Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026

The changes affect a broad range of Australian taxpayers and entities. Australian resident individuals who hold investments in assets that produce capital gains (such as shares, property, or businesses) will be directly affected by the replacement of the 50 per cent CGT discount with cost base indexation and the new 30 per cent minimum tax. Trusts and their beneficiaries - particularly Australian resident individual beneficiaries - are also in scope because the trust-level indexation flows through. Investors in residential property - especially those who acquire established dwellings after 12 May 2026 - will face quarantining of net rental losses, meaning negative gearing will no longer be available against salary or other income. However, investors in 'new residential dwellings' (as defined by ministerial instrument) and pre-12 May 2026 existing properties are exempt. Employers who provide housing fringe benefits are excluded from the quarantining rules. Workers who earn labour income will be eligible for the new $250 working Australians tax offset and the optional $1,000 standard deduction for work-related expenses, which simplifies tax returns for many. Trustees of trusts face new reporting obligations to beneficiaries regarding capital gains components, with administrative penalties for non-compliance. Foreign residents and temporary residents are not entitled to the new indexation or minimum tax; they remain under existing CGT discount rules (if eligible). Companies, superannuation funds and life insurance companies are also unaffected by the CGT discount changes but are affected by the new negative gearing rules if they hold residential property. The Australian Taxation Office (ATO) will need to update guidance, calculators and compliance systems. Recruiters, tax agents and property developers may also be indirectly affected.

Taxpayers and investors will want to understand the following practical implications. From 1 July 2027, if you sell a CGT asset (such as investment property or shares) that you have held for more than 12 months, you will no longer get an automatic 50 per cent discount on the nominal gain. Instead, you will index the cost base for inflation and may pay a minimum tax of 30 per cent on the real gain. If you are a low-income earner or on certain income support payments (like the Age Pension or JobSeeker), you may be exempt from the minimum tax. The transitional rules mean that if you owned an asset before 1 July 2027, the gain up to that date is still taxed under the old 50 per cent discount, but the gain from 1 July 2027 onward is subject to the new rules. For residential property investors who buy a dwelling after 12 May 2026, negative gearing is largely eliminated: you cannot deduct rental losses against your salary - only against future rental income or capital gains from residential property. However, if you buy a newly built home (as defined by the government), you can still negatively gear. If you already owned an investment property before 12 May 2026, your existing negative gearing is grandfathered. Workers: from the 2027-28 income year, you may be entitled to a $250 tax offset (the working Australians tax offset) if you earn labour income above the tax-free threshold. You can also choose to claim a $1,000 standard deduction for work-related expenses instead of itemising; if you itemise more than $1,000, you lose the standard deduction. The standard deduction applies from 2026-27. The ATO will provide calculators and guidance. If you are a trust beneficiary, you may receive a statement from the trustee detailing your capital gains components. The new rules do not affect small business CGT concessions, which remain unchanged. The changes are projected to improve the budget bottom line by $3.6 billion over the forward estimates (from Schedules 1 and 2 combined), while the tax offset and standard deduction will reduce revenue by $9.0 billion combined.

The Bill was introduced and read a first time in the House of Representatives on 28 May 2026. The second reading was moved on the same day. It has been referred to the Senate Economics Legislation Committee for inquiry, with a report due by 22 June 2026. No proposed amendments have been circulated. The Bill is part of a broader tax reform package announced in the 2026-27 Budget. The principal Bill (Treasury Laws Amendment (Tax Reform No. 1) Bill 2026) is the substantive legislation that contains the detailed amendments to the ITAA 1997; the Imposition Bill sets the rate. Both must pass for the minimum tax to have effect. Given the committee report deadline is less than four weeks after introduction, the Government appears to be aiming for passage through both Houses in the winter sitting period, with potential amendments following the committee inquiry. The start date for most measures is 1 July 2027 (with some, like the standard deduction, starting from 2026-27). The Bill's progress can be monitored on the Parliament House website. Stakeholders are likely to make submissions to the Senate committee, which may propose technical amendments, especially concerning the definition of 'new residential dwelling' (to be set by legislative instrument) and the interaction of the minimum tax with foreign residents.

The Bill itself creates a limited power: section 12AA of the Rates Act (inserted by Schedule 1, item 1) imposes a formula-based rate of extra income tax. However, the principal Bill (which is part of the official materials as the Explanatory Memorandum covers both) creates numerous new powers, duties and rights. Key new powers include: a ministerial power to make legislative instruments determining the meaning of 'new residential dwelling' for negative gearing and CGT discount purposes (item 1, subsection 26-160(4)); a power to determine additional types of CGT assets eligible for the CGT discount (section 115-102(3)); a power to prescribe income support payments that exempt an individual from the minimum tax (section 119-15); a power to determine methods for apportioning consideration for deemed disposals (section 112-185); a power to set the formula for the working Australians tax offset (section 61-160); and a power to require trustees to provide capital gains information to beneficiaries (section 115-235). Duties include: trustees must provide beneficiaries with a statement in approved form covering capital gains components, on penalty of administrative fines; taxpayers must calculate capital gains using the new method statement in section 102-5, including segregation into four categories; investors must quarantine net residential losses if they acquire after 12 May 2026 unless they qualify for an exemption. Rights include: the right of individual and trust taxpayers to choose between indexation and the CGT discount for new residential dwellings and affordable housing; the right of taxpayers to elect an apportioning method instead of market value for the deemed disposal on 30 June 2027; the right of workers to claim the standard deduction without substantiation; the right of eligible workers to the working Australians tax offset. The Bill also removes certain existing choices: after 1 July 2027, individuals and trusts can no longer choose between CGT discount and indexation for assets acquired between 1985-1999 - they must use the discount for pre-1 July 2027 gains and indexation for post-1 July 2027 gains.

The financial impact of the package (combined Schedules 1 and 2) is estimated to improve the underlying cash balance by $3.6 billion over the forward estimates: $1.35 billion in 2027-28 and $2.28 billion in 2028-29 and later years. Scheduled 3 (working Australians tax offset) reduces the cash balance by $6.4 billion over the forward estimates ($3.02 billion in 2027-28 and $3.36 billion in 2028-29). Schedule 4 (standard deduction) reduces the cash balance by $2.6 billion over four years from 2025-26 ($1.24 billion in 2026-27 and $1.36 billion in 2027-28). Compliance costs: Treasury estimates Schedules 1 and 2 will increase average regulatory costs by $88.4 million per year over ten years. Schedule 4 is estimated to save individuals $380 million per year in compliance costs. Penalties: a new administrative penalty applies to trustees who fail to provide capital gains information to beneficiaries, under subsection 286-75(2) and paragraph 286-80(2)(a) in Schedule 1 to the Taxation Administration Act 1953. The base penalty is 1 penalty unit per 28-day period of non-compliance, increasing with duration and entity type. This is a strict liability administrative penalty, not a criminal penalty. The Commissioner of Taxation may also impose penalties for incorrect or late lodgement related to the new rules. The ATO will issue guidance and calculators to help taxpayers minimise compliance burdens. There is also a provision that quarantined negative gearing losses are extinguished if the taxpayer becomes bankrupt (subsection 26-155(8)). Enforcement is through the existing tax assessment and objection framework under Part IVC of the TAA 1953.

The official materials (Explanatory Memorandum, second reading speech) identify the following affected parties and commenters. The 'Select Committee on the Operation of the Capital Gains Discount' is cited as having found that the CGT discount benefits are unequally distributed, encourage tax planning, distort investment, and that the 50 per cent discount overcompensates property investors compared to inflation, while undercompensating share investors. The OECD is referenced as having recommended cutting or eliminating the CGT discount and phasing out negative gearing. 'First home buyers' are repeatedly mentioned as the intended beneficiaries of the reforms, with the claim that the measures will 'level the playing field'. 'Younger Australians' and 'future generations' are also named as beneficiaries. 'Investors' - particularly property investors - are identified as directly affected by the negative gearing and CGT changes. 'Higher-income earners' and 'high-wealth individuals' are noted as the primary beneficiaries of current tax settings and therefore most affected by the reforms. 'Workers' and 'Australian resident individuals' are the target of the new tax offset and standard deduction. 'Trustees' and 'beneficiaries' are affected by new reporting rules. 'Businesses' are mentioned in the context of the small business CGT concessions (unchanged) and the standard deduction (employers face FBT changes). 'Property developers' are implied by the new residential dwelling exemption. 'Recipients of income support payments' are explicitly exempted from the minimum tax. 'Employers' are affected by FBT amendments for salary-sacrificed work-related items. 'The Australian Taxation Office' is named as the body that will provide guidance and tools. The source does not name specific supporters or opponents (such as industry groups or political parties) - it only notes the Select Committee and OECD as sources of analysis.

If the Bill and its companion principal Bill pass, the following changes take effect from 1 July 2027 (unless otherwise noted). Capital gains tax: The 50 per cent CGT discount for individuals and trusts is repealed for gains accruing after 1 July 2027. It is replaced by cost base indexation, which adjusts the cost base for inflation so that only real gains are taxed. A new 30 per cent minimum tax applies to capital gains of Australian resident individuals (with exemptions for income support recipients). Pre-CGT assets (acquired before 20 September 1985) are brought into the CGT net for future gains. Transitional rules: gains accrued before 1 July 2027 are taxed under old rules and are deferred until the asset is sold. Investors in new residential dwellings and affordable housing can choose between the CGT discount and the new indexation/minimum tax. Negative gearing: From 1 July 2027, net rental losses on residential dwellings acquired after 7.30pm AEST on 12 May 2026 are quarantined - they can only be deducted against residential rental income or capital gains from residential property, not against salary or other income. Exemptions apply to new residential dwellings (as defined by ministerial instrument), pre-12 May 2026 properties, widely held trusts, complying superannuation entities, and fringe benefits. A bankrupt's quarantined losses are extinguished. Working Australians tax offset: From 2027-28, a non-refundable tax offset of up to $250 is available to Australian resident individuals whose net labour income exceeds the tax-free threshold. The exact formula will be set by ministerial legislative instrument. Standard deduction: From 2026-27, individual taxpayers can claim a $1,000 standard deduction for work-related expenses without itemising or substantiation. If they claim more than $1,000 in covered work expenses, the standard deduction is reduced to zero and they itemise. Certain deductions (e.g., union fees, income protection insurance) can be claimed in addition. FBT changes prevent double benefits via salary packaging. Small business CGT concessions are unchanged. The new rules are expected to be permanent and apply prospectively.

• Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026: what changes if it passes. A plain-English angle on the powers, duties and institutions the bill would create or change.
• The practical question in this before reps bill. Focus on who would need to act differently if Parliament passes it.
• What the bill actually says, not the political noise. Pull out the main operational changes and point readers back to the clauses.
• The compliance angle. Explain which agencies, regulated entities or decision-makers would carry new obligations.
• The next-step angle. Use the bill's current status to explain what still has to happen before the changes become law.
• Why this bill is worth watching. Tie the hook to: Introduced in the House of Representatives on 28 May 2026, second reading moved, and referred to the Senate Economics Legislation Committee with a report due by 22 June 2026.