents and foreign-owned companies) will be banned from purchasing established dwellings for two years, purportedly to support the Government's broader agenda to boost Australia's housing supply.

Exceptions to the ban will include investments that significantly increase housing supply or support the availability of housing on a commercial scale, and purchases by foreign owned companies to provide housing for workers in certain circumstances.

The Government will provide the Australian Tax Office (ATO) with A$5.7 million (over four years) to fund enforcement. Additionally, the ATO and Treasury will be provided with A$8.9 million (over four years) and A$1.9 million per year afterwards to implement an audit program and enhance compliance approaches to target land banking by foreign investors.

Foreign resident capital gains tax (CGT) withholding tax

As part of the 2024-25 Federal Budget, the Government announced it would strengthen the foreign resident CGT regime to ensure that foreign residents "pay their fair share of tax in Australia" and to provide greater certainty on the operation of the rules. This was followed by Treasury's release of the Strengthening the foreign resident capital gains tax regime consultation paper in July 2025. That consultation paper proposed three elements, as follows:

• clarifying and broadening the types of assets that foreign residents are subject to tax on – specifically, to include assets with "a close economic connection to land", including leases or licences, water entitlements, infrastructure and machinery installed on land, an option or right to acquire any of the preceding items, and a non-portfolio membership interest in any entity where more than 50% of the underlying entity's market value is derived from the preceding assets;
• amending the existing point in time principal asset test to a 365-day testing period; and
• requiring foreign residents disposing of membership interests exceeding A$20 million in value, where those vendors have provided a vendor declaration to the acquirer that the interests are not indirect Australian real property interests, to notify the ATO in an approved form prior to the transaction being executed.

These measures were originally supposed to commence from 1 July 2025, but will now be deferred to the later of 1 October 2025 or the first 1 January, 1 April, 1 July or 1 October after the Act receives Royal Assent.

Managed investment trust (MIT) changes

Eligibility changes

The Government has announced that it will amend tax laws to clarify arrangements for MITs, with the intention of ensuring "legitimate investors" can continue to access concessional withholding tax rates, while complementing the ATO's "strengthened guidelines to prevent misuse". The measure will apply to MIT fund payments from 13 March 2025.

Although little detail is contained in the announcement, this measure relates to a previous announcement by the Assistant Treasurer on 13 March 2025, available here. That measure is intended to ensure that genuine, foreign-based widely held investors (such as pension funds) can access the MIT withholding tax regime on eligible fund payments. The announcement followed the ATO's release of Taxpayer Alert 2025/1, where the ATO identified certain high risk tax arrangements involving the following:

• a restructure involving the transfer of passive assets from a non-MIT (e.g. corporate) structure to a MIT structure, potentially with multiple CGT rollovers or the introduction of related party debt into Australia; or
• a restructure involving the conversion of a unit trust structure into a MIT structure, including by way of introducing a second unitholder (to meet the managed investment scheme requirement) in circumstances where the MIT is indirectly wholly-owned by a single foreign entity that is a qualifying entity for MIT purposes, or by way of changing the management arrangements in respect of the trust to meet the MIT licensing requirement.

Although the ATO indicated that the risks related to restructures, the ATO went on to say that they were aware of existing MITs that were established in this manner (as opposed to being restructured), and that "[t]he potential application of Part IVA [the general anti-avoidance rule] … may also be relevant to these structures". However, the ATO indicated they would "not apply … compliance resources to these [existing] structures if they were established prior to the publication of this alert unless there is material new investment or ownership change".

It is speculated that the announcement is proposing changes related to the managed investment scheme requirement for trusts that are wholly-owned by foreign qualifying entities.

Clean building MIT withholding tax concession

The Government has deferred the measures announced in the 2023-2024 Budget to extend the clean building MIT withholding tax concession. These measures include:

• expanding the categories of clean buildings which a withholding MIT may hold to include data centres and warehouses that meet the relevant energy efficiency standard, for which construction commenced after 7:30pm on 9 May 2023; and
• increasing the minimum energy efficiency requirements for all "clean buildings" to a 6 Star Green Star rating from the Green Building Council of Australia or a 6 Star energy rating as accredited by the National Australian Built Environment Rating System.

These measures, when announced, were intended to apply from 1 July 2025. The Budget has deferred commencement to the first 1 January, 1 April, 1 July or 1 October after the implementing legislation receives Royal Assent.

Alcohol and hospitality

The 2025-26 Federal Budget includes two key changes to the tax settings for alcohol that are stated to increase support for hospitality venues, brewers, distillers and wine producers:

Pause in indexation on excise

Indexation on draught beer excise and excise equivalent customs duty rates will be paused for a two year period commencing from August 2025. Under the current rules, indexation of these excise imposts would have occurred on August 2025, February 2026, August 2026, and February 2027. It is proposed that biannual indexation (twice-yearly) will then recommence from August 2027.

Increase in specific support

As previously announced in February, the Government will increase support under the existing excise duty remission scheme and Wine Equalisation Tax (WET) producer rebate. Broadly, under the current excise remission scheme, eligible alcohol producers are able to claim a full refund of any excise paid up to A$350,000 each year. Similarly, eligible wine producers are currently entitled to a producer rebate of the WET amount up to A$350,000 per year. From 1 July 2026, each of these caps will be increased to A$400,000 per year.

ATO receives an extra A$1 billion in war chest funding

The ATO will be receiving an additional A$1 billion in funding over the next four years to extend and expand its tax compliance activities. This includes:

• a two-year expansion and one-year extension of the Tax Avoidance Taskforce, which scrutinises multinationals and other large taxpayers, costing approximately A$720 million;
• extension and expansion of the Shadow Economy Compliance Program that targets businesses in the shadow economy, costing approximately A$155 million;
• extension and expansion of the Personal Income Tax Compliance Program, costing approximately A$75 million; and
• extension of the Tax Integrity Program, enabling an engagement program for the timely payment of tax and superannuation liabilities by medium and large businesses and wealthy groups, costing approximately A$50 million.

This funding is expected to deliver additional collections of A$3.2 billion for the Government over the next five years. This amount includes additional Goods and Services Tax (GST) receipts, out of which A$402.6 million is estimated to be handed to the states and territories over the next five years as additional GST proceeds distributions.

Previous updates

2024 – 2025 Australia Federal Budget Update: summary of key measures - (14 May 2024)

What does the 2024-25 Federal Budget say about environment, planning and First Nations issues? -  (20 May 2024)