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

5   Subsection 102-5(1)

Repeal the subsection, substitute:

(1) Your assessable income includes your net capital gain (if any) for the income year. You work out your net capital gain in this way:

Working out your net capital gain

Step 1. Reduce the *capital gains you made during the income year by the *capital losses (if any) you made during the income year as follows:

(a) first, reduce any *deferred non-residential capital gains;

(b) then, reduce any *deferred residential capital gains;

(c) then, reduce any *non-residential capital gains;

(d) then, reduce any *residential capital gains.

Note 1: Indexation may apply in relation to working out your capital gains: see Divisions 110 and 114.

Note 2: Some provisions of this Act (such as Divisions 104 and 118) permit or require you to disregard certain capital gains or losses when working out your net capital gain. Subdivision 152-B permits you, in some circumstances, to disregard a capital gain made from a CGT event happening to a CGT asset you held for at least 15 years.

Note 3: If you have more than one capital gain within a category mentioned in paragraph (a), (b), (c) or (d), you can choose the order in which you reduce them.

Step 2. Apply any previously unapplied *net capital losses from earlier income years to further reduce the amounts (if any) remaining after the reduction of *capital gains under step 1. Make the further reductions in the same order as mentioned in step 1.

Note: Section 102-15 explains how to apply net capital losses.

Step 3. Apply any quarantined amount referred to in paragraph 26-155(1)(b) you have for the income year to reduce the amounts (if any) of any *deferred residential capital gains remaining after the reduction of *capital gains under step 2.

Note: Subsection 26-155(1) deals with amounts relating to using or holding residential dwellings as residential accommodation.

Step 4. Apply any quarantined amount referred to in paragraph 26-155(1)(b) you have for the income year remaining after step 3 to reduce the amounts (if any) of any *residential capital gains remaining after the reduction of *capital gains under step 2.

Step 5. Reduce by the *discount percentage each amount of any *discount capital gain remaining after the application of steps 1 to 4.

Note: Only some entities can have discount capital gains, and only if they have capital gains from certain CGT assets acquired at least a year before making the gains: see Division 115.

Step 6. If any of your *capital gains (whether or not they are *discount capital gains) remaining after step 5 qualify for any of the small business concessions in Subdivisions 152-C, 152-D and 152-E, apply those concessions to each of those capital gains as provided for in those Subdivisions.

Note 1: The basic conditions for getting these concessions are in Subdivision 152-A.

Note 2: Subdivision 152-C does not apply to CGT events J2, J5 and J6. In addition, Subdivision 152-E does not apply to CGT events J5 and J6.

Step 7. Add up the amounts of any *capital gains remaining after step 6. The sum is your net capital gain for the income year.

Note: For exceptions and modifications to these rules: see section 102-30.