(1A) A transport expense is a loss or outgoing to do with transport (including the decline in value of a *depreciating asset used in connection with transport) but does not include:
(a) a loss or outgoing for accommodation or for food or drink; or
(b) expenditure incidental to transport.
3 At the end of Division 25 of Part 2‑5
Add:
25‑130 Standard deduction for work‑related expenses
(1) You can deduct the amount provided by subsection (2) for an income year if:
(a) you are an individual; and
(b) you are an Australian resident at any time during the income year; and
(c) you derive *assessable labour income in the income year.
(2) The amount is the lesser of:
(a) $1,000; and
(b) the total amount of your *assessable labour income for the income year;
reduced, but not below zero, by the sum of the following amounts (if any):
(c) subject to subsection (3), each of your deductions for the income year under section 8‑1 (general deductions), to the extent that the loss or outgoing that gives rise to the deduction is incurred in gaining or producing your assessable labour income;
(d) each of your deductions for the income year under Division 28 (car expenses), to the extent that the deduction arises in respect of gaining or producing your assessable labour income;
(e) each of your deductions for the income year under section 25‑100 (travel between workplaces), to the extent that either of the following is satisfied in relation to the deduction:
(i) while you were at the first place mentioned in paragraph 25‑100(2)(a), you were engaged in activities to gain or produce your assessable labour income;
(ii) while you were at the second place mentioned in paragraph 25‑100(2)(b), you were engaged in activities to gain or produce your assessable labour income;
(f) each of your deductions for the income year under any of the following provisions, to the extent that the deduction arises in respect of a *depreciating asset that is used for the purpose of gaining or producing your assessable labour income:
(i) section 25‑10 (repairs);
(ii) Subdivision 40‑B (deducting amounts for depreciating assets);
(iii) Subdivision 40‑D (balancing adjustments);
(g) each of your deductions under section 25‑125 (COVID‑19 tests) for the income year.
(3) For the purposes of paragraph (2)(c), disregard each of your deductions under section 8‑1 to the extent that the deduction is in respect of any of the following:
(a) an income protection insurance premium;
(b) a personal sickness insurance premium;
(c) an accident insurance premium;
(d) membership of a trade, business or professional association.
(4) Your assessable labour income, for an income year, is each amount included in your assessable income for the income year from which an amount must be withheld (even if the amount is not withheld) under any of the following provisions in Schedule 1 to the Taxation Administration Act 1953:
(a) section 12‑35 (payment to employee);
(b) section 12‑40 (payment to company director);
(c) section 12‑45 (payment to office holder);
(d) section 12‑47 (payment to religious practitioners);
(e) section 12‑50 (return to work payment);
(f) Subdivision 12‑C (payments for retirement or because of termination of employment);
(g) paragraph 12‑110(1)(ca) (parental leave pay).
4 Section 28‑180
Repeal the section.
5 At the end of subsection 40‑290(1)
Add:
Note: You may instead choose a fixed reduction for certain depreciating assets that have been used to produce your assessable labour income: see section 40‑291A.
6 At the end of subsection 40‑291(1)
Add:
Note: You may instead choose a fixed reduction for certain depreciating assets that have been used to produce your assessable labour income: see section 40‑291A.
7 After section 40‑291
Insert:
40‑291A Fixed reduction for certain assets used to produce assessable labour income
(1) Instead of a reduction under section 40‑290 or 40‑291, you may reduce, by a fixed amount, the amount (the balancing adjustment amount) included in your assessable income, or the amount you can deduct, under section 40‑285 for a *depreciating asset if:
(a) the depreciating asset has been used at any time for the purpose of gaining or producing your *assessable labour income; and
(b) you have deducted an amount under section 25‑130 for an income year (whether the income year in which the *balancing adjustment event that gave rise to the balancing adjustment amount occurred or another income year); and
(c) the *effective life of the depreciating asset overlaps, wholly or partly, with that income year.
(2) The amount of the reduction is 50% of the balancing adjustment amount.
8 At the end of section 40‑425
Add:
Exception: assessable labour income
(9) You cannot allocate a *depreciating asset to a low‑value pool if, at the time you:
(a) started to use it; or
(b) had it *installed ready for use;
you reasonably expected to use it mainly for the purpose of gaining or producing your *assessable labour income.
9 Subsection 104‑240(1) (paragraph (a) of the definition of sum of reductions)
Repeal the paragraph, substitute:
(a) if the *depreciating asset is covered by subsection 104‑235(1):
(i) if subparagraph (ii) does not apply,the reductions in your deductions for the asset under sections 40‑25 and 40‑27; or
(ii) if there is a reduction of the balancing adjustment amount under section 40‑291A in relation to the *balancing adjustment event,the amount of that reduction; or
10 Section 900‑10 (note)
Omit:
• Subdivision 900‑I has an exception about certain losses or outgoings related to award transport payments.
11 Sections 900‑35 to 900‑45
Repeal the sections.
12 Subdivision 900‑I
Repeal the Subdivision.
13 Subsection 995‑1(1)
Insert:
assessable labour income has the meaning given by subsection 25‑130(4).
14 Subsection 995‑1(1) (definitions of award transport payment and laundry expense)
Repeal the definitions.
15 Subsection 995‑1(1) (definition of transport expense)
Omit “900‑220”, substitute “25‑100”.
16 Subsection 995‑1(1) (definition of transport payment)
Repeal the definition.
17 Application provision
(1) The amendments made by this Part apply in relation to assessments for the 2026‑27 income year and later income years.
(2) To avoid doubt, the amendment made by item 8 does not apply in relation to depreciating assets that have been allocated to a low‑value pool for an income year that is the 2025‑26 income year or an earlier income year.
Part 2,Amendment of the Fringe Benefits Tax Assessment Act 1986
Fringe Benefits Tax Assessment Act 1986
18 After subsection 24(1)
Insert:
(1A) Subsection (1) does not apply in relation to the recipient of an expense payment fringe benefit in relation to a year of tax if:
(a) the benefit is provided to the recipient under a salary packaging arrangement; and
(b) the gross deduction would be a kind of deduction mentioned in any of paragraphs 25‑130(2)(c) to (g) of the Income Tax Assessment Act 1997.
19 Subsections 58X(2) to (5)
Repeal the subsections, substitute:
(2) Each of the following is an eligible work related item if it is primarily for use in the employee’s employment and it is not provided to the employee under a salary packaging arrangement:
(a) a portable electronic device;
(b) an item of computer software;
(c) an item of protective clothing;
(d) a briefcase;
(e) a tool of trade.
20 Application provision
The amendments made by this Part apply in relation to FBT years starting on or after 1 April 2027.
Treasury Laws Amendment (Tax Reform No. 1) Bill 2026Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026
EXPLANATORY MEMORANDUM
(Circulated by authority of the Treasurer, the Hon Jim Chalmers MP)
Table of Contents
Glossary iii
General outline and financial impact 1
Chapter 1: CGT adjustments 9
Chapter 2: Limit negative gearing for residential property to new builds 67
Chapter 3: Working Australians tax offset 89
Chapter 4: Standard deduction for work-related expenses 95
Chapter 5: Statement of Compatibility with Human Rights 107
Glossary
This Explanatory Memorandum uses the following abbreviations and acronyms.
Abbreviation
Definition
ACT
Australian Capital Territory
AEST
Australian Eastern Standard Time
AMIT
Attribution managed investment trust
ATO
Australian Tax Office
Bill
Treasury Laws Amendment (Tax Reform No. 1) Bill 2026
CGT
Capital Gains Tax
FBT
fringe benefits tax
FBTAA
Fringe Benefits Tax Assessment Act 1986
ICCPR
International Covenant on Civil and Political Rights
ICESCR
International Covenant on Economic, Social and Cultural Rights
Imposition Bill
Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026
ITAA 1936
Income Tax Assessment Act 1936
ITAA 1997
Income Tax Assessment Act 1997
ITTP Act
Income Tax (Transitional Provisions) Act 1997
MIT
Managed investment trust
Rates Act
Income Tax Rates Act 1986
SAPTO
seniors and pensioners tax offset
TAA 1953
Taxation Administration Act 1953
WATO
working Australians tax offset
General outline and financial impact
Schedule 1 - CGT adjustments
Outline
Schedule 1 to the Bill and the Imposition Bill amend the income tax law to:
replace the 50 per cent CGT discount for individuals, trusts and partnerships with cost base indexation to ensure only real gains are subject to taxation;
introduce a 30 per cent minimum tax on capital gains, with an exemption for certain income support recipients, to ensure gains are subject to a tax rate closer to the tax rate individuals faced during their working life and commensurate with the tax rate paid by most workers; and
apply the new arrangements prospectively to all capital gains accruing on and after 1 July 2027, including gains accruing on pre-CGT assets, while retaining access to the CGT discount to maintain support for new and affordable housing, and maintaining existing CGT concessions for small business.
Date of effect
Schedule 1 to the Bill (excluding the provisions relating to the minimum tax) and the Imposition Bill commence on the first 1 January, 1 April, 1 July or 1 April to occur after the day the Bill receives Royal Assent.
The provision in Schedule 1 to the Bill relating to the minimum tax commence immediately after the commencement of the Imposition Bill. This ensures that these provisions do not commence if the tax to which they relate is not imposed.
The amendments made by Schedule 1 to the Bill and the Imposition Bill largely apply in relation to assessments for the income year that includes 1 July 2027 and later income years.
Proposal announced
Schedule 1 to the Bill and the Imposition Bill partially implement the Tax Reform - Boosting Home Ownership - reforming negative gearing and capital gains tax measure in the 2026-2027 Budget.
Financial impact
Combined, Schedule 1 and Schedule 2 to the Bill are estimated to result in a $3.6 billion improvement in the underlying cash balance over the forward estimates period:
All figures in this table represent amounts in $m.
2025-26
2026-27
2027-28
2028-29
2029-30
1,350.0
2,280.0
Impact Analysis
Consistent with the Government’s Impact Analysis requirements, the Treasury has certified the Select Committee on the Operation of the Capital Gains Discount, Budget Statement 4 of the Federal Budget 2026-27 and Treasury Supplementary Analysis as having undertaken a process and analysis equivalent to an Impact Analysis.
The Impact Analysis Equivalent found that negative gearing and the CGT discount favour leveraged investment in existing housing, putting upward pressure on prices and directing capital away from potentially more productive uses. Alongside structures like discretionary trusts, these settings enable higher-income earners or high-wealth individuals to achieve lower tax rates than ordinary workers.
The measures in this Bill will level the playing field for first home buyers, supporting improved rates of homeownership while also maintaining incentives for new housing supply. They will also make the tax system fairer and more sustainable, helping to fund tax cuts for workers and create room for further tax relief over time. Treasury will monitor the efficacy of these changes through metrics published in the Intergenerational Report, the State of the Housing Market Report and the Tax Expenditures and Insights Statement.
Schedule 1 to the Bill and the Imposition Bill engage certain human rights issues. See Statement of Compatibility with Human Rights , Chapter 5.
Compliance cost impact
Schedule 1 and Schedule 2 of the Bill are expected to result in some transitional and ongoing compliance costs for individuals and businesses. Guidance, calculators and tools will be made available to assist taxpayers in minimising their compliance costs. Treasury estimates the amendments made by Schedule 1 and Schedule 2 of the Bill will increase average regulatory costs by $88.4 million per year, over ten years.
Schedule 2 - Limit negative gearing for residential property to new builds
Outline
Schedule 2 to the Bill helps to level the playing field for first home buyers, whilst maintaining support for investment in new housing supply, by restricting negative gearing for residential dwellings to new builds. The Bill does this by amending the ITAA 1997 to require that a person’s net rental losses on a residential dwelling used or held as residential accommodation are a quarantined amount. Quarantined amounts are only available to deduct from net assessable income derived in relation to residential dwellings used or held as residential accommodation or to reduce revenue or capital gains from a residential dwelling. This applies to interests in residential dwellings acquired on or after 7.30pm by legal time in the ACT (which is 7.30pm AEST), on 12 May 2026, unless an exception to this requirement applies.
Schedule 2 to the Bill maintains incentives for investors to increase the supply of residential property by excluding newly built residential dwellings (new residential dwellings) from the requirement to quarantine amounts. This means that investors who acquire new residential dwellings can continue to deduct net rental losses from these properties against their other assessable income, such as salary and wages.
Schedule 2 to the Bill exempts investments made prior to 7.30pm (AEST) on 12 May 2026 from the requirement to quarantine amounts. This ensures the arrangements for taxpayers who made investment decisions under the settings in place prior to Budget night on 12 May 2026 do not change.
Date of effect
Schedule 2 to the Bill commences the day after Royal Assent.
Schedule 2 to the Bill applies to income years commencing on or after 1 July 2027.
Proposal announced
Schedule 2 to the Bill partially implements the 'Tax Reform - Boosting Home Ownership - reforming negative gearing and capital gains tax' measure in the 2026-27 Budget.
Financial impact
Combined, Schedule 1 and Schedule 2 to the Bill are estimated to result in an improvement in the cash balance over the forward estimates period of $3.6 billion:
All figures in this table represent amounts in $m.
2025-26
2026-27
2027-28
2028-29
2029-30
1,350.0
2,280.0
Impact Analysis
Consistent with the Government’s Impact Analysis requirements, the Treasury has certified the Select Committee on the Operation of the Capital Gains Discount, Budget Statement 4 of the Federal Budget 2026-27 and Treasury Supplementary Analysis as having undertaken a process and analysis equivalent to an Impact Analysis.
The Impact Analysis Equivalent found that negative gearing and the CGT discount favour leveraged investment in existing housing, putting upward pressure on prices and directing capital away from potentially more productive uses. Alongside structures like discretionary trusts, these settings enable higher-income earners or high-wealth individuals to achieve lower tax rates than ordinary workers.
The measures in this Bill will level the playing field for first home buyers, supporting improved rates of homeownership while also maintaining incentives for new housing supply. They will also make the tax system fairer and more sustainable, helping to fund tax cuts for workers and create room for further tax relief over time. Treasury will monitor the efficacy of these changes through metrics published in the Intergenerational Report, the State of the Housing Market Report and the Tax Expenditures and Insights Statement.
Schedule 2 to the Bill engages human rights. See Statement of Compatibility with Human Rights , Chapter 5.
Compliance cost impact
Schedule 1 and Schedule 2 of the Bill are expected to result in some transitional and ongoing compliance costs for individuals and businesses. Guidance, calculators and tools will be made available to assist taxpayers in minimising their compliance costs. Treasury estimates the amendments made by Schedule 1 and Schedule 2 of the Bill will increase average regulatory costs by $88.4 million per year, over ten years.