Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026
Dr HAINES (Indi) (09:27): The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and related bills amend tax law to implement changes to capital gains tax and negative gearing announced at the recent federal budget, along with the $250 tax offset and the instant $1,000 expense deduction. These bills before us do not address changes to the taxation of trust income, and that's something that is of great interest and indeed significant concern to many of my constituents, who use trust structures to manage their family businesses.
Neither do these bills seem to implement the exact capital gains tax changes that the government intends to proceed with. This is tranche 1 of the legislation, with more to come. While it's not unusual for bills to be amended or for complex legislation to be introduced in tranches, we are being asked to vote on this legislation knowing that it likely doesn't represent the intended final operation of these reforms, because the government is currently working through potential modifications and carve outs.
Frankly, this is really bad practice for legislation. It makes it truly difficult to engage with the substance of this legislation and to truly consider how it will affect the people I represent, especially given the length of time we've had with this bill, which is just one week. Homeownership has become one of the most significant generational divides in Australia.
When people of my generation bought our first house, it probably cost us three to four times the average annual income. Today it's closer to eight or 10. It used to take a couple of years to save for a deposit.
Now it takes more than 12. Extraordinary growth in house prices has contributed to household prosperity for some, but the gap between housing costs and incomes is now so large that it's simply insurmountable for many young Australians. Those of us who got in early may have benefited financially, but we aren't crowing.
We're increasingly worried that our children, our grandchildren and other people's children won't have anywhere they can afford to live, and we're seeing that playing out on our streets. I hear this consistently from my constituents. It's not just the question of intergenerational equity.
I've been talking about regional housing and the regional housing crisis for a long while. Over the past five years, house prices have increased faster in regional areas than in capital cities. There are fewer rental vacancies, and they're becoming less affordable.
Building new homes costs more and takes longer. Lack of housing is a genuine barrier to workforce supply in critical sectors like education and health care, and that has existential outcomes for us in rural and regional Australia. So this is a serious problem.
Housing access and affordability are serious problems we need to address. It is urgent. We also know that the tax system in general is out of kilter, with wage and salary earners doing too much of the heavy lifting.
Our tax system does need to be more efficient, more effective and fairer. Every option should be on the table. I commend my colleague the member for Wentworth for the hard work she's done in bringing this issue to the national attention.
Over the past 25 years, and notably since the Howard government introduced a flat 50 per cent capital gains tax discount, house prices have risen and homeownership has steadily shifted away from owner-occupiers and towards investors. It's clear that this has been driven, at least in part, by capital gains tax and negative gearing. We know that the benefits are unequally distributed.
In 2022-23, 83 per cent of the value of the CGT discount went to the top 10 per cent of income earners. We know that the discount has favoured people living in capital cities over regional areas. Recent ACOSS analysis showed that, in my electorate of Indi, we share in just 0.3 per cent of the total national benefit.
Five inner city electorates enjoy more than 20 per cent between them. We have a problem. The proceeds of negative gearing flow in a similar way to older, wealthier people in capital cities.
The electorates with the lowest rental losses are overwhelmingly regional. Property owners in Indi are less likely to negatively gear than the average Australian. So how does the legislation address these problems?
Probably the most significant element of these bills is the changes they make to capital gains tax or CGT. CGT applies to gains made from assets. Put very simply, you pay tax on the difference in value if you sell an asset for more than it costs you to buy it.
That makes sense. When you earn money, you pay tax. This delivers aged care, health care, disability services, defence, education and national infrastructure.
Under current arrangements, as long as you've held an asset for at least one year, there's a 50 per cent discount on your CGT. You pay tax on half of your profit, and the other half is tax-free. This legislation replaces the 50 per cent discount with a cost-base indexation method.
Indexation ensures you're only taxed on your real proceeds over and above growth just from inflation. So if you spent $100,000 on an asset in the year 2000, that's the equivalent of almost $200,000 today. It's fair to take that into account.
The exact amount of tax you pay on your adjusted gain will depend on how much other income you earn that year, as it does now, but the rate will be at least 30 per cent unless you receive means tested income support payments like the aged pension. Crucially, these changes won't commence until 1 July 2027. Any assets you sell before then are completely unaffected.
For assets you sell from 1 July 2027 onwards, only the profits after that date will be affected. All the gains you accrue right up to 30 June next year will be preserved under the existing system. As drafted, the changes apply to all assets.
The government has foreshadowed potential carve-outs for certain types of assets or investors. The changes apply to gains made by individuals, including partners in a trust, partnerships and trusts. Companies and superannuation are subject to different rules that will not change.
The fact that CGT changes extend beyond residential property has caused considerable concern for small businesses, including from start-ups. I've seen the memes, and I've heard it directly from small-business owners in north-east Victoria, and I thank my constituents of Indi who have responded to my call to get in touch with me. It's understandable that there are concerns because, in the weeks leading up to the budget, the government articulated a case for tax reform that was clearly linked to housing.
That was a missed opportunity for this government to be more upfront about the broader change. It's no wonder people are concerned; it took them by surprise. This legislation works alongside existing CGT concessions for small businesses, which I'll outline in a moment—and it's important to understand this.
But the fact that there has been so much confusion and uncertainty only highlights the importance of not rushing these changes. We saw these bills for the first time less than seven days ago, and this is a three-day sitting week. Complex reform demands good process.
Australians deserve to understand how these changes will affect them, and parliamentarians must be given time to engage with their communities. So I want to say to my constituents, especially those people who've contacted me with really genuine concerns about their futures and livelihoods, I hear you. I too wish the government had done a better job at explaining these reforms.
I too wish the government had taken the time to build genuine consensus. For the small businesses in my electorate, I want to emphasise that this legislation does not affect any of the existing CGT concessions for small businesses, including the automatic 50 per cent discount on active assets and exemptions to help you prepare for retirement. These concessions can be used together to reduce or even eliminate the tax payable on capital gains.
They are available to businesses with an aggregated annual turnover of less than $2 million or a net asset value of less than $6 million, and that actually is the vast majority of businesses in my electorate. However, these thresholds have not been updated in almost two decades. The member for Kooyong has moved a second reading amendment calling on the government to increase the amounts to $10 million in turnover and $12 million in assets, indexed into the future.
I echo her call, and I was pleased to second that amendment. I've had valuable—very valuable—discussions with COSBOA and the National Farmers' Federation about the need to bring these 20-year-old thresholds into line with the present day. I'm encouraged by their feedback that the government is engaging constructively with them, and I sincerely hope that the government fix this bit, because this is a simple change that will ensure concessions remain available to the businesses they were designed to help.
For farming families and for agricultural businesses it will provide certainty about longer term succession planning, and that is critical to us in rural Australia. In addition to the CGT, the bill makes changes to negative gearing. Right now, investors can use the cost of owning a rental, including interest on the mortgage, to offset their overall income and lower the tax they pay.
From 1 July 2027, it will only be possible to offset rental losses against income from other residential properties, not what you earn from other sources. This only applies to properties acquired after 7.30 pm on 12 May this year—budget night, when the change was announced. If you owned a property before then, you can continue to negatively gear it.
In tackling CGT and negative gearing, the government is taking steps towards addressing housing inequality. The proposed reforms are ambitious, and I welcome ambition in government. Changes to both CGT and negative gearing include exemptions for new houses, to help incentivise supply.
From 1 July 2027, if you'd like to negatively gear an investment property and retain access to the 50 per cent CGT discount when you sell it, well, you can. You just need to invest in a new dwelling that adds to Australia's housing supply. Of course, new houses cannot be built in a vacuum, and I welcome the government listening to my call to put money in the budget for critical enabling infrastructure so that we can get those houses out of the ground.
In addition to the changes to CGT and negative gearing, this legislation implements the working Australians tax offset, a permanent annual $250 deduction. In practice it is a very small bracket adjustment. It would be preferable to commit to actual indexation.
Two hundred and fifty dollars might not have as much purchasing power by the time the WATO commences in the 2027-28 financial year, but it does provide some cost-of-living relief, and I don't think too many people in Indi will be knocking it back. The final thing this legislation implements is a new instant $1,000 tax deduction starting in the next financial year, and this will allow workers to automatically claim $1,000 in work related expenses without having to provide receipts.
This was a recommendation of the 2010 review of the taxation system led by Ken Henry, and it will make things simpler for taxpayers and should knock a couple of hundred dollars off the average tax bill. I welcome it. Importantly, charitable donations and other non-work related deductions can continue to be claimed on top of the automatic deduction, and those with more than $1,000 in work related expenses will still have the option to substantiate them and claim them as usual.
Whenever I consider legislation, I think about what it will mean for the people of Indi, what it will mean for regional Australia and what it will mean for the nation. Tax law might seem dry, but reforms like this raise fundamental questions about what's fair and about what's right. There's no objectively correct rate at which to tax capital gains, just different approaches that give effect to different priorities.
There are legitimate reasons to tax capital more concessionally than labour. It promotes innovation, encourages future consumption, compensates for additional risk and incentivises the investment we need for long-term growth and productivity, but there is also a strong case for equal treatment or at least something a little less lopsided. Why should a nurse pay more tax on what they earn working a shift at a hospital than an investor who earns the same amount from selling an asset?
In considering this bill, I've tried to weigh all of this up. Ultimately, I think what Australians expect is a fair go on the same terms as other people. It's clear our current tax settings fall short on this principle.
What remains to be seen is whether the full package being developed by the government will indeed help more people own their own home and meaningfully move us to a system that is more efficient, effective and fair.