Australia's Parliament passed the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 on 25 June 2026, replacing the 50% CGT discount with cost base indexation, introducing a 30% minimum tax on gains, and quarantining negative gearing from 1 July 2027.
Australia’s Parliament passed the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 on 25 June 2026, which is a key component of the 2026–27 Federal Budget tax package.
The Bill introduces significant reforms aimed at improving housing affordability, creating a more level playing field for first home buyers, and enhancing the fairness of the tax system.
The legislation intends to replace the 50% capital gains tax (CGT) discount for individuals and trusts with cost base indexation to ensure only real, inflation-adjusted gains are taxed. Additionally, the Bill introduces a 30% minimum tax on capital gains and restricts negative gearing deductions to new residential builds.
The key legislative changes and their mechanisms are:
Replacement of the 50% CGT discount with cost base indexation
From 1 July 2027, the flat 50% Capital Gains Tax (CGT) discount for individuals, trusts, and partnerships will be repealed and replaced with cost base indexation. The 50% discount was arbitrary and often overcompensated property investors for inflation while undercompensating share investors, heavily skewing investment toward existing housing. Reverting to cost base indexation ensures that only “real” (inflation-adjusted) gains are subject to taxation. To maintain incentives for increasing housing supply, the CGT discount will remain available for investments in new residential dwellings and affordable housing.
Introduction of a 30% minimum tax on capital gains
A 30% minimum effective tax rate will apply to real capital gains realised by Australian resident individuals from 1 July 2027.
Previously, investors had strong incentives to hold onto assets and intentionally sell them in years when their marginal tax rates were low (such as retirement). This minimum tax reduces the benefit of timing asset sales for tax minimisation. It ensures that capital gains face a tax rate closer to what ordinary individuals pay during their working lives.
To ensure low-income and low-wealth individuals are not disadvantaged, recipients of certain government income support payments (such as the Age Pension or JobSeeker) are exempt from this minimum tax.
Tightening of negative gearing deductions
From 1 July 2027, rental losses on residential properties can no longer be offset against unrelated income like salary and wages. Instead, these losses will be “quarantined,” meaning they can only be deducted against other rental income or used to reduce future capital gains on residential property.
The change won’t apply to properties bought before 7:30 PM AEST on 12 May 2026, or to new residential builds, both of which remain exempt to protect existing investors and incentivise new housing supply.
Working Australians tax offset (WATO)
A new non-refundable tax offset of up to AUD 250 will be available starting from the 2027–28 income year. Existing tax offsets do not distinguish between income derived from labour and income derived from capital or savings. The WATO provides targeted tax relief specifically to Australian resident individuals whose “net labour income” exceeds the tax-free threshold.
Standard deduction for work-related expenses
From the 2026–27 income year, a standard deduction of up to AUD 1,000 will be introduced for Australian tax residents earning assessable labour income.
The Bill will take effect upon Royal Assent, with different commencement dates depending on the measure. Key CGT discount and negative gearing changes apply from 1 July 2027, while some trust integrity measures begin from 1 July 2028. Other provisions commence after Royal Assent or every quarter.
