CGT, negative gearing changes to become a law

The government's tax agenda announced in the Budget overhauling the capital gains tax (CGT) discount and negative gearing have now passed the Parliament and will become law.

The government recently unveiled CGT discount carveouts targeting small businesses, and start-ups and their investors following backlash since the reforms were announced in the Budget on May 12. Testamentary trusts will also be given a reprieve from the new tax regime.

"This is a victory for workers, first home buyers and future generations," Treasurer Jim Chalmers said.

"The bill that has passed today will help ensure aspiration and opportunity are the birthright of every Australian, not just some."

The bill increases the eligible turnover threshold for the 50% active asset CGT concession from $2 million to $10 million, so that all 2.7 million active small businesses and 98% of all active businesses will be eligible for generous CGT concessions, Chalmers said.

The 50% CGT discount will be replaced with inflation-adjusted indexation as the federal government seeks to restore the taxation of real gains. This takes back the CGT discount to the pre-1999 framework where the cost base of an asset is adjusted for inflation. The new rules will apply from 1 July 2027.

The 50% CGT discount for individuals, trusts and partnerships will be replaced with cost base indexation and a 30% minimum tax rate.

It also reforms future negative gearing so it only applies to new builds from 1 July 2027, with grandfathering provisions for anyone who currently owns an investment property.

The bill also 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, Chalmers said.

"The three right wing parties all voted against tax cuts and they all voted against a fair go for first home buyers. They share a divisive anti-worker agenda," Chalmers said.

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

The old intersection between the tax system and the housing market helped make housing unaffordable and coincided with decades of low productivity growth, he added.

"We are taking action because doing nothing would have consigned another generation to that broken status quo and locked them out of the housing market," Chalmers said.

"We will continue to implement the next steps and further tranches of legislation as we roll out our full tax reform package in the months ahead."