Tax law updates
The new CGT and negative gearing rules: how they operate in practice
The legislation is now law. From 1 July 2027, three separate method statements govern the calculation of tax on capital gains and quarantined residential rental losses. They are:
- Loss quarantining: net rental losses on established residential properties acquired after budget night can no longer be offset against other income. They are quarantined and carried forward to be applied against residential property income in future years.
- New CGT method statement: there is a mandatory seven-step ordering of capital losses. Capital losses must be applied against deferred (pre-1 July 2027) gains first.
- Minimum 30% tax on capital gains: a top-up mechanism that applies where the effective tax rate on the post-1 July 2027 indexed portion of a gain, the minimum tax capital gain (MTCG), is below 30%.
The consultation process that produced this legislation deserves comment. Over 500 submissions were made to the Senate Economics Legislation Committee. Stakeholders were given eight business days to respond. Hearings ran for two days. Two days later (following what the Government described as an 'intensive first round of post-Budget consultation') it announced further changes to the CGT measures. The majority report recommended the bills be passed.
We find it difficult to accept that 500 submissions could have been given genuine consideration in that timeframe. The purpose of consultation is not only to gather input: it is to allow that input to improve the law.
It will take taxpayers and tax professionals a while to get used to these changes: they are administratively complex, contain a raft of new terminology and tax concepts and require different tax planning strategies to what we have become accustomed to.
CGT carve-outs and concessions
Following Senate pressure, the Government unveiled a series of carve-outs and concessions, including:
- Raising the small business CGT active asset turnover threshold from $2 million to $10 million, for the 50% active asset reduction only.
- A start-up concession for certain qualifying 'innovative' businesses, focused on gain at exit.
- An exemption for discretionary testamentary trusts (discussed further below).
This is welcomed but more limited than the public perhaps realises.
The $10 million threshold increase applies to one concession only. It applies to the 50% active asset reduction and not to the other three small business CGT concessions: the 15-year exemption, the retirement exemption and the small business rollover. We are already seeing this misunderstood in practice. A client whose turnover exceeds $2 million does not automatically gain access to all four concessions: only the reduction.
Downstream tax on sheltered gains. Where the active asset reduction shelters a gain in a company, the sheltered amount could give rise to unfranked dividends when distributed to shareholders. In a unit trust, the distribution of sheltered gains could trigger CGT event E4. These are not new rules, but they matter more when the reduction is more widely accessible.
Bendel: ATO Decision Impact Statement
Commissioner of Taxation v Bendel [2026] HCA 18
The ATO released its Decision Impact Statement (DIS) ahead of 30 June 2026. The DIS confirms:
- UPEs to a corporate beneficiary where the private company has 'done nothing' following the entitlement arising are not loans under s 109D(3) of the ITAA 1936.
- TD 2022/11 will be withdrawn. TR 2010/3 and PS LA 2010/4 will be reviewed.
- UPEs placed on complying s 109N loan agreements continue to be loans and remain subject to Division 7A.
- UPEs under separate sub-trust arrangements (PS LA 2010/4) are not loans, but the surrounding circumstances, including any renegotiation of terms, still require consideration.
Where taxpayers have previously been assessed on the ATO's former view, amendments or objections may be available. Out-of-time objections will be considered by the Commissioner on application.
The DIS is open for public comment until 24 July 2026.
'Done nothing' are the two most important words in the DIS. The High Court's protection extends to situations where the corporate beneficiary has taken no further step, i.e., “done nothing”. All surrounding facts (the trust deed terms, distribution resolutions, financial statements and any subsequent dealings between the parties) still need to be reviewed. The conclusion will not always be the same.
Subdivision EA is back in play. Where a trust with an unpaid entitlement subsequently makes a loan, payment, or debt forgiveness in favour of a shareholder or associate of the corporate beneficiary, Subdivision EA may apply. These provisions were largely made redundant by the ATO's loan treatment since 2009. They are relevant again and the timeframes under which they operate are less generous than those provided under TR 2010/3.
Section 100A and Part IVA remain available. The DIS confirms the Commissioner will consider the application of both provisions where the facts warrant it. Section 100A in particular (which taxes the trustee at the top rate where a reimbursement agreement is found) will receive attention in arrangements where there is a permanent difference between trust income and taxable income.
Objection and amendment rights are worth reviewing now. Where clients have been assessed on the basis of the ATO's former position, the window to object or seek amendments may be closing. The right outcome depends on a careful analysis of whether the corporate beneficiary in fact 'did nothing' in the relevant years.
A legislative response is expected. The ATO's acceptance of the High Court's reasoning does not guarantee the position will remain unchanged. With the Budget already proposing to make corporate beneficiaries unviable from 2028 and legislative reform openly anticipated, the practical window to benefit from Bendel may be shorter than it appears.
The comment period closes 24 July 2026. Practitioners can still make submissions.
Offshore funds: Full Court reverses taxpayer win
Commissioner of Taxation v Cheung [2026] FCAFC 75
In Commissioner of Taxation v Cheung [2026] FCAFC 75, the Full Federal Court allowed the Commissioner's appeal from the first instance decision in Cheung v Commissioner of Taxation [2024] FCA 1370.
At first instance, the taxpayer had succeeded in establishing that approximately $33 million deposited into his Australian accounts from a Vanuatu family supermarket business over 11 years were non-taxable capital gifts from his sister.
The Full Court held that the primary judge had failed to properly evaluate significant documentary evidence and inconsistencies in the witnesses' accounts. The Court described aspects of the taxpayer's position as 'glaringly improbable', including the evidence about his involvement in the Vanuatu business and the character of the funds. The business website (which described the taxpayer as founder and managing director) featured prominently in that assessment.
The lesson from this case is not about Vanuatu or offshore funds. It is about the need for strategic legal advice from the very beginning of an ATO audit, not from when an objection is disallowed.
The inconsistencies that proved fatal were not inconsistencies at trial. They were inconsistencies between what the taxpayer said during the audit and objection process (years before proceedings commenced) and the case ultimately run before the Court. The Full Federal Court had access to all audit and objection materials. It always does. Those materials are not a dry run, they are part of the record.
The implications for dispute strategy are significant. Where a client is under ATO audit or compliance review involving large sums, disputed characterisation, or complex factual questions, the time to think carefully about what is said (and how) is from the first request for information. Positions taken, documents provided and submissions made during audit and objection will be available to the Court if the matter is eventually litigated. Getting the story right from the outset is not a litigation concern. It is an audit concern.
We regularly provide strategic advice alongside audit and objection processes. If you have clients under ATO review (particularly involving offshore transactions, unexplained deposits, or family financial arrangements) please reach out early.
Commercial law updates
Discretionary testamentary trusts
The Federal Government has retracted it’s proposed 30 per cent minimum tax on testamentary discretionary trusts and as such, the minimum tax will not apply to income derived from those trusts that are established for genuine testamentary purposes and funded from deceased‑estate assets.
NB: What is it? A discretionary testamentary trust is a trust created under a will that only comes into effect on death, with the trustee deciding how and when to distribute estate assets among the beneficiaries.
Discretionary testamentary trusts have long been powerful estate planning tools. The carve‑out from the budget means they now sit outside the proposed minimum trust tax, while retaining adult‑rate treatment for minors and the ability to stream income tax‑effectively across a family group. In practice, they offer a rare combination of asset protection and tax flexibility at a time when other trust structures are under sustained pressure. For clients with existing family trusts and significant non‑super assets, or vulnerable beneficiaries, this is an ideal time to review wills, discretionary testamentary trust provisions and broader succession planning.
Succession and control: who is really in charge when people step back?
We are seeing more disputes in private groups where the real issue is control rather than tax: appointor provisions that quietly favour one branch of a family, old trust deeds with no clear succession mechanism and shareholder/partnership agreements that no longer reflect reality. These problems are often compounded because succession planning has focused on personal enduring powers of attorney and wills, but not on company powers of attorney or clear arrangements for who will act for corporate trustees and trading companies if a key person dies or becomes incapacitated.
For families and private groups, “control succession” now needs to be considered across all levels: wills and discretionary testamentary trusts, trust deeds (including appointor and guardian roles), company constitutions, shareholder/partnership agreements and formal company powers of attorney. If a director or controller cannot act, someone still needs authority to sign, manage banking and deal with day‑to‑day operations, leaving this to chance is a recipe for disputes and, in some cases, paralysis. A targeted review and update of these documents can be a relatively modest exercise that significantly reduces the risk of future litigation or forced sales when key people step back or pass away.
Consumer Legislation Amendment Bill 2026
The Victorian Consumer Legislation Amendment Bill 2026 is an omnibus reform package that has been introduced to Parliament but has not yet been passed into law. If enacted in its current form, it would strengthen consumer protections in property, building and tenancy markets. Among other changes, it would require section 32 statements for residential property to be available at least 14 days before an auction or contract, repeal the early‑release of deposit provisions in section 27 of the Sale of Land Act 1962 and introduce stricter rules and penalties around domestic building variations and trust account compliance for estate agents and conveyancers.
For purchasers and owners, these proposed changes are designed to improve transparency and reduce the risk of unpleasant surprises, but they also signal that the consequences of getting documentation wrong are likely to increase once reforms of this kind become law. In our view, this makes it even more important that buyers have contracts, section 32 statements and any building or variation documentation reviewed by a lawyer or licensed conveyancer before signing. For accountants advising clients on property and building projects, it is a timely reminder that legal review is a practical risk‑management step in an environment where missing or defective paperwork can lead to disputes.
