Treasury Laws Amendment (Tax Reform No. 1) Bill 2026
No. , 2026
(Treasury)
A Bill for an Act to amend the law relating to taxation, and for related purposes
Contents
1 Short title 1
2 Commencement 1
3 Schedules 2
Schedule 1,CGT adjustments 3
Part 1,Main amendments 3
Income Tax Assessment Act 1997 3
Taxation Administration Act 1953 39
Part 2,Minimum rate of tax on capital gains 40
Income Tax Assessment Act 1997 40
Income Tax (Transitional Provisions) Act 1997 43
Part 3,Other amendments 45
Income Tax Assessment Act 1936 45
Income Tax Assessment Act 1997 45
Taxation Administration Act 1953 47
Part 4,Application of amendments 48
Schedule 2,Limit negative gearing for residential property to new builds 49
Income Tax Assessment Act 1997 49
Schedule 3,Working Australians tax offset 55
Part 1,Amendments 55
Division 1,Main amendments 55
Income Tax Assessment Act 1997 55
Division 2,Consequential amendments 58
Income Tax Assessment Act 1997 58
Part 2,Application 59
Schedule 4,Standard deduction for work‑related expenses 60
Part 1,Amendment of the Income Tax Assessment Act 1997 60
Income Tax Assessment Act 1997 60
Part 2,Amendment of the Fringe Benefits Tax Assessment Act 1986 66
Fringe Benefits Tax Assessment Act 1986 66
A Bill for an Act to amend the law relating to taxation, and for related purposes
The Parliament of Australia enacts:
1 Short title
This Act is the Treasury Laws Amendment (Tax Reform No. 1) Act 2026.
2 Commencement
(1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.
Commencement information
Column 1
Column 2
Column 3
Provisions
Commencement
Date/Details
Sections 1 to 3 and anything in this Act not elsewhere covered by this table
The day this Act receives the Royal Assent.
Schedule 1, Part 1
The first 1 January, 1 April, 1 July or 1 October to occur after the day this Act receives the Royal Assent.
Schedule 1, Part 2
At the same time as the Income Tax Rates Amendment (Tax Reform No. 1) Act 2026 commences.
However, the provisions do not commence at all if that Act does not commence.
Schedule 1, Parts 3 and 4
The first 1 January, 1 April, 1 July or 1 October to occur after the day this Act receives the Royal Assent.
Schedule 2
The day after this Act receives the Royal Assent.
Schedules 3 and 4
The first 1 January, 1 April, 1 July or 1 October to occur after the day this Act receives the Royal Assent.
Note: This table relates only to the provisions of this Act as originally enacted. It will not be amended to deal with any later amendments of this Act.
(2) Any information in column 3 of the table is not part of this Act. Information may be inserted in this column, or information in it may be edited, in any published version of this Act.
3 Schedules
Legislation that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.
Schedule 1,CGT adjustments
Part 1,Main amendments
Income Tax Assessment Act 1997
1 Subsection 100‑25(1)
After “there is an exception if”, insert “the CGT event happens before 1 July 2027 and”.
2 Subsection 100‑40(2) (before the note)
Omit all the words after “the reduced cost base of the asset.”, substitute:
One of the main differences is that the costs may be indexed for inflation in working out a capital gain for a CGT asset (which reduces the size of the gain), but not in working out a capital loss. Indexation is only available for certain entities and may not be available for the entire period the CGT asset is held.
3 Section 100‑50
Repeal the section, substitute:
100‑50 How to work out your net capital gain or loss
Reduce your capital gains for the income year by your capital losses for the income year. You need to reduce certain kinds of capital gains before you can reduce other kinds of capital gains. (If the capital losses for the income year exceed the capital gains, the difference is your net capital loss. You cannot deduct a net capital loss from your assessable income.)
Reduce any remaining capital gains by any unapplied net capital losses for previous income years. You need to reduce certain kinds of remaining capital gains before you can reduce other kinds of remaining capital gains.
Apply any quarantined amount relating to using or holding residential dwellings as residential accommodation to reduce certain kinds of remaining capital gains.
Reduce any remaining capital gains that are discount capital gains by the discount percentage.
Note: To find out what is a discount capital gain and the discount percentage, see Division 115.
If you carry on a small business, apply the small business concessions in further reduction of your capital gains (whether or not the gains are discount capital gains).
Note: For the small business concessions, see Division 152.
Add up any remaining capital gains. The total is your net capital gain.
Note: For the rules on working out your net capital gain or loss, see Division 102.
4 Paragraphs 102‑3(2)(a) and (c)
Repeal the paragraphs.
5 Subsection 102‑5(1)
Repeal the subsection, substitute:
(1) Your assessable income includes your net capital gain (if any) for the income year. You work out your net capital gain in this way:
Working out your net capital gain
Step 1. Reduce the *capital gains you made during the income year by the *capital losses (if any) you made during the income year as follows:
(a) first, reduce any *deferred non‑residential capital gains;
(b) then, reduce any *deferred residential capital gains;
(c) then, reduce any *non‑residential capital gains;
(d) then, reduce any *residential capital gains.
Note 1: Indexation may apply in relation to working out your capital gains: see Divisions 110 and 114.
Note 2: Some provisions of this Act (such as Divisions 104 and 118) permit or require you to disregard certain capital gains or losses when working out your net capital gain. Subdivision 152‑B permits you, in some circumstances, to disregard a capital gain made from a CGT event happening to a CGT asset you held for at least 15 years.
Note 3: If you have more than one capital gain within a category mentioned in paragraph (a), (b), (c) or (d), you can choose the order in which you reduce them.
Step 2. Apply any previously unapplied *net capital losses from earlier income years to further reduce the amounts (if any) remaining after the reduction of *capital gains under step 1. Make the further reductions in the same order as mentioned in step 1.
Note: Section 102‑15 explains how to apply net capital losses.
Step 3. Apply any quarantined amount referred to in paragraph 26‑155(1)(b) you have for the income year to reduce the amounts (if any) of any *deferred residential capital gains remaining after the reduction of *capital gains under step 2.
Note: Subsection 26‑155(1) deals with amounts relating to using or holding residential dwellings as residential accommodation.
Step 4. Apply any quarantined amount referred to in paragraph 26‑155(1)(b) you have for the income year remaining after step 3 to reduce the amounts (if any) of any *residential capital gains remaining after the reduction of *capital gains under step 2.
Step 5. Reduce by the *discount percentage each amount of any *discount capital gain remaining after the application of steps 1 to 4.
Note: Only some entities can have discount capital gains, and only if they have capital gains from certain CGT assets acquired at least a year before making the gains: see Division 115.
Step 6. If any of your *capital gains (whether or not they are *discount capital gains) remaining after step 5 qualify for any of the small business concessions in Subdivisions 152‑C, 152‑D and 152‑E, apply those concessions to each of those capital gains as provided for in those Subdivisions.
Note 1: The basic conditions for getting these concessions are in Subdivision 152‑A.
Note 2: Subdivision 152‑C does not apply to CGT events J2, J5 and J6. In addition, Subdivision 152‑E does not apply to CGT events J5 and J6.
Step 7. Add up the amounts of any *capital gains remaining after step 6. The sum is your net capital gain for the income year.
Note: For exceptions and modifications to these rules: see section 102‑30.
6 After section 102‑5
Insert:
102‑6 Meanings of the different categories of capital gains
Non‑residential capital gains
(1) If a *capital gain you make during an income year is not one to which subsection (5) applies, then so much of the capital gain as is not a *residential capital gain is a non‑residential capital gain.
Residential capital gains
(2) If a *capital gain you make during an income year:
(a) is not one to which subsection (5) applies; and
(b) arises from a *CGT event happening in relation to a *CGT asset that is or was a *residential dwelling;
then so much of the capital gain as is worked out as follows is a residential capital gain:
where:
post‑July 2027 ownership period means the number of days in so much of the following period:
(a) unless paragraph (b) applies,your *ownership period of the *CGT asset;
(b) if because of section 115‑215 you are taken to have made the *capital gain as a beneficiary of a trust,the trustee’s ownership period of the CGT asset;
as:
(c) is on or after 1 July 2027, and as ends on the day the *CGT event happens; and
(d) does not include a day or part of a day for which you can reasonably expect to disregard the capital gain because of Subdivision 118‑B (about the main residence exemption).
Note 1: If the CGT event is a realisation event mentioned in paragraph 112‑155(1)(c) or 112‑165(1)(c), subsection (4) of this section applies to your capital gain for the portion of your ownership period that is before 1 July 2027.
Note 2: If the CGT event happens (on or after 1 July 2027) in relation to a CGT asset that was a pre‑CGT asset just before 1 July 2027, your capital gain for the portion of your ownership period that is before 1 July 2027 is disregarded (see subsection 112‑175(2)).
residential accommodation days means the sum of:
(a) the number of days in the post‑July 2027 ownership period in which the *CGT asset is used, or held, solely for the provision of residential accommodation; and
(b) for each other day in the post‑July 2027 ownership period,the fraction of that day that represents the extent to which, on that day, the CGT asset is used, or held, for the provision of residential accommodation.
Deferred non‑residential capital gains
(3) If a *capital gain you make during an income year is one to which subsection (5) applies, then so much of the capital gain as is not a *deferred residential capital gain is a deferred non‑residential capital gain.
Deferred residential capital gains
(4) If a *capital gain you make during an income year:
(a) is one to which subsection (5) applies; and
(b) arises from a *CGT event happening in relation to a *CGT asset that is or was a *residential dwelling;
then so much of the capital gain as is worked out as follows is a deferred residential capital gain:
where:
pre‑July 2027 ownership period means the number of days in so much of the following period:
(a) unless paragraph (b) applies,your *ownership period of the *CGT asset;
(b) if because of section 115‑215 you are taken to have made the *capital gain as a beneficiary of a trust,the trustee’s ownership period of the CGT asset;
as:
(c) ends on 30 June 2027; and
(d) does not include a day or part of a day for which you can reasonably expect to disregard the capital gain because of Subdivision 118‑B (about the main residence exemption).
residential accommodation days means the sum of:
(a) the number of days in the pre‑July 2027 ownership period in which the *CGT asset is used, or held, solely for the provision of residential accommodation; and
(b) for each other day in the pre‑July 2027 ownership period,the fraction of that day that represents the extent to which, on that day, the CGT asset is used, or held, for the provision of residential accommodation.
Does the capital gain arise from a deemed sale on 30 June 2027?
(5) This subsection applies to a *capital gain you have made if:
(a) paragraph 112‑160(3)(a) or 112‑170(3)(a) treats you as having made the capital gain; or
(b) because of section 115‑215, you are taken to have made the capital gain as a beneficiary of a trust in relation to the trust’s deferred gain (within the meaning of paragraph 112‑170(3)(a)).
Note 1: Subsection 112‑160(3) covers individuals who are Australian residents. Subsection 112‑170(3) covers trusts.
Note 2: Paragraph (b) can cover a capital gain taken to have been made by any of the trust’s beneficiaries, not just beneficiaries who are individuals and Australian residents.
Note 3: Section 112‑175 applies to assets that were pre‑CGT assets on 30 June 2027. Section 112‑175 has the effect that a capital gain from a CGT event happening on or after 1 July 2027 in relation to such an asset will be either a residential capital gain or a non‑residential capital gain.
7 Section 102‑30 (table item 2AA)
Omit “and small business concessions”, substitute “, small business concessions and indexation”.
8 Subsection 110‑36(1)
Repeal the subsection, substitute:
Indexation for working out capital gains of Australian resident individuals or trusts for CGT events happening on or after 1 July 2027
(1A) The cost base of a *CGT asset also includes indexation of the elements of the cost base (except the third element) for the purposes of working out the *capital gain of an individual or a trust from a *CGT event happening in relation to the CGT asset if:
(a) the CGT event happens on or after 1 July 2027; and
(b) the requirements of Division 114 are met.
Note 1: This subsection does not extend to foreign residents or temporary residents (see section 114‑25).
Note 2: This subsection is mainly relevant for a trust to the extent that the trust’s beneficiaries are individuals who are Australian residents (see Subdivision 115‑C and section 114‑25).
Note 3: This subsection extends to the capital gain of an individual that is attributable to a partnership of which the individual is a partner.
Note 4: If an asset (including a pre‑CGT asset) was held on 30 June 2027, it may be taken to have been sold just before, and reacquired on, 1 July 2027 (see subsections 112‑155(2), 112‑165(2) and 112‑175(2)). For such an asset, indexation because of this subsection will happen only for the period the asset is held on or after 1 July 2027 (see subsection 960‑275(1B)).
Indexation for working out capital gains in other circumstances
(1) The cost base of a *CGT asset also includes indexation of the elements of the cost base (except the third element) for the purposes of working out the *capital gain of an entity from a *CGT event happening in relation to the CGT asset if:
(a) the most recent *acquisition of the CGT asset is at or before 11.45 am (by legal time in the Australian Capital Territory) on 21 September 1999; and
(b) for an entity that is an individual or a trust,the CGT event happens before 1 July 2027, and not because of subsection 112‑155(2) or 112‑165(2); and
(c) the requirements of Division 114 are met.
Note: For paragraph (b), indexation is not applicable for working out a capital gain arising:
(a) directly from a CGT event taken to have happened under subsection 112‑155(2); or
(b) directly or indirectly from a CGT event taken to have happened under subsection 112‑165(2).
Instead, capital gains from such CGT events may be discount capital gains.
9 Subsection 110‑36(2)
After “cost base includes indexation”, insert “because of subsection (1)”.
10 At the end of subsection 110‑36(2)
Add:
Note 3: This subsection only applies for an individual or a trust for a CGT event happening before 1 July 2027 (see paragraph (1)(b)).