The Labor government has announced changes to its tax overhaul amid a storm of opposition from business owners, accountants, charities, tech start-ups, and the medical technology field.
On June 18, the government said it would make “targeted amendments” to the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, which has already passed the lower house and is currently subject to an ongoing Senate inquiry.
The Bill originally contained major changes to the tax treatment of capital gains, negative gearing and discretionary trusts, with business groups and other stakeholders warning that it could stunt growth and innovation in the country.
Two major accounting bodies, the IPA and CPA Australia, called for a delay to the changes, saying the Bill was rushed, poorly designed, and lacked sufficient public scrutiny.
While the Council of Small Business Organisations Australia (COSBOA) called for capital gains tax (CGT) exemptions to be expanded so more small businesses can benefit.
CGT is paid on the profit that comes after a person sells an investment asset, like shares. Normally a 50 percent “discount” applies, meaning only half the profit is subject to tax.
However, Labor’s changes did away with the discount, and exposed the entire profit a person earns to a new 30 percent flat tax rate plus inflation costs.
Small Business Exemptions Expanded
Under the proposed amendments, Labor appears to have taken on COSBOA’s recommendations, lifting the threshold for the 50 percent CGT discount from the current $2 million in revenue (US$1.4 million) to $10 million.The government says this higher threshold means all 2.7 million active small businesses, and 98 percent of all businesses will still receive the CGT discount.
Additional provisions will ensure that deductible gifts and donations can also reduce tax liabilities, a major concern of charitable bodies who warned of a drop in philanthropy.
Proposed CGT Concessions for Start-Ups
The government has released a consultation paper on the “Innovative Business CGT Concession,” a new measure to encourage start-ups in Australia.It gives entrepreneurs the option of a 50 percent CGT discount, or indexation and a 30 percent minimum tax for capital gains accrued from July 1, 2027.
To be eligible for the concession, the shares must be new equity issued by a company that is under 10 years old, has under $50 million in turnover, and meets innovation criteria.
The shares must also be held for five years before being sold, and are subject to a lifetime cap on the concession.
For sectors that can take longer to commercialise, such as biotech and medtech, the equity time frame can be extended to 15 years.
The consultation will be open until July 10, with the final version of the concession to be implemented in a later tranche of tax reform legislation.
Changes to Discretionary Trusts Amid ‘Death Tax’ Claims
Under the current Bill, all income from discretionary trusts will be subject to a minimum tax rate of 30 percent.However, the government said it would provide an exemption for income from all types of genuine discretionary testamentary trusts amid reports the government could be implementing a supposed “death tax.”
The exemption will be restricted to income from deceased estate assets.
Regarding the minimum tax rate, the government will release a consultation paper in the coming weeks.
Other changes include outlining which income support payments qualify for an exemption from the minimum tax on capital gains, and including a calculation method for the Working Australians Tax Offset—a permanent annual tax offset of up to $250 for income earners.
Labor is expected to move the above amendments during the next parliamentary sitting fortnight, before the Senate votes on the legislation.
