Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (49 of 2026)

Schedule 1   CGT adjustments

Part 1   Main amendments

Income Tax Assessment Act 1997

42   At the end of section 115-225

Add:

Special rule relating to indexation

(4) Subsection (5) applies if the *capital gain has been worked out using a *cost base that includes indexation because of subsection 110-36(1A), and the amount mentioned in subsection (1) of this section:

(a) is being worked out for the purposes of subsection 115-215(3) in circumstances where, had you:

(i) made the capital gain; and

(ii) *acquired and held any relevant *CGT asset in the same way as the trust estate did;

that indexation could not have applied to the cost base; or

(b) is being worked out for the purposes of subsection 115-215(3) in connection with you having a resultant *discount capital gain to which section 115-102 (about new residential dwellings) or 115-125 (about affordable housing) applies; or

(c) is being worked out for the purposes of subsection 115-220(2) in relation to a beneficiary in circumstances where, had the beneficiary:

(i) made the capital gain; and

(ii) acquired and held any relevant CGT asset in the same way as the trust estate did;

that indexation could not have applied to the cost base; or

(d) is being worked out for the purposes of subsection 115-220(2) in connection with a beneficiary having a resultant discount capital gain to which section 115-102 (about new residential dwellings) or 115-125 (about affordable housing) applies; or

(e) is being worked out for the purposes of subsection 115-222(4).

Note 1: For paragraph (a) or (c), indexation under subsection 110-36(1A) is only applicable in relation to capital gains, of individuals and trusts, that arise from a CGT event that happens on or after 1 July 2027. In addition, residency requirements for individuals apply under section 114-25.

Note 2: For paragraph (b) or (d), indexation may be able to be chosen by the trustee of a trust as an alternative to the discount percentage applying for a beneficiary's attributed gain: see subsections 115-102(5) and 115-125(6).

Note 3: For paragraph (e), subsection 115-222(4) relates to assessing trustees under section 99A of the Income Tax Assessment Act 1936.

(5) For the purposes of the provision mentioned in subsection (6) of this section, determine the amount of the *capital gain remaining assuming that:

(a) in working out the amount of the capital gain before any reductions under the method statement in subsection 102-5(1) were applied, the *cost base was adjusted to remove the effect of indexation on its calculation; and

(b) the assumption in paragraph (a) did not result in any changes to the application of *capital losses, previously unapplied *net capital losses or quarantined amounts(including how much of each of those was applied) under that method statement to reduce the capital gain.

(6) The provision is:

(a) if subsection (3) does not apply - paragraph (1)(a); or

(b) if subsection (3) applies - subparagraph (1)(a)(i) (as taken to be included because of subsection (3)).