Federal Budget 2026–27

14 May 2026

MEMBER BRIEFING: What HVAC contractors need to know.

Executive Summary

The 2026–27 Federal Budget was handed down on 12 May 2026. Treasurer Jim Chalmers framed it as a ‘Resilience and Reform’ budget — responding to the global oil shock from the Middle East conflict while advancing a broad agenda of housing, energy, tax and productivity reform.

For HVAC and mechanical contractors — whether you are a sole trader, a regional business, or a national firm — this Budget has real and immediate consequences. There are genuine wins, particularly on tax and cash flow. But there are also structural changes ahead that will reshape your cost base, your workforce and your pipeline of work. AMCA has reviewed every relevant measure so you don’t have to.

The headline message: act now on the tax opportunities, take the fuel excise relief for what it is (temporary), plan carefully for the energy and property transitions ahead, and get ahead of the wage and workforce pressures that are not going away.

WINS FOR CONTRACTORS

Permanent $20K asset write-off

Tax loss carry-back

Income tax cuts from 1 July 2026

65,000 new homes pipeline

National licensing progress

Free access to NCC standards

Faster migrant trade assessments

AREAS TO WATCH

Fuel excise relief is temporary (3 months)

Energy market reform reshaping HVAC demand

Discretionary trust minimum tax from 2028

EV FBT exemption window closing April 2029

Gas reservation — wait for implementation detail

RISKS AHEAD

Negative gearing limited to new builds (Jul 2027)

CGT discount restructured (Jul 2027)

Investment property renovation work will soften

Wage pressures are not easing

Trust structures face minimum 30% tax (2028)

At a Glance: Key Budget Measures for Contractors

Budget Measure	Who It Affects	Impact	Effective From
Permanent $20,000 instant asset write-off	All contractors (turnover <$10M)	Positive	1 July 2026
Tax loss carry-back (prior 2 years)	Incorporated contractors	Positive	2026–27 FY
Income tax rate cut: 16% → 15% → 14%	All workers and owners	Positive	1 Jul 2026 & 2027
$1,000 instant tax deduction for workers	All employees	Positive	2026–27 FY
Fuel excise cut to 20.6c/L	All fleet operators	Positive (temporary)	Apr–Jul 2026
ATO payment plan / PAYG relief	Businesses under cash pressure	Positive	To 30 June 2026
$2B Local Infrastructure Fund (65,000 homes)	Residential / new build contractors	Positive	2026 onward
NCC modernisation + free standards access	All contractors	Positive	2026 onward
National occupational licensing	Multi-state contractors	Positive	Ongoing
$85M faster migrant skills assessment	Businesses hiring tradespeople	Positive	2026 onward
Energy market reform / battery participation	HVAC and building services	Positive (medium term)	From 2026
EV FBT full exemption (cars under $75K)	Fleet operators	Positive (window closing)	Until Apr 2029
Domestic gas reservation (20%)	Gas system contractors	Watch	1 July 2027
Discretionary trust minimum 30% tax	Trust-structured businesses	Watch / Risk	1 July 2028
Negative gearing limited to new builds only	Renovation / upgrade pipeline	Risk	1 July 2027
CGT discount restructured	Investment property market	Risk	1 July 2027
Minimum and award wage increases	All employers	Risk	2026 FY onward

1. Tax and Cash Flow — The Wins Are Real, Act Now

This is the section most contractors should read first. The Budget delivers meaningful tax relief for businesses of all sizes. Some of it requires action this financial year.

1.1 Permanent $20,000 Instant Asset Write-Off

The Government has made the $20,000 instant asset write-off permanent for small businesses with annual turnover up to $10 million, starting 1 July 2026. Each individual asset must cost less than $20,000 to qualify for an immediate deduction.

Opportunity: Plan Your Asset Purchases Now

Tools, test and diagnostic equipment, hand tools, safety gear, software licences, small plant and equipment — if each item costs under $20,000 and your turnover is under $10 million, you can write it off immediately in the year of purchase. This is now a permanent feature of the tax system, not a temporary measure.

Review your equipment needs for FY2027. If you have been putting off purchases, there is now certainty the write-off will be there. Speak to your accountant about whether bringing forward planned purchases makes sense for your tax position.

1.2 Tax Loss Carry-Back

From 2026–27, incorporated companies that record a tax loss can apply that loss against tax paid in either of the prior two financial years, generating a cash refund. Up to 85,000 companies — most of them small businesses — are expected to benefit.

Opportunity: A Cash Flow Safety Net if You Have a Loss Year

If your company paid tax in 2024–25 or 2025–26 and records a loss in 2026–27 — for example from elevated fuel costs, a slow project year, or major equipment investment — you may be entitled to a refund of prior-year tax paid.

This applies to companies only — not sole traders or partnerships. Talk to your accountant now about your eligibility and how to structure your approach.

1.3 Income Tax Cuts and the $1,000 Instant Deduction

Two further tax rate cuts apply to all Australian taxpayers. The 16% rate on income between $18,201 and $45,000 drops to 15% from 1 July 2026 and to 14% from 1 July 2027. A $1,000 instant tax deduction for workers applies from 2026–27 — no receipts needed. A $250 Working Australians Tax Offset begins from 2027–28.

Benefit: Your Workforce Keeps More Take-Home Pay

Your employees will pay less tax without any increase in your wage bill. In a tight labour market where tradies have options, this marginally improves your competitiveness as an employer without requiring a salary lift.

The $1,000 instant deduction also removes the administrative burden of receipt-tracking from employees — reducing payroll queries at tax time for both parties.

1.4 PAYG Flexibility and ATO Temporary Relief

Businesses get more flexibility to vary their PAYG tax instalments when conditions change. The ATO is also offering temporary relief until 30 June 2026 — including more generous payment plans, remission of interest and penalties, and PAYG variation support — for businesses impacted by fuel and supply chain pressures.

Act Before 30 June 2026

If your business has been hit by higher fuel costs or project disruptions, the ATO’s temporary relief arrangements are available right now — but only until the end of this financial year. Contact the ATO or your accountant before 30 June. Do not leave this on the table.

1.5 Discretionary Trust Minimum Tax — A Real Structural Risk

From 1 July 2028, discretionary trusts will face a minimum 30% tax on distributions. Three years of rollover relief applies from 1 July 2027 for businesses that wish to restructure before the change takes full effect.

Risk: Many HVAC Businesses Use Trust Structures — This Affects You

A significant proportion of small-to-medium HVAC contracting businesses operate through discretionary trusts for income splitting and tax flexibility. From 2028, that flexibility is materially curtailed. Distributions will attract a minimum 30% tax rate regardless of the recipient’s marginal rate.

The rollover relief window — 2027 to 2030 — gives you time to restructure. But only if you plan ahead. AMCA strongly urges all members with trust structures to get advice from their accountant during 2026–27. Do not wait until 2027. Restructuring decisions made in the next 12 months will have lasting tax and legal consequences. Do not underestimate this change.

2. Fuel Costs — Real Relief Now, But It Ends

Vehicle fleets are a core operating cost for the vast majority of HVAC contractors. The Budget’s fuel response provides immediate but time-limited relief against a backdrop of genuine global supply disruption.

2.1 Fuel Excise Cut to 20.6 Cents Per Litre

Fuel excise has been cut from 52.6 cents to 20.6 cents per litre — a reduction of more than 60% — for three months from 1 April 2026. The heavy vehicle road user charge has also been reduced to zero for the same period.

Opportunity: Meaningful Savings Right Now

For a contractor running five service vans, each filling a 70-litre tank twice a week, the excise cut saves approximately $1,500 per month during the three-month window. This is real money — capture it.

The ACCC is conducting weekly retail fuel price reporting to monitor pass-through at the bowser. If you are not seeing prices that reflect the excise reduction, report it through the ACCC’s consumer mechanisms.

Risk: Do Not Build This Into Your Long-Run Cost Structure

The excise reduction runs for three months only, from 1 April 2026. Unless extended by Government announcement, expect fuel costs to return to near their previous level from July 2026.

Any tenders or contracts you are pricing now that extend beyond July 2026 must be costed on the assumption that the full excise applies. Pricing contracts on the basis of reduced excise and then absorbing the reversal will be costly.

2.2 Fair Work Orders on Fuel Costs in Road Transport Contracts

The Fair Work Commission now has power to make orders adjusting fuel cost terms in road transport contracts. An order took effect on 21 April 2026 to regularly adjust rates paid to owner-drivers and small transport operators.

Review Your Subcontracting Arrangements

If you engage owner-driver subcontractors for deliveries or site logistics, contract rates may be subject to periodic adjustment under Commission orders. Review your subcontracting arrangements to ensure they are compliant and that cost variations are appropriately managed.

3. The Construction Pipeline — Volume Is Coming, but the Mix Is Changing

Housing and construction demand drives the majority of HVAC installation and upgrade work. The Budget brings a significant new pipeline — but also a structural shift that will redirect where that demand comes from.

3.1 $2 Billion Local Infrastructure Fund — 65,000 New Homes

A new $2 billion Local Infrastructure Fund will help local governments and utilities connect water, power, sewerage and roads to new housing developments. The Government estimates this will unlock up to 65,000 additional homes over the decade, on top of $6.3 billion already committed to housing infrastructure.

Opportunity: A Sustained Pipeline for New Build Contractors

Every one of those homes needs HVAC installation. This is a sustained decade-long pipeline of residential mechanical work, concentrated in growth corridors and greenfield areas. Members focused on new residential installation should be monitoring local government development pipelines now and building relationships with volume builders and developers ahead of tender activity, which will begin flowing in the next two to three years.

3.2 Negative Gearing Limited to New Builds from 1 July 2027

This is the single most significant structural change in the Budget for the construction sector. From 1 July 2027, negative gearing tax concessions will only apply to investors who purchase new dwellings. Investors who buy established properties after Budget night (12 May 2026) will still be able to deduct losses against rental income, but not against other income like wages.

Risk: Investment Property Renovation and Upgrade Work Will Soften

A material portion of HVAC work in the residential sector comes from investment properties — upgrades, replacements and renovations driven by landlords improving yield or preparing to sell. From mid-2027, the tax incentive for investors to buy and improve established properties reduces significantly.

This does not mean the work disappears instantly. Investors who currently hold properties are unaffected. But new investor demand for established properties — and the renovation spending that follows — will likely slow as the 2027 date approaches and afterward.

If your business is heavily weighted toward renovation and upgrade work in investment properties, AMCA recommends an honest assessment of your pipeline exposure to this segment and a plan to grow your share of new build work over the next 12–24 months. The shift will not reverse.

3.3 CGT Discount Restructured from 1 July 2027

The 50% capital gains tax discount is being replaced with an inflation-indexed discount plus a minimum 30% tax on gains. Investors in new builds can choose between the old and new arrangements. The change only applies to gains arising after 1 July 2027.

Short-Term Spike in Property Sales Activity Is Possible

Between now and July 2027, some investors may seek to sell established properties before the new CGT rules apply to future gains. This could drive a short-term increase in property transactions and associated presale upgrade and renovation activity. Contractors who do maintenance and upgrades may see increased demand in this 12-month window. Be ready to resource it, but do not mistake it for a structural trend.

3.4 Defence and Major Infrastructure — A Long Pipeline for Larger Contractors

The Budget commits an additional $53 billion to defence over ten years, including a $12 billion Henderson Defence Precinct in Western Australia for naval shipbuilding and sustainment. Over $8.6 billion in nationally significant road and rail projects includes the $3.8 billion Suburban Rail Loop East in Victoria, the Bruce Highway upgrade in Queensland, and other major works.

Opportunity: Position Now for Government and Defence Projects

Major defence facilities, naval precincts and transport infrastructure all require extensive HVAC and mechanical services. The Henderson Precinct alone represents a decade of procurement activity in Western Australia.

If you have the scale and credentials for government and defence project work, the time to position is now — not when tenders are advertised. Procurement panels, security requirements, WHS management systems and subcontractor panel registrations all take 12–24 months to establish. Start that process in 2026.

4. Energy Transition — The Market Is Changing Around Your Industry

The Budget’s energy agenda is not just a fuel security response. It represents a fundamental shift in how buildings generate, store and consume energy. For HVAC contractors, this is reshaping demand — and the contractors who recognise this early will have an advantage.

4.1 Household Batteries, Solar and Direct Energy Market Participation

Over 370,000 home batteries have been installed since July 2025. Two million homes are expected to have batteries by 2030. For the first time, household solar and battery systems will be able to directly participate in the energy market — responding to price signals and selling stored energy back to the grid.

Opportunity: Smart HVAC and Demand Management Capability

HVAC systems are the largest controllable load in most buildings. As homes and commercial properties become active participants in the energy market, clients will increasingly want HVAC systems that can integrate with battery management platforms, load-shift to off-peak periods, and operate in demand-response modes.

Contractors who develop competency in smart HVAC controls, building management system integration, and energy-optimised design will be ahead of a growing market. This is not a distant trend — the transition is happening now. The businesses that invest in this capability in 2026 will be the preferred contractors in 2028.

4.2 Domestic Gas Reservation from 1 July 2027

LNG exporters will be required to supply 20% of their export volumes to the domestic market from 1 July 2027. The Government intends this to increase gas availability and moderate prices for Australian commercial and industrial users.

Watch for Implementation Detail Before Making Assumptions

Gas-fired HVAC systems in commercial buildings have faced reduced client appetite for investment as wholesale gas prices have risen sharply. If the reservation scheme succeeds in moderating prices, it could partially restore the economics of gas heating in some commercial applications.

However, the long-term policy trajectory in Australia is toward electrification. Gas reservation provides potential short-term price relief but does not change the medium-term direction. Contractors should continue building capability in both gas and electric heat pump systems, and not defer electrification-related investment on the assumption that gas will become cheap again.

4.3 Electric Vehicle FBT — A Fleet Planning Decision

The full FBT exemption for electric vehicles under $75,000 continues until 1 April 2029, provided the arrangement commences before that date. For EVs over $75,000, a 25% FBT discount applies from 1 April 2027. From 1 April 2029, all eligible EVs receive the 25% discount rather than a full exemption.

Plan Your Fleet Transition Timeline Now

Vehicles locked into an arrangement before 1 April 2029 retain their full FBT exemption for the life of that arrangement. Vehicles entered after that date only receive a 25% discount. For businesses planning fleet renewal in the next two to three years, the timing of transition matters financially.

Model your fleet renewal schedule against this window. Engage your fleet manager or accountant now. For businesses that plan to transition to EVs, doing so before April 2029 locks in the better tax treatment for the life of those vehicles.

5. Workforce — Some Help Is Coming, But Labour Costs Are Rising

Labour is the largest cost in most HVAC businesses and the most common constraint on growth. The Budget delivers some targeted help on workforce supply, but it does not reduce wage cost pressures — those are intensifying.

5.1 National Occupational Licensing

The Government is progressing a national approach to occupational licensing through its Single National Market agenda, working with states and territories to allow licensed tradespeople to work across borders without re-licensing.

Opportunity: Deploy Your Workforce Where the Work Is

For AMCA members who operate across multiple states, the current system of separate state licences is a genuine operational constraint and compliance cost. National licensing will allow you to move workers to where projects are without the delays and costs of interstate re-licensing.

Implementation is progressing incrementally through intergovernmental negotiation and will not happen overnight. AMCA continues to actively advocate for HVAC and refrigeration trades to be included in the national framework. Members should stay engaged with AMCA communications on this — it is one of the most important long-term structural reforms for multi-state contractors.

5.2 Faster Recognition of Overseas Trade Qualifications

The Government is investing $85.2 million to accelerate skills assessments for migrant tradespeople and speed up occupational licensing for overseas-trained workers. The permanent migration points test is also being reformed to target more highly skilled and younger migrants.

Practical Impact Will Take Time — Engage Proactively

Faster assessments are welcome, but the bottleneck in HVAC trades is not only assessment speed — it is also the alignment between overseas qualifications and Australian standards, and the availability of assessors with HVAC and refrigeration expertise.

AMCA is engaging with the relevant assessing bodies to ensure HVAC and refrigeration pathways are prioritised. Members who are actively seeking to recruit overseas-trained HVAC technicians should contact AMCA for current guidance on recognition pathways and realistic timelines.

5.3 Wage Increases — An Ongoing Cost Pressure

The Government has recommended the Fair Work Commission award a real wage increase in the 2026 Annual Wage Review. Junior pay rates for workers aged 18–20 in retail and pharmacy sectors are being phased out, signalling a broader direction on award rates.

Risk: Wage Costs Will Continue to Rise — Factor This Into Pricing

The HVAC industry already competes above-award for qualified technicians. The Annual Wage Review decision will lift the minimum cost floor for all employed tradespeople. Combined with tax cuts that increase employee take-home pay expectations, the pressure on wages is not diminishing.

Factor real wage increases into your FY2027 cost modelling, escalation provisions in longer-term contracts, and enterprise agreement strategies. AMCA will update members on the Annual Wage Review outcome when it is handed down. Do not wait for the decision to update your pricing models.

6. Regulation and Compliance — Meaningful but Modest Relief

The Budget’s deregulation package includes several direct benefits for contractors, reducing both cost and friction in day-to-day compliance.

6.1 Free Access to NCC-Referenced Standards

All standards referenced in Australian legislation — including Australian Standards cited in the National Construction Code — will be made freely accessible online. The Government estimates this will save small businesses and tradespeople up to $1,600 per year in access costs.

A Direct Cost Saving for Compliance-Heavy Businesses

AS/NZS standards relevant to HVAC design, installation and commissioning — including standards for refrigeration systems, ductwork, electrical safety and fire — are currently behind expensive paywalls. Free access reduces the cost of staying compliant and makes it easier for sole traders and small businesses to access technical documents they need without relying on employer or association-purchased subscriptions.

6.2 National Construction Code Modernisation

The Government is committed to simplifying building regulations, promoting modern construction methods, and using AI tools to make the NCC more navigable. A ‘tell-us-once’ digital identity investment will also streamline government service access.

Engage in the NCC Process

NCC changes directly affect how HVAC systems are specified, designed and installed in new buildings. Simplification brings risk if mechanical services requirements are inadvertently misrepresented or weakened in the process. AMCA is actively participating in NCC modernisation consultation. If you have concerns about specific HVAC-related provisions, contact the AMCA policy team. Member input shapes what AMCA advocates for.

6.3 Reduced Company Reporting Burden

The Government is increasing the thresholds that determine whether a company must lodge audited financial statements and meet large company reporting obligations. This reduces the compliance burden for growing mid-sized contractors who have crossed into the large company category.

Less Red Tape for Growing Businesses

If your business has grown into the medium or large threshold category and is currently carrying audit and reporting obligations that feel disproportionate to your scale, the threshold changes may remove or reduce those obligations. AMCA will advise on specific new thresholds when legislation is introduced.

7. What AMCA Members Should Do Now

This Budget requires action, not just awareness. While the immediate measures around fuel and tax relief provide some short-term support, the broader direction of the market is clear — rising labour costs, accelerating electrification, increasing compliance expectations, and changing construction demand patterns will all shape how HVAC businesses operate over the next several years.

The following are practical priority actions AMCA members should be considering now.

Speak with your finance team or accountant about the permanent $20,000 instant asset write-off and whether bringing forward equipment, tooling, vehicles, digital systems or workshop investment into FY2027 makes sense for your business.
If your business may experience a weaker trading period, increased investment cycle or project slowdown in 2026–27, discuss loss carry-back eligibility with your accountant and how this may assist your cash flow position.
If your business is currently under cash flow pressure, engage with the ATO before 30 June 2026 regarding temporary relief measures including payment plans, interest remission and PAYG variation arrangements.
Review tender pricing, maintenance agreements and long-term contracts carefully. Do not assume the current reduced fuel excise continues beyond July 2026, and ensure labour escalation and ongoing wage growth are being appropriately factored into pricing models.
If your business operates through a discretionary trust structure, speak with your accountant early regarding the proposed 2028 minimum trust tax changes and whether any future restructuring should be considered.
Review how exposed your business is to residential investment property renovation and upgrade work. If you actively operate in this market, begin considering how the July 2027 negative gearing reforms may affect future demand and whether there is value in growing capability in new residential construction, retrofits or electrification projects.
Monitor housing and infrastructure growth areas within your operating regions. The Local Infrastructure Fund, defence spending and major infrastructure investment are expected to drive long-term construction opportunities across multiple sectors.
Take advantage of free access to NCC-referenced Australian Standards when available and ensure supervisors, estimators, technicians and project teams are working from current compliance documentation.
Review your workforce strategy beyond simple recruitment. Labour shortages are increasingly becoming a productivity and retention issue, not just a headcount issue. Businesses should be reviewing scheduling efficiency, technician utilisation, digital workflows and operational productivity.
Begin building greater capability in areas such as smart HVAC controls, building management systems, electrification, commissioning and energy optimisation. Client expectations are continuing to shift toward more integrated and energy-managed building solutions.
If your business operates across multiple jurisdictions, continue monitoring national occupational licensing reforms through AMCA and review internal workforce compliance systems to ensure they can adapt efficiently as reforms progress.
Review your fleet replacement strategy against the current EV FBT exemption arrangements. While EV suitability varies significantly depending on operational requirements, the current tax settings may create strategic opportunities for portions of some contractor fleets.
For manufacturing and fabrication members, review how major infrastructure, defence and housing investment may create opportunities for local manufacturing, prefabrication, workshop automation and production capability expansion over the medium term.

The businesses best positioned over the next 3–5 years are likely to be those that proactively improve productivity, strengthen technical capability, adapt to electrification and energy transition trends, and position themselves toward future market demand rather than relying solely on historical workstreams.

About This Briefing

This briefing was prepared by the AMCA Policy team based on the 2026–27 Federal Budget papers and thematic documents published at budget.gov.au on 12 May 2026. It covers the budget themes of Fuel Supply and Security, Cost of Living, Productivity, Tax Reform, Care and Opportunity, and Security and Investment, with analysis focused on the HVAC and mechanical contracting sector.

This document provides general guidance only and does not constitute legal, tax or financial advice. Members should seek professional advice on matters specific to their business circumstances.

AMCA will issue further updates as legislative detail, regulations and implementation guidance are confirmed. Members with questions, feedback, or issues to raise are encouraged to contact the AMCA Policy team directly.

AMCA Policy Team | [email protected] | www.amca.com.au