Tax Reform No.3 Bill should not be rushed before the rules are complete, The Tax Institute says
Sydney, 5 November 2026: The Tax Institute has urged the Senate Economics Legislation Committee not to pass Schedules 1 to 3 of the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 (the Bill) until all of the deferred rules, regulations and legislative instruments on which they depend have been released for consultation. In any event, those Schedules should pass only with the amendments The Tax Institute recommends. Our submission also raises concerns with the capital gains tax, negative gearing and superannuation measures in Schedules 4 to 6.
The Tax Institute supports the Government’s objective of improving the fairness of the tax system. It welcomes several changes made since the exposure draft, including a new discretion for the Commissioner to disregard an unreasonable automatic revocation of an excluded election trust (EET) election, and confirmation that transfers under the roll-over will not give rise to family trust distribution tax.
However, many significant issues raised in The Tax Institute’s earlier submissions remain unresolved, and some changes broaden the regime without consultation.
"These measures represent some of the most significant changes to the Australian taxation system in decades, yet Parliament is being asked to consider only part of the reforms while crucial rules are still to be developed," says Julie Abdalla, Head of Tax & Legal at The Tax Institute.
“Trustees are being asked to decide whether to restructure or elect into a new regime, often irreversibly, before they can consider the complete rules that will apply to them. The roll-over window opens on 1 July 2027, so these rules need to be settled well before then.”
The administration and collection rules for the minimum tax have been deferred to future legislation. “Even a basic question, such as how the trustee’s minimum tax interacts with beneficiaries’ entitlements to trust income, is not considered in the Bill or the explanatory memorandum,” says Ms Abdalla. “That goes to the heart of how the tax will operate.”
If the Schedules are passed before the instruments are made, The Tax Institute says that an instrument that operates adversely to taxpayers should apply only to choices made after it is registered. The roll-over and election periods should also be extended if instruments are late.
Consultation timing and multiple tranches
The exposure draft was open for consultation for 12 business days. The Bill was introduced less than a month after that consultation closed, and submissions to the Senate Committee were due 10 business days after referral.
“Good consultation leads to better legislation. Ten business days is not enough time to scrutinise a Bill of this size and complexity,” says Ms Abdalla.
“Progressing these reforms in multiple tranches has also made it harder to keep track of what has passed, what is before Parliament and what is still to come. The Government should publish a timetable for the remaining tranches and a consolidated summary of where each measure stands” says Ms Abdalla.
Compliance costs
The Impact Analysis estimates one-off implementation costs of $939 million and ongoing costs of $48 million a year. These estimates exclude state and territory duties. The Tax Institute considers the estimates are likely to materially understate the true cost to taxpayers.
“The Committee should seek further information on how these estimates were calculated, and whether a simpler design could achieve the same policy objective at a lower cost,” says Ms Abdalla.
The Tax Institute also recommends that the Government commit to a post-implementation review within 12 months of commencement.
Other key issues raised in the submission
Schedules 1 to 3: Minimum tax on discretionary trusts
- Corporate beneficiaries still cannot claim the minimum tax offset. Combined tax can reach 60 per cent on income retained by the company, and around 70 to 77 per cent once it is paid out as a dividend to a shareholder on the top marginal rate. The Tax Institute recommends a nonrefundable offset, with a corresponding franking credit.
- The minimum tax offset is lost where income flows through an interposed trust that is not itself a minimum tax trust, such as a fixed trust. This can result in total tax of 77 per cent.
- The roll-over is all-or-nothing. A breach affecting one asset, up to four years later, can unwind relief for every asset transferred. Our submission also recommends allowing more than one transferee and preserving the CGT discount on gains deferred before the transfer.
- A trust that makes an EET election cannot later use the roll-over. The election can be made in only one income year, and the nomination cannot be varied for new family members.
- State and territory duty outcomes remain uncertain and inconsistent. NSW and WA have said that making an EET election should not trigger duty, and Victoria has proposed a three-year duty moratorium for eligible restructures. However, the NSW and Victorian commitments are conditional on re-election, Queensland has indicated that duty may apply to restructures, and the other states and territories have not announced their position. The Tax Institute recommends that the Government lead a coordinated national approach.
Schedules 4 to 6
- Schedule 4 (CGT): Australians who are overseas on 30 June 2027 may lose the main residence exemption on gains up to that date, even if they return and sell as residents.
- Schedule 5 (Negative gearing): It is not clear which definition of a new residential dwelling applies if the Bill does not pass before 1 July 2027.
- Schedule 6 (Excess concessional contributions): The relief should be extended to contributions made in 2025-26 and to salary sacrifice contributions. The ATO should also confirm that the transition to Payday Super is a special circumstance for individuals who fall outside the relief.
“We support reform that is fair and workable. For that to happen, Parliament needs to see the complete rules before it passes them, and taxpayers need time to understand them before making decisions they cannot readily undo,” says Ms Abdalla.
The Tax Institute’s submission to the Senate Committee is available here.
About The Tax Institute
The Tax Institute is the leading forum for the tax community in Australia. We are committed to shaping the future of the tax profession and the continuous improvement of the tax system for the benefit of all.
ENDS
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