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

24   After section 114-20

Insert:

114-25 Residency requirements for individuals for indexation to be included in a cost base under subsection 110-36(1A)

(1) This section sets out requirements for indexation to be included under subsection 110-36(1A) in the *cost base of a *CGT asset for the purposes of working out your *capital gain from a *CGT event happening in relation to the *CGT asset if:

(a) you are an individual; and

(b) the CGT event happened while you were holding the CGT asset (as a result of earlier *acquiring it).

Note: This section applies for working out a capital gain you make from directly holding the asset. A similar result arises for any capital gain you make indirectly as a beneficiary of a trust (see Subdivision 115-C, in particular subsections 115-225(4) and (5)).

(2) You must be neither a foreign resident nor a *temporary resident at any time during the period (the testing period ):

(a) starting on the later of 1 July 2027 and the day of *acquiring the *CGT asset; and

(b) ending on the day the *CGT event happens.

(3) For the purposes of subsection (2), if:

(a) another individual owned the *CGT asset on a particular day before the testing period ends; and

(b) on that day, that individual was one of the following (that individual's residency status ):

(i) an Australian resident (but not a *temporary resident);

(ii) a temporary resident;

(iii) a foreign resident; and

(c) section 115-30 treats you as having *acquired the CGT asset when that individual, or an earlier owner of the CGT asset, acquired it;

you are treated as having the same residency status on that day as that individual had on that day.

(4) Section 115-30 applies to subsections (2) and (3) of this section in a corresponding way to the way that section applies in relation to section 115-105.

Note: Section 115-30 has special rules about when assets are acquired.

114-30 Asset requirements for indexation to apply for a cost base worked out under subsection 110-36(1A)

(1) This section sets out requirements for indexation to be included under subsection 110-36(1A) in the *cost base of a *CGT asset for the purposes of working out your *capital gain from a *CGT event happening in relation to the CGT asset if:

(a) you are an individual; and

(b) you make the capital gain directly or, because of section 115-215, as a beneficiary of a trust.

(2) The *CGT asset must not be an asset for which either of the following sections applies in relation to the *capital gain:

(a) section 115-102 (about new residential dwellings);

(b) section 115-125 (about affordable housing).

Note 1: If you are a beneficiary of a trust, the requirements in this section do not affect whether indexation is included in the cost base of the CGT asset for the purposes of working out whether the trust estate makes a capital gain. If section 115-102 or 115-125 (the discount section ) applies for your capital gain, then in working out your capital gain:

(a) the cost base will be adjusted to remove the effect of indexation (see subsection 115-225(5)); and

(b) instead, the discount relating to the discount section applies (see paragraph 115-215(4)(a)).

Note 2: However, the result in paragraphs (a) and (b) of note 1 does not happen for your capital gain if the trust chooses under the discount section for that section not to apply. If the trust makes this choice, the indexation included in the cost base of the CGT asset will flow through to working out your capital gain (see subsection 115-215(3)(a)).