Last week the Government introduced the Tax Reform No. 1 Bill, which includes significant proposed changes to Australia’s capital gains tax regime following the 2026–27 Federal Budget.
Schedule 1 of the Bill proposes the following CGT reforms:
- replacing the 50% CGT discount for individuals, trusts and partnerships with cost base indexation for relevant gains from 1 July 2027, subject to transitional rules;
- introducing a 30% minimum tax on certain capital gains, with an exemption for certain income support recipients so that low-income, low-wealth individuals are not adversely affected;
- applying the new arrangements to capital gains accruing from 1 July 2027, with transitional rules to preserve the current treatment for assets acquired and disposed of before that date and for gains accrued before that date;
- bringing pre-CGT assets held before 1985 into the CGT regime for gains accruing after 1 July 2027, while maintaining the exemption for gains accrued before that date;
- providing transitional arrangements for legacy CGT assets acquired between 1985 and 1999, including continued access to prior rules in limited cases and retention of earlier indexation arrangements for eligible entities; and
- allowing investors in eligible new residential dwellings to choose between the existing 50% CGT discount and the proposed new regime.
Whilst there has been significant commentary regarding the CGT treatment of new and startup businesses and indeed the Treasurer has flagged that further consultation will be required in this regard, the Bill doesn’t advance that further nor are their any proposed changes to the CGT Small Business Concessions which could be utilised to a least partly address these concerns.
Likely changes to the Concessions would be to increase and index both the Aggregated Turnover and Net Asset Value thresholds which have remained at their current levels since 2008!
Having chosen indexation as the measurement for so called “real” capital gains, the Government should now act to bring these two thresholds up to date and allow them to be indexed going forward.
It is important to remember that these CGT changes are, in the main, slated to start from 1 July 2027 and based on the public and political commentary to date, their passage through the Senate may not be as straight forward as the Government hopes. Indeed, the outcome of the proposed consultation on new businesses and start-ups will, if the Government truly opens the consultation up to industry and the public, raise a number of potential issues that may require some changes to what has been introduced at first instance.
Whilst clients have been asking, what do we do now? At this stage, we recommend that clients do not take action solely in anticipation of these changes given their start date is over 12 months away, and the passage of this Bill and the outcome of public consultation may well see some aspects refined or re-engineered.
However, given the proposed commencement date of 1 July 2027, it would be prudent over the next 6 months to begin identifying clients and asset holdings that may be materially affected if the legislation proceeds in its current form.
If you do have any immediate queries on how the CGT changes are proposed to apply, please contact Ross, Mimi or Sean.