The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 introduces four major structural changes to the Australian tax landscape:
From the explanatory memo:
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.[Explanatory Memo page 8]
The primary argument for this bill is rooted in the pursuit of intergenerational equity and the correction of market distortions that have historically disadvantaged younger Australians. By removing the arbitrary 50% CGT discount and limiting negative gearing to new builds, the government is effectively dismantling a tax structure that has "favoured leveraged investment in existing housing" at the expense of owner-occupiers [Explanatory Memo page 8]. This shift is expected to reduce investor demand for established properties, thereby lowering the barriers to entry for first-home buyers [Judgment].
Furthermore, the bill enhances the integrity of the tax system by ensuring that capital gains are taxed at a rate commensurate with the tax paid by workers on their labour income. The introduction of a 30% minimum tax on capital gains addresses the unfair advantage gained by high-wealth individuals who time asset realisations to coincide with low-income years. Simultaneously, the Working Australians Tax Offset and the $1,000 standard deduction provide tangible cost-of-living relief and significant administrative simplification for millions of workers, saving an estimated $380 million in compliance costs annually [Explanatory Memo page 13]. By redirecting capital toward new housing supply rather than existing stock, the bill also serves a utilitarian purpose in addressing the national housing shortage [Judgment].
Opponents of the bill argue that it represents a significant encroachment on property rights and creates unnecessary economic uncertainty. The decision to bring pre-CGT assets—some held for over 40 years—into the tax net for future gains is seen by many as a breach of the long-standing principle that tax changes should not be retrospective in effect [Judgment]. This move undermines the stability of the investment environment and penalises long-term savers who made financial plans based on the existing legal framework.
There is also a strong epistemic objection regarding the complexity and potential unintended consequences of these reforms. While the bill aims to simplify tax for workers, it introduces significant new complexities for investors and trustees, with Treasury estimating an increase in average regulatory costs of $88.4 million per year [Explanatory Memo page 8]. The quarantining of rental losses may discourage investment in the rental market, potentially leading to a decrease in the supply of rental properties and subsequent increases in rent for those who cannot afford to buy [Judgment]. Finally, the replacement of the simple 50% discount with cost base indexation returns the system to a more cumbersome calculation method that requires tracking inflation over decades, which may lead to higher errors and increased reliance on professional tax advice, offsetting the purported benefits of the standard deduction.
2026-05-28
Passed Both Houses
Unspecified
Treasury
Taxation, Housing Policy, Labour