Schedule 2 - Limit negative gearing for residential property to new builds 113
Overview 113
Human rights implications 113
Conclusion 115
Schedule 3 - Working Australians tax offset 116
Overview 116
Human rights implications 116
Conclusion 116
Schedule 4 - Standard deduction for work-related expenses 116
Overview 116
Human rights implications 117
Conclusion 117
Schedule 1 - CGT adjustments
Overview
The Bill and the Imposition Bill are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Schedule 1 to the Bill and the Imposition Bill amend Australia’s tax laws, in particular the ITAA 1997 and the Income Tax Rates Act 1986, to reform the CGT regime.
Capital gains are the income earned from an increase in asset values over time - such as for shares or investment properties. Under current rules, capital gains income earned by individuals (including individual partners in a partnership) and trusts is taxed when an asset is sold and generally attracts the 50 per cent CGT discount if the asset has been held for at least 12 months.
Current CGT settings, including the discount, distort investment in favour of housing assets and other assets that provide returns in the form of capital gains, provide the greatest benefit to higher-income taxpayers, and encourage tax deferral strategies.
Schedule 1 to the Bill repeals the 50 per cent CGT discount and replaces it with cost base indexation. The new indexation regime applies to capital gains made directly or indirectly (through an interposed entity) by Australian resident individuals (including individual partners in a partnership) and trusts.
These changes do not apply to capital gains made directly or indirectly by foreign residents and temporary residents, or other entities such as companies. These entities were not previously entitled to the CGT discount or have their own discrete CGT treatment; therefore, they will not receive the benefit of cost base indexation or be affected by the related minimum tax.
Cost base indexation will apply for all eligible CGT assets of individuals and trusts going forward, except those assets to which a CGT discount continues to apply. For example, CGT discount settings will continue to be available for investors to apply to certain assets if they choose, including the discount for investments in affordable housing in section 112-125 and for new residential dwellings to maintain incentives to invest in these property assets.
These reforms also bring all pre-CGT assets (which are assets acquired before 20 September 1985) into the CGT regime from 1 July 2027. While any capital gains accrued on these assets before 1 July 2027 will continue to be exempt from CGT, capital gains from these assets accruing on or after 1 July 2027 will be subject to the new arrangements.
Schedule 1 to the Bill and the Imposition Bill also introduces a minimum tax of 30 per cent on capital gains of individuals for which indexation is available from 1 July 2027. The minimum tax will reduce incentives to defer the sale of assets to periods when other income and marginal tax rates are low. This approach will support a more consistent taxation of lifetime income by aligning the tax rate on real capital gains with the marginal tax rate faced by the average worker. The legislation includes a mechanism so that certain income support recipients can be exempted from the minimum tax, ensuring people with low income and low wealth are not disadvantaged. The capital gains of people who are already subject to at least the 30 per cent marginal rate on their non-capital gains income will not be affected by the minimum tax.
These reforms return the CGT regime to an indexation approach that will tax real capital gains and reduce the benefit of tax deferrals and concessions, while maintaining incentives to invest in new housing supply. These amendments will improve the fairness of the tax system and help address housing affordability pressures facing first homebuyers, allowing more younger Australians and future generations to own their own home.
The forward-looking nature of the amendments means capital gains accrued before the start date of 1 July 2027 are taxed under existing arrangements. This approach helps to minimise disruption to the system and gives people time to understand and comply with the new CGT regime.
Human rights implications
Schedule 1 to the Bill engage the following rights:
Rights to a fair hearing and trial under Articles 14 and 15 of the ICCPR; and
Right to an adequate standard of living under Article 11(1) of the ICESCR.
Rights to justice
Articles 14 and 15 of the ICCPR set out the right to a fair hearing and a fair trial, including rights to due judicial process and procedural fairness. In particular, Article 14 provides that everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law, and Article 14(2) recognises that all people have the right to be presumed innocent until proven guilty according to the law. These rights apply in both civil and criminal proceedings, and in matters before both courts and tribunals. They are engaged where legislation impacts or interacts with access to justice, including review of administrative decisions and imposition of penalties.
Penalty provisions may engage criminal process rights under Articles 14 and 15 of the ICCPR. Although there is a domestic law distinction between administrative, civil and criminal penalties, ‘criminal’ is separately defined in international human rights law. Therefore, when a provision imposes a penalty, it is necessary to determine whether or not the penalty amounts to a criminal penalty for the purposes of Articles 14 and 15 of the ICCPR.
Schedule 1 to the Bill engages these rights to the extent they alter existing, enforceable tax liabilities and create a new reporting obligation.
Australia’s income tax regime contains enforceable requirements, including for taxpayers to submit annual returns and pay any resulting income tax liabilities in relation to their assessable income for an income year. These reforms amend provisions that provide how to calculate capital gains (and losses) with a view to including those amounts in the taxpayer’s assessable income, and which impact who is liable to pay income tax in relation to particular capital gains. The amended provisions are subject to, but do not change, the existing compliance regime within Australia’s tax laws.
Schedule 1 includes a new requirement for a trustee to provide certain information to beneficiaries of the trust, to ensure the beneficiaries can in turn include the information in their assessable income, as relevant (see subsection 115-235(1) of the ITAA 1997, as amended).
A trustee incurs an administrative penalty for failure to comply with the requirement to provide information to beneficiaries. Schedule 1 to the Bill amends section 286-75 and paragraph 286-80(2)(a) in Schedule 1 to the TAA 1953 to add this penalty to the existing regime of administrative penalties.
Administrative penalties are imposed by the Commissioner of Taxation for non-compliance with obligations under the tax laws. They are different from civil and criminal penalties, which are imposed by a court.
The new penalty is not arbitrary as it imposed in accordance with the law and is subject to established administrative and judicial review processes. An affected person can seek remission of a penalty, or can challenge an assessment, determination, notice or decision by the Commissioner of Taxation under Part IVC of the TAA 1953.
The amount of the new administrative penalty is set by existing paragraph 286‑80(2)(a) in Schedule 1 to the TAA 1953. The base penalty amount is 1 penalty unit for each period (or part period) of 28 days starting on the date the document was due. The amount of the penalty increases depending on the duration of non-compliance and nature of the entity. This is consistent with existing penalties for non-compliance with other reporting obligations and with failure to keep records.
This penalty is not ‘criminal’ for the purposes of human rights law. While a criminal penalty is deterrent or punitive, this is administrative and regulatory (or disciplinary) in nature and aims to encourage compliance with and integrity of the broader tax system. The penalty applies to trustees who are already subject to Australia’s income tax system and so should reasonably be aware of their obligations under the tax system. It is a quick solution to address non-compliance. Imposing such penalties enables an effective disciplinary response to non-compliance.
Therefore, to the extent that Schedule 1 engages the rights under Articles 14 and 15 of the ICCPR, they are compatible with those human rights.
Right to an adequate standard of living
Schedule 1 to the Bill engages the right to an adequate standard of living - including food, water, and housing under Article 11 of the ICESCR.
As a signatory to the ICESCR, Australia must take appropriate steps towards the realisation of these rights in its jurisdiction, and that the relevant standard must be continuously improving.
The United Nations Committee on Economic, Social and Cultural Rights (the Committee) has emphasized that sound fiscal policies and taxation are essential to realise economic, social and cultural rights. A well-designed tax system should not only generate sufficient public revenue but also serve as a tool for reducing socio-economic inequalities.
The Committee has stated that the ‘right to adequate housing, which is thus derived from the right to an adequate standard of living, is of central importance for the enjoyment of all economic, social and cultural rights’. The Committee has highlighted the importance of housing affordability as part of this right:
Personal or household financial costs associated with housing should be at such a level that the attainment and satisfaction of other basic needs are not threatened or compromised … States parties should establish housing subsidies for those unable to obtain affordable housing, as well as forms and levels of housing finance which adequately reflect housing needs.
Schedule 1 to the Bill supports the right to an adequate standard of living, namely housing, by ensuring the existing favourable tax treatment continues to apply to owners and investors in affordable housing.
Schedule 1 to the Bill also supports the right to an adequate standard of living, by exempting capital gains made from disposal of new residential dwellings and affordable housing from the minimum 30 per cent tax on capital gains that will apply to individuals and trusts from 1 July 2027.
This approach is intended to continue to incentivise investment in new houses and in affordable housing, to add to housing supply compared to existing residential property. Increasing housing supply is intended to support higher rates of residential property ownership among owner-occupiers and to increase the supply of rental accommodation and affordable housing.
The legislation includes a mechanism that is intended to be used to ensure that certain income support recipients can be exempted from the minimum tax, ensuring people with low income and low wealth are not disadvantaged by the changes.
Schedule 1 to the Bill therefore promotes the right to an adequate standard of living, including food, water, and housing.
Conclusion
Schedule 1 to the Bill and the Imposition Bill are compatible with human rights as it supports the right to an adequate standard of living and is compatible with rights to justice in the ICCPR. To the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate.
Schedule 2 - Limit negative gearing for residential property to new builds
Overview
Schedule 2 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Schedule 2 to the Bill provides that deductions relating to residential dwellings can only be deducted against income relating to residential dwellings used or held as residential accommodation or used to reduce capital gains on residential dwellings.
Schedule 2 to the Bill also provides that the requirement to quarantine losses made on residential dwellings used or held as residential accommodation does not apply to new residential dwellings, residential dwellings prescribed by legislative instrument, or residential dwellings acquired before 7.30pm (AEST) on 12 May 2026. The requirement to quarantine amounts does not apply to a widely held unit trust, a complying superannuation entity, an entity in a class of entities determined by the Minister by legislative instrument, or to an amount incurred in providing an accommodation fringe benefit.
Schedule 2 to the Bill also ensures that any quarantined amounts that an entity has accrued that could be carried forward are extinguished if the person is declared bankrupt.
These amendments are intended to support higher rates of home ownership by owner-occupiers by supporting and increasing residential housing supply by shifting investor demand from purchasing existing residential housing to building or purchasing new residential housing. These amendments balance this intent with maintaining existing outcomes for the deducting of losses for investments in residential housing made by investors prior to Budget night on 12 May 2026 as these investment decisions were made having regard to the existing tax settings.
Human rights implications
Schedule 2 to the Bill engages Article 11(1) of the International Covenant on Economic, Social and Cultural Rights (ICESCR) - the right to an adequate standard of living.
Right to an adequate standard of living, including food, water, and housing
Schedule 2 to the Bill engages the right to an adequate standard of living - including food, water, and housing under Article 11 of the ICESCR.
As a signatory to the ICESCR, Australia must take appropriate steps towards the realisation of this right in its jurisdiction, and that the relevant standard must be continuously improving.
The United Nations Committee on Economic, Social and Cultural Rights (the Committee) has emphasized that sound fiscal policies and taxation are essential to realise economic, social and cultural rights. A well-designed tax system should not only generate sufficient public revenue but also serve as a tool for reducing socio-economic inequalities.
The Committee has also stated that the ‘right to adequate housing, which is thus derived from the right to an adequate standard of living, is of central importance for the enjoyment of all economic, social and cultural rights’. The Committee has highlighted the importance of housing affordability as part of this right:
Personal or household financial costs associated with housing should be at such a level that the attainment and satisfaction of other basic needs are not threatened or compromised … States parties should establish housing subsidies for those unable to obtain affordable housing, as well as forms and levels of housing finance which adequately reflect housing needs.
The right to adequate housing encompasses rental accommodation as well as home ownership. However certain conditions must be met for shelter to be considered adequate housing. This includes security of tenure, which refers to a guarantee of legal protection against forced eviction, harassment and other threats. Security of tenure is inherent in home ownership but not always certain in rental accommodation.
Schedule 2 to the Bill supports the right to an adequate standard of living, namely housing, by changing the settings for assessable income deductions as they apply to residential dwellings used or held as residential accommodation. The Bill establishes the concept of a residential dwelling, which is a dwelling, as defined in section 118-115 of the ITAA 1997, with certain types of dwellings carved out from being residential dwellings. The concept of residential dwelling is a proxy for investments in residential property.
Schedule 2 to the Bill supports this right by requiring that losses on residential dwellings used or held as residential accommodation acquired on or after 7.30pm, (AEST) on 12 May 2026 are quarantined to only be available to reduce assessable income earned from such investment properties, other net assessable income from non-quarantined investment properties or revenue or capital gains from residential dwellings. This has the effect of curtailing the ability to negatively gear investments in residential housing. This is intended to reduce the incentives for taxpayers to select residential property as an investment vehicle vis-à-vis other asset classes, such as shares, and lead to an increase in residential property ownership among owner-occupiers. Increasing residential property ownership rates for owner-occupiers is expected to lead to an increase in residential property ownership among first homebuyers.
Schedule 2 to the Bill exempts new residential dwellings from the requirement to quarantine losses. New residential dwellings are residential dwellings that meet requirements determined by the Minister via legislative instrument. Whether the dwelling genuinely adds to housing supply is a requirement that the Minister can prescribe. This approach is intended to continue to incentivise investment in new houses and in affordable housing, to add to housing supply compared to existing residential property. Increasing housing supply is intended to support higher rates of residential property ownership among owner-occupiers and to increase the supply of rental accommodation and affordable housing.