Tax Reform No. 1 Act now law
The Government’s Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026 and is now law.
The Act implements several significant tax measures announced in the 2026-27 Federal Budget, with many of the changes scheduled to commence from 1 July 2027.
The legislation introduces a range of reforms affecting individuals, investors and businesses, including changes to capital gains tax (CGT), negative gearing, a new Working Australians Tax Offset and a standard work-related expense deduction.
Key measures
The Act includes a range of reforms affecting individuals, investors and businesses, including:
- Capital gains tax reforms from 1 July 2027.
- Negative gearing changes for certain residential investment properties from 1 July 2027.
- A new Working Australians Tax Offset from the 2027-28 income year.
- A new $1,000 standard work-related expense deduction from the 2026-27 income year.
New restriction on SMSF borrowing
A new restriction on self-managed superannuation fund (SMSF) borrowing was added to the legislation.
From 10 August 2026, SMSFs will generally only be able to enter into new Limited Recourse Borrowing Arrangements (LRBAs) to acquire business real property.
This effectively removes the ability for SMSFs to establish new borrowing arrangements to purchase residential investment property.
Existing LRBAs entered into before 10 August 2026, refinancing of those existing LRBAs, and binding contracts to acquire real property exchanged before 10 August 2026 will generally remain unaffected by the new rules.
The Australian Taxation Office (ATO) has confirmed that LRBAs are not banned, but from 10 August 2026, new LRBAs used to acquire real property must relate to business real property.
Working Australians Tax Offset (WATO)
The legislation introduces the Working Australians Tax Offset (WATO) from the 2027-28 income year.
The WATO is a new non-refundable annual tax offset of up to $250 for eligible Australian resident individuals who earn labour income, such as salary and wages. It is available where an individual’s net labour income exceeds the tax-free threshold. Unlike a tax deduction, a tax offset directly reduces the amount of tax payable.
The offset is intended to provide ongoing tax relief for workers and will generally apply automatically when eligible taxpayers lodge their tax return. According to the Government, more than 13 million Australian workers are expected to benefit, with most eligible taxpayers receiving the full $250 offset. Because the WATO is non-refundable, any unused amount will not be refunded, transferred or carried forward.
$1,000 standard work-related expense deduction
The Act also introduces a $1,000 standard work-related expense deduction from the 2026-27 income year.
The measure is designed to simplify tax time by giving eligible Australian resident workers a default work-related expense deduction of up to $1,000. The deduction will be automatically applied if the taxpayer is eligible, so they do not need to claim it separately or keep records to receive the standard amount.
Importantly, taxpayers are not required to use the standard deduction. If they claim work-related expenses above the $1,000 standard deduction, they will need records for the full amount claimed, not just the amount above $1,000.
The standard deduction only applies to eligible work-related expenses and is reduced by any work-related expenses claimed, with some exceptions. Other deductions, such as charitable donations, deductible personal superannuation contributions, income protection insurance and investment-related deductions, can still be claimed separately where eligible. Union fees and professional association membership fees can also be claimed in addition to the standard deduction.
Learn more about other major changes
Two of the most significant reforms relate to capital gains tax and negative gearing.
We’ve prepared dedicated articles that explore these measures in more detail, including who may be affected, the commencement dates and transitional arrangements:
What happens next?
Now that the Act has received Royal Assent, many of the measures are scheduled to commence from 1 July 2027. This gives affected taxpayers time to understand the changes and consider whether any planning may be appropriate.
As further guidance is released, we’ll continue to keep clients informed of any important developments and what they may mean in practice.
If you have any questions about how these changes could affect you or your business, please contact our team.
