Controversial CGT changes clear both houses of parliament

The agreement between Labor and the Greens was labelled a “dirty deal” by the opposition, with senator Slade Brockman labelling the CGT reforms “a retrograde step” for Australia's taxation system that would generate significant uncertainty for businesses.

The legislation replaces the 50 per cent CGT discount for individuals, trusts and partnerships with cost base indexation and introduces a minimum 30 per cent tax on capital gains with certain exemptions.

The changes to CGT apply to all capital gains accruing on and after 1 July 2027, including gains accruing on pre-CGT assets. The CGT discount will still apply for new housing, and the existing CGT concessions for small businesses will also be retained.

The reforms have been controversial in the accounting profession and broader business community, with many raising concerns about the impact of the changes on start-up businesses and investment in innovation.

Treasurer Jim Chalmers announced adjustments to the budget measures last Thursday to address concerns about their impact on start-up and small businesses more broadly.

The government announced it would increase the turnover threshold for active asset CGT reduction from $2 million to $10 million and introduce a new innovative business CGT concession for start-up businesses.

Accounting bodies have previously warned that the changes to CGT are expected to introduce considerable complexity for accounting professionals and their clients. 

The legislation also introduces the $1,000 standard deduction for work-related expenses for individuals who are Australian tax residents and earn assessable labour income.

The standard deduction is intended to serve as a compliance-saving measure, allowing taxpayers to rely on a standard amount without substantiation. 

Schedule 3 of the bill amends the income tax law to introduce the working Australians tax offset, a non-refundable tax offset that provides targeted tax relief to Australian resident individuals who earn labour income.

Treasurer Jim Chalmers said the passage of the tax reform package was a "victory for workers, first home buyers and future generations".

"Today we have locked in two more rounds of income tax cuts for millions of Australians, a fair go for first home buyers, and a fairer tax system that better aligns the treatment of labour and asset income," he said.

"The bill includes tax cuts in the form of the Working Australians Tax Offset and the instant tax deduction for workers."

The bill also reforms future negative gearing so that it only applies to new builds from 1 July 2027, but contains grandfathering provisions for those who currently own an investment property.

"This is all about encouraging investment in new housing supply while also respecting previous investment decisions people have made," Chalmers said.

"The Bill fixes a big distortion that was created in our economy over 25 years ago by returning the capital gains tax to its original intent from 1 July 2027."