Schedule 1 — Gifts/deductions: Removes the old rule that a donation must be at least $2 before a donor can claim a tax deduction for gifts to a deductible gift recipient (DGR). The change applies to gifts made from 1 July 2024. Donors may now claim deductions for smaller amounts; charities are not forced to issue receipts but the ATO accepts alternative evidence (bank records, internet receipts).
Schedule 2 — Trust reporting and TFNs: Requires trustees of closely held trusts to report beneficiaries’ tax file numbers (TFNs) on the trust income tax return (in the Statement of Distribution) whenever a beneficiary is presently entitled to income and has quoted a TFN at any time before the trustee lodges the return. It replaces the existing quarterly TFN-reporting obligation. The Commissioner of Taxation is given clarified notification powers: the Commissioner may advise a trustee of a correct TFN where practicable, or must tell the trustee if no TFN can be found. The rules interact with existing trustee-beneficiary reporting and TFN withholding regimes.
Schedule 3 — Technical fixes and SMSF trustee appointments: Contains minor technical amendments to Treasury and ASIC law. Importantly, it lets a Public Trustee (when acting for an incapacitated or deceased client who has a self-managed superannuation fund — SMSF) approve the appointment of a replacement trustee or a director of the corporate trustee, and authorise that appointee to be paid for their services.
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Deep Dive
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What this bill would change
The Treasury Laws Amendment (Delivering an Efficient and Trusted Tax System) Bill 2026 amends the Income Tax Assessment Act 1997, Income Tax Assessment Act 1936, Treasury Laws Amendment (More Competition, Better Prices) Act 2022, Superannuation Industry (Supervision) Act 1993 and Australian Securities and Investments Commission Act 2001 across four schedules. Schedule 1 removes the requirement that a gift or contribution to a deductible gift recipient must be valued at two dollars or more before the donor can claim an income tax deduction. This change applies to gifts made on or after 1 July 2024. Schedule 2 requires trustees of closely held trusts to report the tax file numbers of beneficiaries who are presently entitled to a share of trust income in the trust's annual income tax return, rather than through separate quarterly reports. These amendments apply from 1 July 2026 and also adjust the Commissioner's obligations to notify trustees when a reported tax file number is incorrect or does not exist. Schedule 3 contains three parts. Parts 1 and 3 make technical corrections to existing legislation to fix a typographical error and improve readability without changing policy outcomes. Part 2 authorises a Public Trustee acting for a client with a self-managed super fund to approve the appointment of a replacement trustee or director of a corporate trustee and to authorise remuneration for that person. Schedule 4 excludes research and development activities relating to tobacco or gambling from eligibility for the Research and Development Tax Incentive, except where the activities are conducted solely for the purpose of harm minimisation. These exclusions apply to income years starting on or after 1 July 2025. Schedules 1 and 2 commence on the first 1 January, 1 April, 1 July or 1 October after Royal Assent. Schedules 3 and 4 commence the day after Royal Assent.
Official source available
Zoe has indexed the source text for search and analysis. Use the official register for the original document and download formats.
Treasury Laws Amendment (Delivering an Efficient and Trusted Tax System) Bill 2026 | Zoe
Schedule 4 — R&D tax incentive exclusions: Excludes R&D activities relating to tobacco and gambling from eligibility for the R&D Tax Incentive, except where the activity is carried out solely for the purpose of harm minimisation (for example, work to reduce addiction). This applies for income years starting on or after 1 July 2025.
Who is affected (at a glance)
Individual donors and charities (Schedule 1): donors can claim deductions for very small gifts; charities may see more recorded small donations.
Trustees of closely held trusts, beneficiaries and the ATO (Schedule 2): trustees must collect and report TFNs in a new way; beneficiaries who don’t provide TFNs remain subject to TFN withholding rules.
Public Trustees, SMSF members and SMSF trustees (Schedule 3): Public Trustees gain a statutory route to appoint and pay replacement trustees/directors where incapacity or death causes a governance gap.
Companies and advisers claiming R&D tax offsets (Schedule 4): companies working on tobacco- or gambling-related R&D lose access to the R&D tax offset except for harm‑minimisation projects.
Why the government says it matters (stated purposes) and how the mechanics test those claims
Schedule 1 (encourage small-scale giving): The stated purpose is to encourage micro-donations (e.g. round‑ups at point of sale) and capture more giving in tax data. Mechanically, removing the $2 minimum lowers the formal barrier to claiming a deduction. Trade-offs and implementation notes: the fiscal impact appears small; most existing deductible giving is concentrated among higher-income taxpayers, so benefits may be concentrated. Administrative costs for charities that manually issue receipts could rise if they choose to issue receipts for many very small donations, though the law does not force charities to issue receipts (EM notes alternative substantiation is accepted). The change is retrospective to 1 July 2024.
Schedule 2 (modernise trust reporting to enable pre-filling): The stated purpose is to allow the ATO to pre-fill beneficiaries’ returns and automate trust processing, increasing compliance and reducing manual processing time (the Bill’s fiscal estimate shows revenue gains from better reporting). Mechanically, trustees must now include TFNs on the trust tax return’s Statement of Distribution when beneficiaries are presently entitled and have quoted TFNs. Trade-offs: this creates ongoing data collection and privacy obligations for trustees (and likely system upgrades for tax agents/software); incorrect TFNs and the Commissioner’s discretionary/must-notify rules could create compliance risk and disputes. It replaces a quarterly reporting regime with an annual/reporting-at-lodgement mechanism and interacts with existing trustee-beneficiary reporting and TFN‑withholding penalties.
Schedule 3 Part 2 (SMSF continuity): The stated purpose is to resolve deadlocks when an SMSF trustee or director becomes incapacitated or dies. Mechanically, a Public Trustee can approve and authorise payment to a replacement trustee/director. Trade-offs: this provides a practical fix to governance deadlocks and keeps SMSFs operating, but introduces an appointment power in place of member-driven appointment processes. Costs (remuneration) are borne by the fund or estate; there is some risk of agency or conflict if appointment or remuneration decisions are not constrained by fund rules or prudential guidance. Fund deeds or constitutions may need review to align with the new power.
Schedule 4 (policy targeting of R&D subsidy): The stated purpose is to stop subsidising R&D for tobacco and gambling, while preserving support for harm‑reduction research. Mechanically, the law carves these activities out of the definition of eligible R&D, with a narrow exception for activities carried out solely for harm minimisation. Trade-offs and practical issues: defining what counts as 'related to' gambling or tobacco — and what is ‘solely for harm minimisation’ — creates room for interpretive disputes, administrative rulings, and potential litigation. Industries with mixed activities (for example, gaming companies doing non-gambling innovation) may see uncertainty or need to reallocate R&D claims. The change shifts a concentrated subsidy away from specific sectors, with modest estimated fiscal savings.
Who pays, who decides, and likely behaviour changes (plain sentences)
Donors pay less friction to claim small donations; charities receive more small-value recorded donations. (Schedule 1)
Trustees of closely held trusts must collect, hold and report beneficiary TFNs at lodgement; trustees will invest in systems or advisor help to comply. The ATO decides whether a quoted TFN is correct and whether to notify a trustee of a correct TFN. (Schedule 2)
The Public Trustee can decide (for an incapacitated or deceased SMSF member) who will act as trustee or director and whether that person may be remunerated; the SMSF (or estate) meets remuneration costs. (Schedule 3)
Companies doing R&D in tobacco or gambling lose access to R&D tax offsets except for work solely aimed at harm reduction; firms will either stop claiming for excluded activities or reclassify and document projects to fit the harm‑minimisation carve‑out. The ATO will have to interpret and apply the exclusion. (Schedule 4)
Implementation, compliance and risk notes
Retrospective effect for Schedule 1 (from 1 July 2024) benefits donors already given since that date but can complicate past-year filings.
Schedule 2 shifts reporting burden to trustees and raises privacy/security obligations because TFNs are sensitive personal data.
Schedule 3 may require trustees, fund administrators and Public Trustees to update processes and check SMSF trust deeds and constitutions.
Schedule 4’s carve-out depends on detailed definitions (what is ‘‘related to gambling/tobacco’’ and what counts as ‘‘solely for harm minimisation’’). That ambiguity risks disputes and requires ATO guidance or rulings to reduce uncertainty.
Overall, the Bill bundles administrative modernisation measures (trust TFN reporting), clarity for SMSF governance, a low-value gift deduction change, and a targeted exclusion from the R&D tax offset. Each major change shifts compliance costs and decision‑rights to different private parties (trustees, charities, companies) while giving the ATO new data and enforcement responsibilities.
Main concepts
A deductible gift recipient is an entity endorsed by the Australian Taxation Office to receive tax-deductible gifts and contributions. The two-dollar threshold originated in 1966 when the previous one-pound minimum was converted at decimalisation and has not been adjusted for inflation since. A closely held trust is defined in section 102UC of the Income Tax Assessment Act 1936 as a discretionary trust or a fixed trust in which up to twenty individuals hold fixed entitlements to at least seventy-five per cent of the income or capital, excluding certain superannuation and listed unit trusts. Beneficiaries of such trusts who are presently entitled to income must have their tax file numbers reported by the trustee. A self-managed super fund is a superannuation fund with fewer than five members where the members are usually also the trustees or directors of the corporate trustee. A Public Trustee is a state or territory government official who may be appointed to manage the affairs of a person who lacks legal capacity. The Research and Development Tax Incentive provides refundable or non-refundable tax offsets to companies undertaking eligible research and development activities, calculated as the company tax rate plus a premium based on turnover and expenditure levels. Trustee beneficiary reporting rules under Division 6D of Part III of the Income Tax Assessment Act 1936 require trustees of closely held trusts to report certain information about trustee beneficiaries to avoid imposition of trustee beneficiary non-disclosure tax at the highest marginal rate plus Medicare levy. Tax file number withholding rules encourage beneficiaries to quote their tax file numbers to trustees to avoid withholding tax on distributions.
Who it affects
Individual donors who make gifts or contributions of less than two dollars to deductible gift recipients will be able to claim deductions for the first time since the threshold was established. Deductible gift recipients, including charities, will receive more small donations, particularly round-up contributions at point of sale, without any new legal obligation to issue receipts. Trustees of closely held trusts, such as family discretionary trusts and small unit trusts, must report beneficiary tax file numbers annually in the trust tax return instead of quarterly. Beneficiaries of closely held trusts will have their trust income pre-filled in their personal income tax returns. Individuals who are members of self-managed super funds and who lose legal capacity or die will benefit from the ability of a Public Trustee to approve replacement trustees or directors and authorise payment for those services. Public Trustees gain explicit authority to act in these circumstances. Companies conducting research and development activities related to tobacco products or gambling services will lose eligibility for the Research and Development Tax Incentive unless the activities are solely for harm minimisation. Companies in the video games industry may face uncertainty about whether game elements that include chance-based or gambling-like features fall within the exclusion. The Australian Taxation Office will administer the new reporting requirements and the narrowed incentive. The measure is expected to increase receipts by 81.6 million dollars over five years from the trust reporting changes and by 12 million dollars from the research and development changes, with an additional 8 million dollar reduction in payments from the latter.
What people will want to know
Donors can claim a tax deduction for any gift amount, including one dollar or less, provided the recipient is a deductible gift recipient and the donor keeps records such as bank statements or receipts if issued. Charities are not required to issue receipts for small donations and may continue their existing receipt policies. Trustees of closely held trusts must include beneficiary tax file numbers in the Statement of Distribution section of the trust income tax return for every year in which the beneficiary is presently entitled, replacing the previous quarterly reporting system. If a beneficiary has already quoted a tax file number in connection with an investment under Part VA of the Income Tax Assessment Act 1936, or if the trustee has already reported the number under trustee beneficiary statement rules, no additional report is required. Where a reported tax file number is later found to be incorrect, the Commissioner may notify the trustee of the correct number in appropriate cases or must notify the trustee if no correct number exists. Self-managed super fund members facing incapacity can have a Public Trustee approve a replacement trustee or director and permit that person to be paid for their services, avoiding potential governance deadlocks. Companies considering research and development claims must ensure activities do not relate to tobacco or gambling except for sole-purpose harm minimisation work. The changes to research and development eligibility apply from income years beginning on or after 1 July 2025, while trust reporting changes apply from 1 July 2026.
Status and what happens next
The bill was introduced and read a first time in the House of Representatives on 25 March 2026. The second reading was moved on the same day and debate occurred on 1 April 2026, after which the bill was referred to the Federation Chamber. It has been referred to the Senate Economics Legislation Committee, which is due to report on 30 April 2026. At the time of the Parliamentary Library Bills Digest, the bill had not been reported on by any parliamentary committee. Proposed amendments have been lodged by independent member Rebekha Sharkie. No schedules of amendments have been presented. The bill remains before the Parliament and will require passage by both houses and Royal Assent before any of its provisions commence. The explanatory memorandum and minister's second reading speech are available on the Parliament of Australia website, together with the text of the bill as introduced.
Powers, duties and rights created
Schedule 1 creates a new right for donors to claim income tax deductions for gifts below two dollars to deductible gift recipients, removing a long-standing limitation. Schedule 2 imposes a duty on trustees of closely held trusts to report beneficiary tax file numbers in the trust tax return when a beneficiary is presently entitled to income and has quoted a tax file number before lodgement. The trustee must use the approved form and report the number for all future years of entitlement. The Commissioner gains a discretionary power to notify trustees of a correct tax file number when an incorrect number has been reported and a mandatory duty to notify when the Commissioner is not satisfied that the beneficiary has any tax file number. Schedule 3 Part 2 grants Public Trustees the power to approve the appointment of a person as trustee of a self-managed super fund or director of its corporate trustee when acting for an incapacitated or deceased client, together with authority to permit remuneration for those services. Parts 1 and 3 of Schedule 3 make only technical corrections that do not create new powers or duties. Schedule 4 removes eligibility for the Research and Development Tax Incentive in respect of tobacco and gambling activities, thereby limiting the rights of affected companies to claim the offset while preserving eligibility for sole-purpose harm minimisation activities.
Money, penalties and enforcement
The trust reporting changes in Schedule 2 are estimated to increase receipts by 81.6 million dollars over five years from 2023-24 through improved pre-filling and compliance. The research and development changes in Schedule 4 are estimated to increase receipts by 12 million dollars and decrease payments by 8 million dollars over the same period. No new penalties are introduced by the bill. Existing trustee beneficiary non-disclosure tax at the highest marginal rate plus Medicare levy continues to apply if trustees fail to meet reporting obligations under Division 6D. Tax file number withholding rules remain in force for beneficiaries who do not quote a tax file number. The Australian Taxation Office will enforce the narrowed Research and Development Tax Incentive eligibility through its existing compliance and audit processes. Retrospective application of Schedule 1 to gifts from 1 July 2024 is described in the explanatory memorandum as beneficial to donors and does not impose any new liabilities.
Pressure points and controversies
The removal of the two-dollar threshold responds to Productivity Commission Recommendation 4.1 but leaves open the question of whether further reforms are needed to meet the government's target of doubling philanthropic giving by 2030, as noted by Philanthropy Australia. The research and development exclusion has drawn concern from the Interactive Games and Entertainment Association that the wording covering activities related to gambling services, gambling and gambling-like practices is broader than the substantially comprised test used in the digital games tax offset, potentially creating uncertainty for video game developers. Swanson Reed has cautioned that narrowing eligibility may reduce business confidence in the stability of the incentive. The retrospective commencement of Schedule 1 benefits donors but requires the Australian Taxation Office to process claims for past periods. Part 2 of Schedule 3 addresses practical governance difficulties in self-managed super funds where trust deeds or company constitutions do not provide automatic removal of incapacitated trustees, yet the measure applies only where a Public Trustee is already acting for the client. No public statements from non-government parties or independents were identified in the official materials at the time of the Bills Digest.
What changes if it passes
If the bill receives Royal Assent, donors will be able to claim deductions for gifts of any amount to deductible gift recipients from 1 July 2024 onwards, supporting increased micro-donations. Trustees of closely held trusts will shift to annual tax file number reporting in the trust return from 1 July 2026, enabling the Australian Taxation Office to pre-fill beneficiary income tax returns with trust distributions in the same manner as salary and wages. Public Trustees will have clearer authority to facilitate replacement trustees and directors for self-managed super funds, reducing the risk of non-compliance when a member loses capacity. Companies will no longer be able to claim the Research and Development Tax Incentive for tobacco or gambling related activities unless those activities are solely for harm minimisation, applying from income years beginning on or after 1 July 2025. Technical corrections in Schedule 3 will take effect the day after Royal Assent, improving the clarity of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 and the Australian Securities and Investments Commission Act 2001 without altering substantive rights or obligations. The overall package is intended to modernise tax administration, encourage small-scale philanthropy and maintain the integrity of the research and development incentive.
Social post angles
Small donations now count: the bill removes the outdated two-dollar minimum so every gift to a deductible gift recipient, no matter how small, can be claimed on tax returns from 1 July 2024. Trust income pre-filling arrives: trustees of family and closely held trusts will report beneficiary tax file numbers annually, allowing the Australian Taxation Office to pre-fill trust distributions on personal returns from 2026. Public Trustees gain practical powers: when an self-managed super fund member loses capacity, a Public Trustee can now approve and pay a replacement trustee or director, avoiding governance deadlocks. Research and development rules tighten: tobacco and gambling activities lose eligibility for the tax incentive unless the work is solely for harm reduction, starting 1 July 2025. Video game developers watch closely: industry groups warn the gambling exclusion wording may be wider than the digital games tax offset test, creating uncertainty for chance-based game features. Retrospective donation relief: donors who gave less than two dollars since mid-2024 can now claim those deductions once the bill passes, with no new paperwork required beyond existing records. Revenue gains targeted: the trust reporting and research and development changes are projected to lift government receipts by nearly 94 million dollars over five years while supporting compliance. Technical fixes included: minor corrections to competition law and corporate regulator legislation will improve readability without changing any policy outcomes.
Schedule 1 of the Treasury Laws Amendment (Delivering an Efficient and Trusted Tax System) Bill 2026 (the Bill) removes the condition that a gift to a deductible gift recipient be valued at $2 or more before the donor may claim a tax deduction. The amendments apply to gifts made from 1 July 2024.
Schedule 2 of the Bill streamlines how trustees of closely held trusts report beneficiary tax file numbers (TFNs) to the Commissioner of Taxation and clarifies the Commissioner’s notification obligations where a TFN reported to the Commissioner is either incorrect or does not exist.
Schedule 3 of the Bill consists of 3 parts:
Parts 1 and 3 of Schedule 3 propose minor amendments that are technical in nature and do not alter policy outcomes.
Part 2 enables a Public Trustee, acting for a client who has a self-managed super fund (SMSF), to approve the appointment of a person as a trustee of the SMSF, or a director of the SMSF’s corporate trustee. The amendments also authorise that person to be remunerated for their services.
Schedule 4 of the Bill amends the ITAA97 to exclude R&D activities relating to tobacco and gambling from the R&D Tax Incentive, except for activities conducted for the sole purpose of harm minimisation. The changes will commence for income years starting on or after 1 July 2025
At the time of writing, the Bill had not been referred to or reported on by any parliamentary committees.
Introductory Info
Date of introduction: 25 March 2026
House introduced in: House of Representatives
Portfolio: Treasury
Commencement: Schedules 1 and 2 commence on the first 1 January, 1 April, 1 July or 1 October to occur after Royal Assent. Schedules 3 and 4 commence the day after Royal Assent.
This is a preliminary Bills Digest produced to assist early consideration of the Bill. It provides some background and links to relevant resources. It may be replaced with a more comprehensive Bills Digest in due course.
Purpose and structure of the Bill
The purpose of the Treasury Laws Amendment (Delivering an Efficient and Trusted Tax System) Bill 2026 (the Bill) is to amend the Income Tax Assessment Act 1997 (ITAA97), Income Tax Assessment Act 1936 (ITAA36), Treasury Laws Amendment (More Competition, Better Prices) Act 2022, Superannuation Industry (Supervision) Act 1993 (SISA) and Australian Securities and Investments Commission Act 2001 (ASIC Act) to:
encourage low value donations to deductible gift recipients (DGRs) by removing the requirement that a gift must be at least $2 before a donor can claim a tax deduction, for a gift made on or after 1 July 2024 (Schedule 1)
support pre-filling of beneficiary income tax returns by requiring trustees of closely held trusts to report in the trust’s income tax return the tax file numbers of beneficiaries when they have an entitlement, from 1 July 2026 (Schedule 2)
make minor and technical amendments to legislation within the Treasury portfolio, including to allow a Public Trustee that is acting for a client who has an SMSF to approve a person to be the trustee or the director of the trustee company of the client’s SMSF (Schedule 3)
exclude activities related to gambling and tobacco from Research and Development (R&D) Tax Incentive eligibility, from 1 July 2025 (Schedule 4).
Policy position of non-government parties/independents
At the time of writing, no publicly available statements from non-government parties or the independents concerning the Bill could be identified.
Background
Schedule 1: Removing the $2 threshold for deductions for gifts or contributions
Background and policy development
In 2022-23, around 4.4 million people claimed tax deductions totalling $2,260 million for gifts or donations to DGRs. Of the total deductions claimed, 93% went to individuals with above-median incomes, and 82% was claimed by individuals in the top income decile (2025-26 Tax Expenditures and Insights Statement, p. 28).
In the October 2022-23 Budget, the Government announced that the ‘Productivity Commission will review the current framework to incentivise philanthropy in the not-for-profit sector’ (Budget Paper No. 2, p. 194).
On 10 May 2024, the Productivity Commission delivered its final report, Future foundations for giving, making 19 recommendations. Recommendation 4.1 proposed removing the $2 threshold for tax-deductible donations (p. 139).
On 18 December 2024, as part of the 2024-25 Mid-Year Economic Fiscal Outlook (MYEFO), the Government announced it would implement further reforms as part of its commitment to double philanthropic giving by 2030.
In a media release dated 5 December 2024, the Assistant Minister for Competition, Charities and Treasury, Dr Andrew Leigh, confirmed that the Government would implement Recommendation 4, noting that the measure ‘will support greater participation in philanthropy, by encouraging small donations including rounding up purchases at the point of sale in store and online’.
Why the change?
The Australian Government seeks to encourage charitable donations by allowing a person who donates over $2 to DGR-endorsed entities to claim a tax a deduction against their personal income tax. While the Productivity Commission found that the personal income tax deduction does increase giving, it was not possible to determine the extent to which it did so (p. 120).
It is also difficult to determine how much is donated in Australia but not captured through the tax system. One reason is that donations of less than $2 are ineligible for a tax deduction, meaning these donations are not recorded in the tax data (p. 126).
The $2 threshold is a product of history (p. 137):
In 1915, income tax deductions for giving were introduced with relatively high minimum thresholds:
£5 for donations to the war effort
£20 for charitable donations
(equivalent to $578 and $2,313 respectively in 2022 dollars).
In 1927, the minimum threshold was reduced to £1.
In 1966, when Australian currency was decimalised, the £1 threshold was converted to $2.
The real value of the $2 minimum threshold has steadily eroded. For example, $2 in 1966 is equivalent to almost $30 in 2022 dollars.
Why the Productivity Commission recommended removal despite previous mixed reviews
Previous reviews have recommended different approaches to the minimum deductibility threshold (p. 138). After considering these views, the Productivity Commission concluded that removing the $2 tax‑deductibility threshold would be unlikely to materially increase compliance costs for charities, as there is no legal requirement to issue receipts, and charities can choose to issue receipts only above a specified amount. It therefore recommended removing the threshold (Recommendation 4.1, p. 139).
The Productivity Commission reported:
The Henry Tax Review (2010) recommended raising the threshold from $2 to $25 to reduce compliance and receipt keeping/issuing burdens for donors/DGRs, although advances and increases in uptake of technology have reduced the compliance costs relating to generating and keeping receipts.
By contrast, the Not-for-profit Sector Tax Concession Working Group (Treasury 2013) and the Industry Commission (1995) recommended removing the threshold entirely, citing simplicity and negligible revenue impact, and allowing charities discretion over issuing receipts.
Participant views were mixed, for example:
BDO advisory services supported removing the threshold to resolve legal and accounting uncertainty around small recurring donations, eg, whether a weekly $1 donation was a $52 donation made in weekly payments, or 52 donations, each under the $2 threshold.
Others (Creative Australia and Order of Australia Association Foundation) supported removal in principle but raised concerns about administrative costs, particularly for organisations that issue receipts manually.
The Sydney Children’s Hospital Foundation cautioned that removing the threshold could result in receipt costs exceeding the value of very small donations.
Changes to the threshold may affect donor behaviour, including encouraging ‘micro- donations’ (such as ‘round up’ donations at supermarket checkouts) if the threshold were removed.
Balnaves Foundation was concerned that removing the threshold could impose obligations on businesses offering round up donations to provide receipts for small donations; however, DGRs are not legally required to issue receipts, and the ATO accepts alternative forms of substantiation, such as bank statements or internet banking confirmations (Future foundations for giving, p. 138).
Retrospective application
Schedule 1 applies retrospectively to donations or gifts made on or after 1 July 2024. The Explanatory Memorandum (EM) (p. 6) states that the retrospective application is beneficial to donors who have donated to DGRs since that date.
Stakeholder comment
In a media release dated 6 December 2024, Philanthropy Australia welcomed the removal of the $2 threshold, but noted more significant reforms would be needed to fix the system and grow giving.
In January 2025, Gotax Advice supported the change as ‘a win for taxpayers and charities alike’.
Schedule 2: Modernising tax administration systems
Background and policy development
The Modernising Tax Administration Systems (MTAS) project was first announced in the 2022-23 March Budget as the Digitalising Trust Income Reporting and Processing measure (Budget Paper No. 2, pp. 18-19). The Government explained that trust income reporting and assessment calculation processes have not been automated to the same extent as individual or company tax returns, resulting in longer processing times and limited pre-filling opportunities.
To address this, the measure was intended to allow all trust tax return filers to lodge returns electronically, expand pre-filling, and automate ATO assurance processes. The ATO implemented a first tranche of changes from 1 July 2024.
In the 2024-25 MYEFO (p. 195), the Government announced $76 million in additional funding over 4 years from 2024-25 to further modernise ATO income tax reporting systems. The measure aims to expand ATO’s prefilling capabilities, so that trust income distributed to beneficiaries can be prefilled in the same way as salary and wages, and bank interest.
To support these changes, the Bill seeks to amend the law to require trustees to report beneficiaries’ tax file numbers (TFN) on the trust income tax return’s Statement of Distribution where a beneficiary has an entitlement to a share of the income of the trust. This measure is expected to increase receipts by $81.6 million over five years from 2023-24 and finalises the Digitalising Trust Income Reporting and Processing project (EM, p. 2 and 2024-25 MYEFO, p. 195).
On 1 February 2026, Treasury completed public consultation on the Modernising tax administration systems draft legislation. Submissions have not been published.
Separately, the ATO has undertaken working-group style consultations, including meetings held on 1 December 2025 and 21 January 2026, and on 24 March 2026 confirmed the delivery of further system improvements through Tax Times 2026 and 2027.
What does Schedule 2 do?
Schedule 2 streamlines how trustees of closely held trusts report beneficiary TFNs to the Commissioner of Taxation (p. 7) and clarifies the Commissioner’s notification obligations where a TFN reported to the Commissioner is either incorrect or does not exist (p. 11).
Trust concepts and tax rules relevant to Schedule 2
Schedule 2 amends TFN reporting rules specifically for closely held trusts, and relies on a number of key trust and taxation concepts. To assist understanding, this section provides brief explanations of the relevant concepts and rules.
What is a trust?
A trust ‘is a fiduciary relationship between a trustee who is the legal owner of property and one or more beneficiaries for whose benefit the property is held. The distinguishing feature of this relationship is the trustee’s obligation to act honestly and in good faith to serve the interests of the beneficiaries.’ The Australian Taxation Office (ATO) simply defines a trust as ‘an obligation for a person or other entity to hold property or assets for beneficiaries.’
What is a trustee and a beneficiary?
At general law, a trustee may be an individual or an entity (for example, a family friend, or a company). The tax legislation defines a ‘trustee’ under subsection 6(1) of the ITAA36 as follows:
“trustee” in addition to every person appointed or constituted trustee by act of parties, by order, or declaration of a court, or by operation of law, includes:
an executor or administrator, guardian, committee, receiver, or liquidator; and
every person having or taking upon himself the administration or control of income affected by any express or implied trust, or acting in any fiduciary capacity, or having the possession, control or management of the income of a person under any legal or other disability;
A beneficiary may be a person, company, partnership or others. While the term ‘beneficiary’ is not defined in the tax legislation, a trustee may also be a beneficiary of a trust so long as it is not the sole beneficiary.
Beneficiaries may have an entitlement to trust income or capital that is set out in the trust deed or they may acquire an entitlement because the trustee exercises a discretion to pay them income or capital.
How are trusts taxed?
A trust is not a separate legal entity at general law and is generally treated as a flow-through vehicle for tax purposes rather than a taxable entity.
The assessable income of a trust must be ‘flowed through’ to individual beneficiaries who are entitled to the income or capital distribution, assessed in their hands, at their individual tax rates (see Division 6 (trust income) in Part III of the ITAA 1936).
What is a ‘closely held trust’?
A ‘closely held trust’ is defined in section 102UC of the ITAA36 as either:
a discretionary trust; or
a fixed trust where up to 20 individuals hold between them fixed entitlements to 75% or more of the income or capital of the trust
except where a trust is an excluded trust.
In simple terms, a ‘closely held trust’ is a trust controlled by a small number of beneficiaries or controllers, often members of the same family or a closely connected business group. In practice, many family trusts and small unit trusts fall into this category.
Certain trusts are expressly excluded from the definition, for example:
a complying superannuation fund
a complying approved deposit fund
a pooled superannuation trust, and
a unit trust whose units are listed on the Australian Stock Exchange.
These trusts are therefore not treated as ‘closely held trusts’ for the purposes of section 102UC of ITAA36.
Closely held trusts are subject to specific integrity rules designed to enable the ATO to verify that a beneficiary's share of the trust net income is correctly included in the beneficiary's income tax return. Two special rules apply:
trustee beneficiary (TB) reporting rules, and
TFN withholding rules.
What is a fixed trust?
Subsection 995-1(1) of ITAA97 provides that ‘a trust is a fixed trust if entities have fixed entitlements to all of the income and capital of the trust’.
What is a discretionary trust?
A ‘discretionary trust’ is a trust that is not a fixed trust within the meaning of section 272-65 of Schedule 2F to the ITAA36.
Discretionary trusts are commonly used by families. Under a discretionary trust, the trustee has the flexibility (or discretion) to distribute income and capital among a range of beneficiaries. The trustee may also have the power to add or remove beneficiaries. From a commercial perspective, this flexibility provides the trustee with the ability to supplement the income of lower earning beneficiaries who are usually family members, with tax typically borne by beneficiaries with lower individual tax rates.
Special rules applying to closely held trusts
Trustee beneficiary reporting rules
The trustee of a closely held trust must report information to the ATO about each trustee beneficiary's share of the trust's net income or tax-preferred amounts in a Trustee Beneficiary Statement. If the trustee fails to satisfy the reporting requirements, trustee beneficiary non-disclosure tax is imposed at the highest marginal rate plus Medicare levy on the untaxed part of the share of the net income. The reporting requirements are contained primarily in Part III Division 6D of ITAA36 (sections 102UA to 102UV). (Section 102UI, ITAA36 provides that the expression ‘tax-preferred amount’ of a trust means: income of the trust that is not included in its assessable income in working out its net income; or capital of the trust.)
A person is a trustee beneficiary of a closely held trust if the person is a beneficiary of the trust in the capacity of trustee of another trust: section 102UD, ITAA36.
TFN withholding rules
Separate rules apply to encourage beneficiaries of closely held trusts to quote their TFN to the trustee. Where a beneficiary's tax file number is not quoted, the trustee is required to withhold tax from trust distributions.
Beneficiary TFN reporting
Schedule 2 requires that trustees must report beneficiary TFNs at the same time the trust tax return is lodged if the beneficiary (p. 10):
is presently entitled to a share of the income of the trust for the income year, and
has quoted their TFN at any time before the trustee lodges the trust’s tax return.
The TFN must be disclosed in the approved form, which is expected to be the Statement of Distribution in the trust tax return for the income year. The trustee will be required to report the TFN in the trust tax return for all future income years that the beneficiary is presently entitled to a share of income of the trust.
A trustee is not required to report a trustee beneficiary’s TFN where the TFN has already been reported in a trustee beneficiary statement under Division 6D of Part III of the Income Tax Assessment Act 1936 (ITAA36) (see further explanation below).
These amendments replace the current requirement for trustees to lodge quarterly TFN reports for the quarter in which a beneficiary quotes their TFN. The changes are intended to support prefilling of beneficiary income tax returns.
Existing beneficiary TFN reporting framework
Thomson Reuters Westlaw explains that under section 202DP of ITAA36, the trustee of a closely held trust must currently report, on a quarterly basis, any TFNs quoted by beneficiaries. However, the trustee is not required to report a beneficiary’s TFN where:
the beneficiary is within a class of beneficiaries excluded from the TFN withholding rules;
a beneficiary has already quoted their TFN to the trustee in connection with an investment to which Pt VA of ITAA 1936 applies: paragraph 202DP(1)(b); or
the trustee has already reported the beneficiary's TFN under Div 6D of Pt III (about trustee beneficiary non-disclosure tax under section 102UA: paragraph 202DP(1)(c)).
Commissioner’s obligation to notify trustees of incorrect TFNs
After a beneficiary’s TFN has been provided to the ATO by a trustee, section 202DR of the ITAA36 deals with the situation where the quoted TFN has been cancelled or withdrawn or is otherwise incorrect. In these circumstances, where the Commissioner is satisfied that the beneficiary has a TFN they may inform the trustee of the correct TFN (subsection 202DR(1)). In circumstances where the Commissioner is not satisfied that the beneficiary has a TFN, they must notify the trustee of this (subsection 202DR(4)).
The proposed amendments to section 202DR of the ITAA36 at items 2 to 4 of Schedule 2 to the Bill achieve two purposes (p. 11):
Discretionary notification: Where a quoted TFN is cancelled, withdrawn, or otherwise incorrect, and the Commissioner identifies the beneficiary’s correct TFN, the Commissioner may notify the trustee of the correct TFN in appropriate circumstances. If this occurs, the beneficiary is taken to have quoted the correct TFN on the same day they originally quoted the incorrect TFN.
Mandatory notification: The Commissioner must notify the trustee where the beneficiary does not have a TFN because the quoted TFN is cancelled, withdrawn, or otherwise incorrect, and the Commissioner is not satisfied that:
the beneficiary has provided the correct TFN,
the beneficiary has a TFN, or
it is reasonable to notify the trustee of the correct TFN using Commissioner’s discretion (discussed above).
The amendments ensure that the trustee can comply with TFN withholding obligations where required.
Schedule 3: Minor and technical amendments
What do Parts 1 and 3 of Schedule 3 do?
Part 1 amends the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 to correct a typographical error.
Part 3 amends the Australian Securities and Investments Commission Act 2001 to improve readability and clarity, reducing the risk of misinterpretation.
These minor amendments are technical in nature and do not alter policy outcomes.
What does Part 2 of Schedule 3 do?
Part 2 enables a Public Trustee, acting for a client who has a self-managed super fund (SMSF), to approve the appointment of a person as a trustee of the SMSF, or a director of the SMSF’s corporate trustee. The amendments also authorise that person to be remunerated for their services.
What problem does Part 2 address?
Part 2 addresses a long-standing practical problem that can arise where an SMSF trustee (or director of a corporate trustee) becomes legally incapacitated or dies, but the Public Trustee is unable, or prudentially constrained, from acting or appointing a replacement.
SMSFs require trustees or directors with sufficient capacity to manage investments and ensure compliance with superannuation law. Where a trustee loses capacity or dies, an SMSF may be unable to operate or remain compliant unless a replacement trustee or director can be validly appointed.
Why replacement trustees are difficult to appoint?
In his journal article ‘Loss of trustee capacity in SMSFs’ (pp. 130-133), Neal Dallas highlights some of the complexities involved in replacing an incapacitated trustee, which are summarised below.
Not all SMSF trust deeds or company constitutions provide for the automatic removal of an incapacitated trustee or director (p. 130). In practice:
Power to remove an incapacitated trustee often sits with members, who may include the incapacitated person.
This can create a deadlock or “catch‑22”, where the members cannot exercise the power of removal because one of those members is the incapacitated trustee, who may be unable or unwilling to remove themselves.
Loss of capacity may be gradual or intermittent, further complicating decisions about resignation or removal (p. 130).
Similar difficulties arise for corporate trustees. The Corporations Act 2001 does not generally provide for the automatic removal of an incapacitated director. As with individual trustees, removal depends on the company constitution, and most standard constitutions do not provide for automatic removal on the grounds of incapacity (p. 130).
By clarifying that a Public Trustee may approve and remunerate a replacement trustee or director for an SMSF member who has lost capacity, or dies, Part 2 provides a practical pathway to:
avoid governance deadlocks
restore compliance with SMSF trusteeship requirements and
protect the ongoing operation of affected SMSFs.
Schedule 4: Exclusion of tobacco and gambling related activities from the Research and Development Tax Incentive
What does Schedule 4 do?
Schedule 4 proposes to amend the ITAA97 to exclude R&D activities relating to tobacco and gambling from the R&D Tax Incentive, except for activities conducted for the sole purpose of harm minimisation. The changes will commence for income years starting on or after 1 July 2025 and were announced in the 2024-25 MYEFO.
What is the R&D tax incentive?
The R&D tax incentive provides targeted tax offsets designed to encourage more companies to engage in R&D. The ATO advises that the incentive has 2 core components:
a refundable tax offset equal to the entity’s company tax rate plus an 18.5% premium for eligible entities with an aggregated turnover of less than $20 million per annum, provided they are not controlled by income tax-exempt entities
a non-refundable tax offset for all other eligible entities equal to the entity’s company tax rate plus a two-tiered premium determined on the notional R&D expenditure as a proportion of total expenditure for the income year:
8.5% for R&D expenditure up to 2% of total expenditure
16.5% for R&D expenditure above 2% of total expenditure.
Entities may be able to carry forward unused offset amounts to future income years. The rate of the R&D tax offset is reduced to the company tax rate for that portion of an entity's notional R&D deductions that exceeds $150 million for an income year.
The ATO publishes R&D tax incentive transparency reports, which provide transparency on the benefits received by R&D entities.
Background and policy development
In October 2024 ATO published the R&D Tax Incentive Transparency Report. In November 2024, the Australian Financial Review (AFR) highlighted aspects of that report, which indicated that ‘novelty fast food, gambling, tobacco and alcohol’ had benefited from the tax incentive. In particular, the AFR reported on:
other unexpected claimants of a tax break meant to encourage hard scientific innovation. This includes the $43 million claim by gaming giant Tabcorp, up 11 per cent on the prior year; poker machine behemoth Aristocrat ($18.9 million); The Lottery Corporation ($10.4 million); Austria’s slot machine maker Ainsworth Game Technology ($7.9 million); and US-owned bookmaker PointsBet ($7.5 million).
In the 2024-25 MYEFO (pp. 197-198), the Government announced that activities related to gambling and tobacco would be excluded from R&D Tax Incentive eligibility for income years starting on or after 1 July 2025. Excluding these activities will ensure that the Government is not subsidising this type of research and development. Activities that are solely for the purpose of harm reduction, such as reducing addiction, will remain eligible to receive support. This measure is estimated to increase receipts by $12.0 million and decrease payments by $8.0 million over five years from 2023-24 (EM, p. 4).
On 8 December 2025, the Government released an exposure draft of legislation to implement this measure. Consultation closed on 30 January 2026 and submissions do not appear to have been published (though some stakeholders have published their submissions independently, as discussed below).
Stakeholder comments
In its submission on the exposure draft legislation, the Interactive Games & Entertainment Association (IGEA) raised concerns about the proposal’s potential impact on the video games industry. In particular, the IGEA was concerned that the draft legislation’s (and the Bill’s) exclusion of ‘activities related to gambling services, gambling and gambling-like practices’ was wider than the exclusion applying to the digital games tax offset (DGTO).
Under section 378-25 of the ITAA97, a game is not eligible for the DGTO ifs it is ‘a gambling service (within the meaning of the Interactive Gambling Act 2001), or is substantially comprised of gambling or gambling‑like practices’. The IGEA was concerned that without the inclusion of the phrase ‘substantially comprised of’:
the scope of excluded [R&D Tax Incentive] activities could be significantly broader than under the DGTO. These discrepancies may lead to conflicting interpretations regarding which specific activities qualify under each scheme, uncertainty, over-breadth and unintended consequences. Ensuring consistency between these provisions is important for avoiding uncertainty in how chance‑based or thematic game elements are treated across the ITAA (p. 3).
Accordingly, the IGEA recommended the amendment of the draft Bill to ‘ensure that only activities substantially comprised of gambling or gambling‑like practices are excluded from RDTI eligibility’ (p. 3).
Referring to the exposure draft legislation, Swanson Reed (R&D tax advisors) acknowledged the social harms associated with gambling and tobacco but cautioned that narrowing the R&D Tax Incentive eligibility could undermine certainty and business confidence, arguing that the incentive is most effective when it remains broad‑based, market‑driven, and stable.
Links
The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.
When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.
All hyperlinks in this Bills Digest are correct as of March 2026.
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