Tranche 2 of the CGT and negative gearing changes
Treasury has released the second tranche of draft legislation on 4 August 2026, with submissions closing 21 August 2026. Amongst other items, it provides the new apportionment methodology and the definition of a "new" dwelling for the negative gearing carve-out (acquired within 24 months of a certificate of occupancy, extended from the 12 months announced in the Budget) and sets out how cost bases will be reset.
Treasury has also made and then acknowledged an error in its own worked example, which overstated a capital loss by $88,578 and will correct it.
The proposed apportionment methodology (in addition to the option of seeking a valuation) assumes even growth across your whole ownership period. We anticipate that almost all of our clients would elect to obtain valuations at the time of selling property or shares in a private company (to obtain the 1 July 2027 valuation).
The drafting error is rather ironic: the new CGT methodology is significantly more difficult than what we are used to and it is not a good look for Treasury to overstate a capital loss in a worked example.
Minimum 30% tax on discretionary trusts: our view
In addition to our view provided in our last newsletter, we add that in our view, Treasury has significantly understated the impact of the proposed measures. On ATO figures, roughly 80% of trusts that lodged returns for 2022-23 (approximately 819,000) were discretionary trusts and the largest single group, some 471,000, are investment trusts rather than trading businesses.
We do not support the model as drafted. It impacts on families holding investments for asset protection and succession, not on sophisticated planners. Penalising corporate beneficiaries produces layered taxation: 30% at the trustee level, again in the company and again on distribution, potentially an effective tax rate of nearly 70% by the time it reaches an individual on the top marginal rate.
Groups with carry forward losses are significantly impacted: the floor applies before income reaches a loss trust and family trust elections are generally irrevocable. We are not recommending anyone restructure yet, but if you have corporate beneficiaries, family trust elections or losses in a group entity, map your exposure now. Please call if you would like us to look at your structure.
Testamentary trusts: a marked increase in uptake
We have seen a significant rise in clients adopting testamentary trusts in their wills this year. The Government has confirmed that income from discretionary testamentary trusts will be exempt from the proposed minimum 30% trust tax, provided the trust is established for genuine testamentary purposes. The exemption will not extend to income from assets injected into the trust after 12 May 2026 unrelated to the deceased estate.
The case for testamentary trusts is strengthening, not weakening, as the tax treatment of trusts created during your lifetime tightens. Provided they are set up correctly, they still deliver flexibility over who receives income and capital, protection for beneficiaries against relationship breakdown and creditors and adult marginal rates on income paid to a beneficiary's minor children. On the integrity limit, the distinction is straightforward: assets passing into the trust through your will on death are within the exemption, existing assets moved in later from outside the estate are not. A will that leaves everything to adult children outright gives all of this up for nothing in return. If your will is more than five years old, predates a new business activity, restructure or predates your children having children, it is worth another look and if it already contains testamentary trusts, they should be reviewed against these changes. Chloe Plavin leads our wills and estates practice.
Motor vehicle data-matching
The ATO will acquire motor vehicle registry data from state and territory authorities for 2025-26 through to 2029-30, covering approximately 2.5 million individuals each year, to build compliance risk profiles of taxpayers buying, selling or acquiring vehicles.
The practical use is matching lifestyle against declared income and luxury and recreational vehicles are the obvious flag. The ATO will use this data to identify non-compliance across GST, fringe benefits tax (FBT), luxury car tax (LCT) and fuel tax credits. If a vehicle is registered to a company or trust, make sure the logbook, the FBT position and the private use apportionment would stand up to scrutiny and check the Division 7A position now rather than after a query arrives.
Victorian work-from-home Bill delayed
The Victorian Premier has announced today that Victoria’s proposed work-from-home reforms will be deferred until 1 July 2027, after the November state election. Debate on the Bill has also been delayed. The Coalition has indicated it will seek amendments to increase protections for businesses, so the final form of the legislation remains uncertain.
Consider if and how these changes may impact you.
Further amendments remain possible and the November state election adds to the uncertainty.
