LEGISLATION UPDATE—TAX REFORM #1

Treasury Laws Amendment (Tax Reform No. 1) Act 2026 has been passed. This implements the CGT and negative gearing changes commencing from 1 July 2027 (refer Tax Update—May 2026) with a number of amendments as outlined below.

Changes to taxation of capital gains

• The Minister will no longer be able to add new categories of assets as being eligible for the 50% CGT discount.

• The 30% minimum tax on capital gains will be applied to net capital gains remaining after the deduction of any donations.

• The small business entity turnover threshold will be increased from $2m to $10m for the purpose of the small business 50% CGT discount only.

Key point: This will not increase access to the small business 50% CGT discount for a sale of equity.

Limited Recourse Borrowing Arrangements (LRBAs)

The ability for SMSFs to borrow to buy residential properties through the use of LRBA’s has been removed with effect from 10 August 2026.

Borrowing arrangements entered into prior to this date will be exempt from borrowing restrictions, even if settlement of the property occurs after this date.

Proposed Measures—30% minimum tax on trust distributions

The Government has announced that discretionary testamentary trusts will be exempt from the proposed 30% minimum tax to apply from 1 July 2028. (Fixed trusts were already to be excluded).

• The trust will need to have been established for genuine testamentary purposes and income will need to come from assets of the deceased estate.
• For trusts not established by  1 July 2028, the trust can only benefit individuals and tax exempt     entities.

Key point: Wills may need to be amended to exclude trusts and companies from being beneficiaries of a testamentary trust.

Innovative Start-Ups

The Government is proposing to introduce a 50% CGT discount for investors in innovative start-ups. This would include founders and participants in employee share schemes, who are not eligible for concessions  under the current ESIC rules. To qualify:

• The company will need to be less than 10 years old, have under $50m annual turnover at the time of issue and meet the innovation principles (based on the current ESIC rules). Longer periods may apply for certain tech businesses.
• Shares will need to be held for at least 5 years before disposal.
• For existing shares, these requirements would need to be met on 1 July 2027.

A $10m lifetime cap on the concession would apply for an individual.

Treasury is currently consulting on whether these proposed eligibility requirements are appropriate. 

LEGISLATION UPDATE—OTHER

Tax Reform #2

Treasury Laws Amendment (Tax Reform No. 2) Bill 2026 to implement the company loss carry back and instant asset write-off measures has been introduced to Parliament.

Loss carry back

From the 2027 income year, an eligible company may elect to carry all or part of a revenue tax loss back and apply it against taxable income in either or both of the previous two income years. The company can then receive a refundable tax offset through its tax return.

The refundable offset will, broadly, be limited by the lesser of:

• The amount of income tax paid in the prior two income years; and
• The company's franking account balance at the end of the current income year.

Instant Asset Write Off (IAWO)

The $20,000 IAWO will also be permanently extended from 1 July 2026 for small businesses.  

Tax Adviser misconduct and foreign resident CGT regime

Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct & Other Measures) Bill 2026 has also been introduced which includes a range of measures:

• Expansion of Tax Agent Board regulatory and enforcement powers.
• Previously announced changes to the foreign resident CGT regime (refer Tax Bulletin—April 2026)
• Transitional 50% CGT discount for certain foreign residents who dispose of renewable energy assets.
• Rename Public Ancillary Funds and Private Ancillary Funds as Public Giving Funds and Private Giving Funds.

CASE LAW UPDATE

Bendel decision —Division 7A & corporate UPEs

In the much anticipated Bendel decision, a High Court majority has held that Division 7A did not apply to an unpaid present entitlement (UPE) owed by a discretionary trust to a corporate beneficiary.

The Court held, firstly, that a debtor-creditor relationship did not exist. Under the wording of the Deed and the distribution resolution, the trust income was ‘set aside’ and held by the Trustee on a fixed trust with no unconditional duty to pay until the beneficiary called for payment or an admission of debt.

The Court then rejected the Commissioner’s proposition that a beneficiary’s forbearance from calling for payment automatically equals ‘financial accommodation’ under the extended loan definition, as this     requires some active provision or supply of pecuniary assistance. 

Decision Impact Statement (DIS)

The ATO has issued a DIS in which it accepts that a UPE owed to a private company is not, without any action being taken by the company, a Division 7A loan. As a result, it will withdraw TD 2022/11, which stated that the UPE becomes a loan once the trustee has determined the amount of the entitlement. However, there can still be Division 7A implications if the trust has lent the funds out to related trusts or individuals, and the ATO may also apply Section 100A to tax the trustee if UPEs remain outstanding.

If a taxpayer has previously been assessed for a deemed dividend on the basis of a UPE being a loan, they should now be able to request an amended assessment.

Key points: For clients using corporate beneficiaries and who have withdrawn the funds from their trust, this decision may not have any practical impact. Where funds have been retained, taxpayers will need to consider what steps should be taken to minimise the risk of section 100A being applied.

Balmain Dental Clinic Pty Ltd v FCT —Superannuation Guarantee (SG)

The ART has held that an oral health therapist working in a dental clinic, and remunerated on a commission basis from revenue from her patients, fell within the extended definition of ‘employee’ for SG purposes . The clinic was therefore required to make SG contributions on her behalf.

The ART did not agree that her contract provided that she derived patient revenue and paid a service fee to the clinic but instead established a master and servant relationship in which she served the clinic rather than advancing her own business interests. There was no evidence that she was permitted to sub-contract her work to others to perform on her behalf.

Key point: This continues to be a high risk area for review if businesses are not making superannuation contributions for individuals being paid for their labour.

Cameron & Ors v FCT—Interest on sub-trust arrangements

A family trust was a discretionary beneficiary of a business trust which retained funds for working capital rather than paying out its income distributions. The family trust therefore could not pay its corporate beneficiary it entered into a ‘sub-trust agreement’ (in accordance with PSLA 2010/4). The trust claimed deductions for interest paid under the agreement on the basis it was foregoing a right to payment of its income entitlements in return for the expectation of obtaining greater income from the business trust in the future.

The Court held that the interest payments were not deductible as the asserted connection with assessable income was too remote. In no sense had the family trust invested in the business trust.

Key point: If a trust with interest bearing loans has assets that are not income producing, consideration should be given to the extent to which interest has in fact been incurred in gaining assessable income.  

TAX RULING UPDATE

GSTR 2026/D1– Meaning of Australian consumer

Updated guidance has been provided for non-resident businesses making intangible supplies to Australian residents, for example, software subscriptions, digital downloads or consulting services. If a recipient is an ‘Australian consumer’ the supply is connected with Australia. If taxable supplies exceed $75,000 the non-resident will need to register, collect and remit GST.

A resident is an Australian consumer if they are either not GST registered or, if registered, do not acquire the supply solely or partly for an enterprise they carry on. A conclusion that a customer is not an Australian consumer can be based on evidence collected, including an ABN, GST registration or enterprise-use declarations. A supplier may rely on a reasonable belief that the recipient is not an Australian consumer if they take reasonable steps, or use appropriate business systems to collect and assess information.

OTHER UPDATES

Luxury car limits—2027

The ATO has issued the luxury car tax thresholds from 1 July 2026:

• Luxury car tax threshold—$80,809 (up from $80,567 for 2026). This is used as the car cost limit for depreciation
• Fuel efficient luxury car tax threshold—$91,661 (up from $91,387 for 2026). This is used for access to FBT concessions for electric vehicles.