Treasury Laws Amendment (Tax Reform No. 1) Bill 2026

The bill introduces several new concepts and modifies existing ones. For CGT, the key new term is 'residential capital gain' (defined in new section 102-6(2) of the Income Tax Assessment Act 1997) which is the portion of a capital gain from a residential dwelling accruing after 1 July 2027, calculated by reference to the number of days the dwelling was used for residential accommodation. 'Deferred residential capital gain' and 'deferred non-residential capital gain' are gains from the deemed sale on 30 June 2027 under Subdivision 112-E, deferred until the later realisation event. The 'minimum tax capital gain' is the total of residential and non-residential capital gains (excluding new residential dwellings and affordable housing if the discount is chosen) remaining after step 6 of the net capital gain calculation. The 'minimum tax gap amount' is the extra tax needed to bring the effective rate on those gains to 30 per cent. For negative gearing, the 'quarantined amount' is the excess of deductions over assessable income from quarantined residential dwellings (those acquired after 12 May 2026 and not new residential dwellings). This amount can be used to reduce capital gains on residential dwellings. 'New residential dwelling' is defined by ministerial legislative instrument, with optional criteria including whether the dwelling genuinely adds to housing supply. 'Assessable labour income' for the standard deduction and WATO is income from which PAYG withholding is required under specified provisions (employee, director, office holder, religious practitioner, return-to-work, termination, parental leave). The 'standard deduction' reduces dollar-for-dollar by certain itemised work-related expenses (general deductions, car, transport, repairs, decline in value, balancing adjustments, COVID-19 tests) but not by insurance premiums or union fees.

The bill affects a wide range of taxpayers and entities. Australian resident individuals who own CGT assets will be directly affected by the replacement of the 50 per cent discount with indexation and the new minimum tax on capital gains. Trusts and their beneficiaries face complex transitional rules including deemed disposals on 30 June 2027, new reporting obligations for trustees, and adjustments to trust streaming provisions. Investors in residential property will be affected by the negative gearing restrictions: those who acquire established dwellings after 12 May 2026 can no longer deduct net rental losses against salary and wages; those who build or purchase new residential dwellings retain full negative gearing. Landlords with pre-existing properties are unaffected. Companies and superannuation funds are not eligible for the new indexation but will have pre-CGT assets brought into the CGT base from 1 July 2027. Foreign and temporary residents are ineligible for the new indexation and remain subject to existing rules. Employees and other labour income earners benefit from the up-to-$250 working Australians tax offset and the up-to-$1,000 standard deduction for work-related expenses. Employers face changes to fringe benefits tax: salary-packaged work-related expense benefits lose the otherwise-deductible reduction, and the exemption for eligible work-related items is denied for salary-sacrificed benefits. The Australian Taxation Office will be responsible for administering the new provisions, including determining approved forms and issuing guidance. The Minister is granted several legislative instrument-making powers to define key terms such as new residential dwelling, classes of exempt entities, and methods for calculating offsets.

From 1 July 2027, the 50 per cent CGT discount for individuals and trusts is abolished for most assets. Instead, you can index the cost base of assets held over 12 months for inflation, so only real gains are taxed. A 30 per cent minimum tax applies to your post-1 July 2027 capital gains, meaning even if your other income is low, you will pay at least 30 per cent on those gains unless you receive certain income support payments. If you sell an asset you owned before 1 July 2027, the pre-1 July 2027 gain is still eligible for the old 50 per cent discount, but the post-1 July 2027 portion uses indexation and the minimum tax. New residential dwellings and affordable housing continue to attract the 50 per cent discount (or up to 60 per cent for affordable housing). If you buy an established investment property after 12 May 2026, you cannot deduct net rental losses against your salary. Those losses can only be used against rental income from other properties or against capital gains on residential property. Properties bought before that date are grandfathered. New builds are exempt, so you can still negatively gear them. The standard deduction of $1,000 for work-related expenses starts from the 2026-27 income year. You do not need receipts. If you have more than $1,000 of actual work expenses, you can itemise them instead. The standard deduction does not cover insurance premiums or union fees, which you can still claim separately. The Working Australians Tax Offset gives you up to $250 of tax relief if you work and earn net labour income above the tax-free threshold. It is non-refundable, so it can only reduce tax payable to zero, not create a refund.

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. On 28 May 2026, the bill was referred to the Senate Economics Legislation Committee for inquiry, with a report due by 22 June 2026. This is a relatively short review period, suggesting the government wants the bill passed quickly. No proposed amendments have been circulated as of the source date. The explanatory memorandum indicates the bill partially implements measures from the 2026-27 Budget (announced 12 May 2026). The bill is accompanied by a related Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026 which sets the rate of extra income tax for the minimum tax. The combined financial impact over the forward estimates is an improvement of $3.6 billion from schedules 1 and 2 (negative gearing and CGT), a cost of $6.4 billion from the working Australians tax offset, and a cost of $2.6 billion from the standard deduction. Net fiscal impact is a decrease in revenue. The commencement dates vary: Schedule 2 (negative gearing) commences the day after Royal Assent; Schedules 1, 3 and 4 commence on the first quarter day after Royal Assent. Provisions apply from 1 July 2027 (or 2026-27 for standard deduction). The bill is currently before the House of Representatives with a committee referral to the Senate.

The bill confers significant new powers on the Minister to make legislative instruments. The Minister may determine a method for apportioning capital gains and losses between the deemed sale on 30 June 2027 and later realisation events (section 112-185). The Minister may determine kinds of CGT assets eligible for the 50 per cent discount under new section 115-102(3). The Minister may determine the requirements for a dwelling to be a 'new residential dwelling' for both CGT discount and negative gearing purposes (section 26-160(4)). The Minister may determine classes of entities exempt from the negative gearing quarantining rules (paragraph 26-155(4)(c)). The Minister may determine activities, purposes, businesses or enterprises for which residential dwellings are exempt from quarantining (paragraphs 26-155(2)(c) and (d)). The Minister may determine the method for calculating the Working Australians Tax Offset (subsection 61-160(2)) and may determine kinds of payments that exempt an individual from the minimum tax (section 119-15(2)). The Commissioner of Taxation may determine, by legislative instrument, that trustees of specified trusts must provide information to beneficiaries under new section 115-235. New duties are imposed on trustees: they must prepare and give statements to beneficiaries setting out the amount and character of capital gains attributed. Failure attracts an administrative penalty of 1 penalty unit per 28 days (under section 286-75 of Schedule 1 to the Tax Administration Act 1953). Taxpayers acquire a right to choose between the new indexation and the retained CGT discount for new residential dwellings and affordable housing. Trustees may make that choice on behalf of beneficiaries. Taxpayers also have a right to choose an apportioning method for the deemed sale valuation instead of market value.

The bill introduces a new administrative penalty for trustees who fail to give prescribed capital gains information to beneficiaries (new section 286-75(2AAA) in Schedule 1 to the Tax Administration Act 1953). The base penalty is 1 penalty unit (currently $313) for each 28-day period of non-compliance, increasing based on the duration. This is consistent with existing penalties for document-related obligations. The compliance cost impact for schedules 1 and 2 combined is estimated by Treasury at an increase of $88.4 million per year on average over ten years. Schedule 4 is estimated to save individuals $380 million in compliance costs per year. The financial impacts over the forward estimates: schedules 1 and 2 improve the cash balance by $3.6 billion (net of $1.35 billion in 2027-28 and $2.28 billion in 2028-29). Schedule 3 reduces revenue by approximately $3.02 billion in 2027-28 and $3.36 billion in 2028-29. Schedule 4 reduces revenue by approximately $1.24 billion in 2027-28 and $1.36 billion in 2028-29. The minimum tax on capital gains imposes an extra income tax liability on Australian resident individuals whose effective tax rate on capital gains is below 30 per cent. The amount is calculated using the method statement in new section 119-10(2): essentially, the difference between 30 per cent of the minimum tax capital gain and the incremental tax the individual already pays on that gain. The tax is imposed by the related Income Tax Rates Amendment Bill. Exemptions apply for recipients of certain income support payments determined by the Minister. There are no criminal penalties introduced, but existing penalties for false or misleading statements under the Tax Administration Act continue to apply.

The official materials name several stakeholders. The Explanatory Memorandum (EM) states that the Select Committee on the Operation of the Capital Gains Discount, Budget Statement 4 of the Federal Budget 2026-27, and Treasury Supplementary Analysis were used as impact analysis equivalents. The EM also references the OECD as recommending cutting or eliminating the CGT discount and phasing out negative gearing. The affected groups mentioned include: first home buyers (the EM states the bill will 'level the playing field for first homebuyers'); investors in residential property, particularly those with leveraged housing investments; high-income earners and high-wealth individuals (the EM notes the benefits of the current CGT discount and negative gearing are concentrated among them); ordinary workers (the WATO and standard deduction are targeted at them); trustees and beneficiaries of trusts (the new reporting requirements are designed for them); employers (through FBT amendments); income support recipients (exempt from minimum tax); foreign residents and temporary residents (excluded from new indexation); companies and superannuation funds (not eligible for new indexation but affected by pre-CGT asset changes); and the Australian Taxation Office (ATO) which will administer the provisions and provide guidance, calculators and tools. The EM also notes that the Minister will consult with Treasury to monitor the efficacy through metrics published in the Intergenerational Report, State of the Housing Market Report and Tax Expenditures and Insights Statement. No specific stakeholder submissions or opponents are named in the official materials provided.

The Income Tax Assessment Act 1997 would be substantially amended. The net capital gain calculation method statement in section 102-5 is expanded from five to seven steps, adding categories for residential and deferred capital gains and quarantined amounts from negative gearing. The 50 per cent CGT discount is removed for individuals and trusts for CGT events on or after 1 July 2027 (except for new residential dwellings and affordable housing). In its place, cost base indexation is reintroduced for Australian resident individuals and trusts, using CPI from the quarter expenditure is incurred to the quarter of the CGT event. A 30 per cent minimum tax on capital gains is introduced for Australian resident individuals, with an exemption for certain income support recipients. Pre-CGT assets are deemed sold and reacquired on 1 July 2027, bringing gains after that date into the CGT base. Transitional rules for assets held before 1 July 2027 include a deemed disposal and reacquisition at market value (or apportioned amount), with the pre-1 July gain deferred and taxed under old rules (including the 50 per cent discount). Negative gearing for residential property is limited: net rental losses from residential dwellings acquired after 12 May 2026 (excluding new builds) are quarantined and can only offset residential rental income or reduce residential capital gains. New residential dwellings are defined by ministerial instrument. The Working Australians Tax Offset provides up to $250 per year for individuals with net labour income above the tax-free threshold. The standard deduction for work-related expenses allows up to $1,000 per year without substantiation, reducing by any itemised work expenses. Fringe benefits tax amendments prevent double-dipping: salary-packaged expense payment benefits for standard-deductible expenses lose the otherwise-deductible reduction; the exemption for eligible work-related items (e.g. laptops, tools) no longer applies to salary-sacrificed benefits. The substantiation provisions for small expenses ($300 limit) and laundry expenses ($150) are repealed. Award transport payment provisions are removed.

[1] 'Your 50% CGT discount is gone: here is what replaces it from 1 July 2027' - explains the shift to indexation and the new 30% minimum tax on capital gains, with exceptions for new homes and affordable housing. [2] 'Negative gearing overhaul: established investment properties lose the tax perk, new builds still qualify' - breaks down the quarantining of rental losses for properties acquired after Budget night, and the grandfathering for existing investors. [3] '$1,000 standard deduction for work expenses starts next financial year: no receipts required' - highlights the simplification for employees earning assessable labour income, noting the offset against itemised claims. [4] 'Working Australians get a $250 tax offset from 2027-28: who qualifies and how to get it' - explains the net labour income threshold and the fact it is non-refundable. [5] 'Pre-1985 property owners: your capital gains exemption ends on 30 June 2027' - warns about the deemed disposal and new tax treatment for gains accruing after that date. [6] 'Trustees face new penalties for failing to report capital gains to beneficiaries' - details the information statement obligations and administrative penalty provisions under the new CGT regime. [7] 'Government claims bill will improve housing affordability: analysis of the trade-offs' - examines the expected reduction in investor demand for established housing versus the retention of incentives for new supply and the compliance burden. [8] 'The $3.6 billion question: how the CGT and negative gearing changes fund worker tax cuts' - connects the revenue improvement from schedules 1 and 2 to the cost of the WATO and standard deduction.