The Government has introduced the legislation to implement the removal of the general 50% CGT discount and negative gearing, with many aspects of the legislation subject to separate Ministerial determination. Separately, the ATO have finalised its ruling and guidance on rental properties and holiday homes.
LEGISLATION UPDATE
Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 to implement the major Federal Budget measures commencing from 1 July 2027 has been introduced to the lower house. The Bill also includes the $1,000 standard deduction which was previously issued as an exposure draft (refer Tax Bulletin—April 2026).
Capital gains tax changes
The following changes will apply to all assets unless specifically excluded. The Minister will be able to exclude assets by legislative instrument
- For CGT events before 1 July 2027, the existing CGT discount, indexation and pre-CGT asset rules will continue to apply.
- For CGT events on or after 1 July 2027, resident individuals and trusts will retain the 50% discount only for capital gains accrued before 1 July 2027 (‘deferred capital gains’). This will be calculated based on market value of the asset at 1 July 2027 or a alternative method still to be provided.
- Capital gains accruing post-1 July 2027 capital gains will instead be subject to cost base indexation and a 30% minimum tax rate unless an exemption applies.
- Pre-CGT assets will also be brought into the CGT regime for gains accruing from 1 July 2027.
The 50% discount will continue for certain new residential dwellings and affordable housing, with taxpayers able to choose which tax regime to apply.
Indexation will not be available to companies, SMSFs or an individual who was a foreign or temporary resident at any time in the relevant period. This includes where the gain is distributed via trust. SMSFs will continue to access the 1/3rd CGT discount.
Capital losses will need to be offset against deferred capital gains in priority to other gains.
Key points: For assets with large pre-1 July 2027 accrued gains, valuation evidence will be critical.
New residential dwellings
The meaning of ‘new residential dwelling’ will be determined by the Minister and will focus on whether the dwelling genuinely adds to housing supply. Likely examples include newly constructed dwellings that have not previously been sold, greenfield developments, two separately titled duplexes replacing one existing dwelling, and a new apartment leased by the developer and sold within 12 months of completion.
Demolishing one dwelling and replacing it with a single dwelling is not expected to qualify.
Negative gearing restrictions for residential dwellings
Residential dwellings acquired after 12 May 2026 will be subject to new quarantining rules from 1 July 2027. If deductions for quarantined residential dwellings exceed assessable income from those dwellings, the excess is not deductible in that income year. This extends to interest deductions to invest in a unit trust that holds a residential dwelling.
The excess may instead be applied against net income from non-quarantined residential dwellings, and revenue or capital gains from residential dwellings. Any unused quarantined amount is carried forward to be applied in a later year.
Land acquired under a contract entered into by 12 May 2026 will not be quarantined. This includes land where a dwelling is being built or contracted to be built, and vacant land on which a dwelling is later built. New residential dwellings will also be excluded from quarantining.
Widely held trusts and SMSF will be excluded and the Minister can determine other exclusions.
Working Australians Tax Offset
The Working Australians Tax Offset will apply from the 2028 income year. It is available to resident individuals whose ‘net labour income’ exceeds the tax-free threshold. Net labour income includes salary and wages, business income earned as an individual, personal services income, ESS discount income and certain labour hire payments.
The maximum offset is $250, which is non-refundable and cannot be carried forward.
Tax reform measures—Key points to note: Where possible, we would recommend clients defer making decisions based on the Budget night announcements and the introduced Bill and wait until the relevant legislation has been passed. Legislation for the proposed 30% minimum tax on trust distributions has yet to be released.
CASE LAW UPDATE
Ward v CofT – Tax residency and the main residence exemption
The ART has held that an Australian citizen living overseas since 2009 was not an Australian tax resident as her permanent place of abode was outside Australia. She was therefore not entitled to the main residence exemption on the sale of her former home. The ART gave weight to her long overseas absence, settled family life overseas, infrequent Australian visits, purchase and later sale of a US home, relocation to the Netherlands, and steps consistent with abandoning Australian residence.
Key point: Taxpayers with a long absence from Australia but who still hold their former main residence should review their residency position prior to any disposals. A non-resident is not eligible for the main residence exemption.
Decision impact statements
The Commissioner has accepted the Full Federal Court reasoning in two recent losses:
- In Geocon No 5 v FC of T the Court held that excess GST had not been passed by a property developer on the sale of units. The taxpayer was seeking a refund of GST incorrectly calculated under the margin scheme. There was no general presumption that a developer has passed on GST merely because the development was profitable.
- In FCT v Baya Casal, the Court held that a material reduction in hours and remuneration is relevant (though not determinative) when considering the question of whether a position is genuinely redundant.
RULING UPDATE
Rental Properties and Holiday Homes
The ATO has finalised its ruling and guidance on rental properties and holiday homes (refer Tax Bulletin—December 2025):
- TR 2026/1 Rental property income and deductions for individuals who are not in business
- PCG 2026/2 Apportionment of rental property deductions – ATO compliance approach
- PCG 2026/3 Application of section 26-50 of the Income Tax Assessment Act 1997 to holiday homes that you also rent out – ATO compliance approach.
CONTACT US
For further information on any of these updates, or for general assistance, please contact our Directors, Jacci Mandersloot or Natalie
