Treasury Laws Amendment (Tax Reform No. 1) Bill 2026
The Tax Institute welcomes the opportunity to make a submission to the Senate Economics Legislation Committee (Committee) in respect of its inquiry and report on the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 (Bill) and accompanying explanatory memorandum (EM).
We commend the Government for its willingness to address some significant, long-debated issues regarding Australia’s tax system. We acknowledge the political will demonstrated in attempting to tackle the policy issues underpinning the measures contained in the Bill. The measures seek to address specific pressure points in the tax system, including the distributional effects of the capital gains tax (CGT) discount and negative gearing. These objectives are to be commended. However, these issues have been approached without apparent regard for the broader tax system in which they operate.
Australia’s tax system is in dire need of holistic reform. In particular, while tax settings are an important policy lever, they are only one of a range of factors influencing outcomes such as housing affordability. Structural issues, including housing supply constraints, planning and zoning settings, infrastructure availability and construction costs, also play a significant role. In this context, tax measures of the kind proposed in the Bill are unlikely, in isolation, to resolve broader housing affordability challenges.
Similarly, the personal income tax measures introduced in this Bill do not address more fundamental structural issues within the tax system, including the over reliance on personal income tax as a primary revenue source, and the narrowness of the overall tax base. Absent consideration of these broader settings, there is a risk that isolated changes will produce partial or uneven outcomes, rather than delivering coherent and sustainable reform.
While we support the Government’s intention to address issues in the tax system, we have serious concerns about how these measures have been developed, designed, and introduced. Changes of this scale and significance require thorough consultation, clear information, and sufficient time for proper consideration. Without this, even well-meaning changes can lead to poor design, technical problems, and outcomes that do not align with their intended goals.
The measures in this Bill represent some of the most significant changes to Australia’s tax system in decades. They will have far-reaching, economy-wide implications for taxpayers, investors and businesses. Despite this, the Bill has been introduced without any prior public consultation, consultation papers, or an exposure draft, and without any meaningful opportunity for those affected to contribute to its design. In doing so, the Government has bypassed a crucial safeguard in the tax policy development process.
The approach taken with this Bill reflects a concerning trend by the government toward compressed and, in some cases, absent consultation processes for significant tax changes. For example, consultation on the instant tax deduction exposure draft was open for only two weeks. The Strengthening the foreign resident capital gains tax regime draft legislation was also open for just two weeks, despite introducing a retrospective application and much broader approach that had not been foreshadowed in its prior announcements.
This approach limits meaningful input from stakeholders, reduces the likelihood of identifying unintended consequences and practical issues at a time where they may be more readily resolved, and weaken public confidence in how tax policy is developed. The original Division 296 proposal was clear evidence of this.
Our concerns are not simply procedural. They go to the integrity of the tax policy development process and, ultimately, to public confidence in the tax system itself. This is a crucial concern given Australia’s self-assessment-based tax system, which relies overwhelmingly on public acceptance of, and willingness to comply with, tax rules to function properly.
We call on the Government to reaffirm its commitment to the principles of good tax policy development, including early and ongoing engagement with the tax community on complex legislative changes.
Our detailed observations and recommendations are contained in Appendix A. This submission is divided into four parts.
- Part 1 addresses the consultation process and timeframe, including our concerns about the absence of prior consultation on the CGT and negative gearing measures, and the compressed timeframe for this inquiry.
- Part 2 sets out our broader policy observations on the design and effectiveness of the measures.
- Part 3 examines in detail the technical issues and drafting concerns in the Bill.
- Part 4 outlines transitional and implementation considerations, including ATO system readiness and the practical challenges associated with implementing the proposed measures within the current timeframe.
Summary of key issues and recommendations
We recommend that the Committee give careful consideration to the following matters:
- Lack of consultation and compressed policy development process
The Bill has been introduced without any prior public consultation on the CGT and negative gearing measures, and the Working Australian tax offset (WATO), and with only limited consultation on the standard deduction on work-related expenses. This has significantly constrained stakeholders' ability to provide meaningful input and to properly identify and address technical and practical issues.
- Compressed timeframe and lack of urgency for time-critical designation
The timeframe provided for this inquiry is insufficient given the scale, complexity and far-reaching implications of the proposed measures. The CGT and negative gearing measures are not intended to commence until 1 July 2027. Yet they have been included in a time-critical Bill and progressed on an accelerated timetable. At the same time, other measures with an earlier commencement, including the permanent extension of the instant asset write-off, and the new penalty regime for mischaracterised or undervalued royalties for large multinationals, both proposed to apply from 1 July 2026, have not yet been legislated. This creates a clear inconsistency and raises questions as to the basis on which some of the measures contained in the Bill have been prioritised for expedited passage.
- Significant technical gaps and unresolved issues in the Bill and EM
The Bill and the EM contain a number of material technical gaps, unresolved interactions and areas of uncertainty. These include:
- the absence of core design elements, including valuation and apportionment rules, which are deferred to legislative instruments;
- unresolved interactions with existing regimes, including Division 152 (small business CGT concessions), Division 83A (employee share schemes), trust provisions and foreign income tax offset rules;
- uncertainty in key definitions and operational rules, including ‘new residential dwelling’ and residential accommodation days; and
- inconsistencies and incomplete drafting affecting the operation of the regime in common scenarios.
These issues create significant uncertainty about how the measures are intended to operate in practice and increase the risk of unintended outcomes, compliance burdens, and disputes.
- Transitional and implementation risks
The implementation of the proposed measures is not aligned with the Australian Taxation Office (ATO) system readiness. Significant system changes will be required across the ATO, digital service providers and taxpayers, at the same time as other major reforms (including Payday Super) are being implemented.
Overarching recommendations
Having regard to the issues outlined above, we consider that the Bill is not sufficiently developed to proceed in its current form. We therefore recommend that the Bill not be passed as introduced.
Instead, the Government should undertake further consultation, address the identified technical deficiencies and drafting gaps, and release revised legislation that provides a complete, coherent and workable framework.
As a starting point, many of the matters currently proposed to be addressed in legislative instruments should instead be included in primary legislation, given their central importance to the operation of the measures, and the need for full parliamentary scrutiny. At a minimum, the Bill should not proceed until key supporting rules and legislative instruments have been developed and released for consultation.
We further recommend that the Government commit to a post-implementation review of the measures within 12 months of commencement to ensure that the changes operate as intended, and to address any later identified unintended consequences.