The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 represents the first legislative package implementing the Australian Government’s broader tax reform agenda. Introduced alongside the Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026, the legislation delivers several significant changes affecting workers, investors and property owners.
Here is a breakdown of the four core elements of the Bill and how they will impact taxpayers.
1. The $1,000 Instant Tax Deduction (Schedule 4)
Commencing in the 2026–27 income year, the Bill introduces a statutory $1,000 instant tax deduction for work-related expenses.
Impact on Taxpayers:
- Reduced Compliance Burden: Workers can claim this $1,000 deduction automatically without the need to retain, track, and substantiate receipts for work-related expenses.
- Flexibility Maintained: Taxpayers who incur more than $1,000 in legitimate work-related expenses can still choose to claim their actual expenses under standard substantiation rules.
- Additive Deductions: Crucially, non-work-related deductions—such as charitable donations, and personal superannuation contributions—remain entirely separate and can be claimed on top of the $1,000 instant deduction.
2. The Working Australians Tax Offset (Schedule 3)
The Bill establishes a new Working Australians Tax Offset (WATO), which will provide up to $250 in additional tax relief. This measure takes effect from 1 July 2027 (the 2027–28 financial year).
Impact on Taxpayers:
- Increased Tax-Free Threshold: The WATO effectively increases the tax-free threshold for lower and middle-income earners, lowering their overall basic income tax liability.
- Broad Application: The Government anticipates this offset will benefit over 13 million working Australians, providing targeted relief applied directly upon assessment at tax time.
3. Targeted Restrictions on Negative Gearing (Schedule 2)
Marking a major shift in property taxation, the Bill restricts negative gearing deductions for established residential properties purchased after 7:30pm AEST on 12 May 2026.
Impact on Taxpayers:
- Quarantined Losses: For affected established properties, rental losses can no longer be offset against standard wage or salary income. Instead, these losses are quarantined and can only be deducted against future residential rental income or capital gains.
- Grandfathering Protections: Taxpayers who already held property investments prior to the 12 May 2026 budget announcement are fully grandfathered; their existing negative gearing arrangements remain untouched.
- Exemptions for Supply: To encourage housing supply, new builds, social housing, affordable housing, and build-to-rent properties are completely exempt from these restrictions. Furthermore, investments in commercial property and shares are entirely unaffected.
4. Capital Gains Tax (CGT) Cost Base Indexation (Schedule 1)
From 1 July 2027, the familiar 50% CGT discount will be abolished for established residential properties. In its place, the Bill reintroduces cost base indexation alongside a new 30% minimum tax rate on capital gains.
Impact on Taxpayers:
- Taxing “Real” Gains: Taxpayers will now index the cost base of their asset in line with inflation. The 30% minimum tax rate will then be applied strictly to the “real” gain (the profit above inflation), rather than applying a flat 50% discount to the nominal gain.
- Investor Choice for New Builds: Taxpayers who invest in new builds are rewarded with a choice: upon sale, they can elect to use the legacy 50% CGT discount, or opt into the new indexation system—whichever provides the better tax outcome.
- Protected Categories: Vulnerable demographics, specifically Age Pension and JobSeeker recipients, are completely exempt from the 30% minimum tax. Additionally, the main residence exemption and small business CGT concessions remain unaffected by this reform.
Summary of the Four Core Categories
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