Overview

FirstTech released a Newsflash on the Government releasing draft legislation on 4 Aug 2026, providing much-needed clarity on the application of the CGT and negative gearing changes announced in the Federal Budget, in relation to situations involving death and relationship breakdown.

Key issues

When Parliament passed the Bills implementing the Government’s CGT and negative gearing reforms in late June, they did not address a range of issues that had been identified during a parliamentary review of the announcements, in particular – how any CGT and negatively geared assets would be treated on death and relationship breakdown.
 
For example, where a person inherits a CGT asset (via an estate or a joint tenancy) they will generally be taken to have acquired the asset at the date of death. As a result, where a person died on or after 1 July 2027, a recipient of their CGT assets would not be entitled to apply the 50% individual discount to any capital gains that accrued up to that date – as they would not be treated as having acquired the assets prior to that date. Instead, their beneficiaries (including their Legal Personal Representative) would now be required to apply the indexed cost base method to calculate their taxable gains when they sold the assets, with the minimum 30% tax rate potentially applying.
 
Similar concerns were also raised in relation to assets acquired as part of a property settlement due to a relationship breakdown. In addition, there were also concerns that a surviving joint tenant may lose access to the negative gearing grandfathering provisions in a similar situation.

Proposed changes

The Government has now released draft legislation which proposes to make a number of changes to the CGT rules to address these issues.

CGT on death after 1 July 2027
 
Under the draft legislation, where a person dies after 1 July 2027, a recipient of the deceased’s asset (including an LPR, beneficiary or a surviving joint tenant) will now be treated as having acquired any assets when the deceased originally acquired the assets – not from the date of death. As a result, the recipient would now be entitled to apply the 50% CGT discount method to any gains that accrued before 1 July 2027.
 
Where the deceased acquired the asset before 20 September 1985, it is proposed that a recipient will still be taken to have acquired the asset at the date of death. However, under the existing CGT rules¹ the beneficiary’s cost base would be the market value of the asset at the time of death. This raises some uncertainty in relation to the treatment of any gains that accrue between the deemed disposal and reacquisition of that asset on 1 July 2027 and the date of death. It is hoped that this issue will be addressed as part of the consultation process.
 
The draft legislation also proposes an exemption on capital gains arising for genuine testamentary trusts, deceased estates and special disability trusts from the 30% minimum tax on capital gains.
 
Interestingly, this exemption does not apply to a gain an individual beneficiary makes after receiving an asset from the trust and subsequently disposing of it.
 
For example, where a deceased's asset is sold by the LPR of the deceased estate, or by the trustee of a testamentary trust, any post-1 July 2027 capital gain distributed to a beneficiary would be exempt from the 30% minimum capital gains tax.
 
In contrast, where an asset is distributed to a beneficiary and the beneficiary later disposes of that asset, any resulting indexed capital gain may be subject to the 30% minimum capital gains tax, unless the beneficiary qualifies for an exemption, such as being a recipient of a prescribed income support payment.

CGT on relationship breakdown
 
Similarly, the draft legislation allows the recipient of an asset to retain the original acquisition date of the transferor where a same-asset rollover applies as a result of a relationship breakdown.
 
This means that any grandfathered entitlement to the 50% CGT discount can continue to be available to the recipient of the asset.
 
Negative gearing
 
The draft legislation extends access to the negative gearing grandfathering rules to a surviving spouse who acquires an interest in a property following the death of their spouse, regardless of whether the interest is acquired as a surviving joint tenant or through the deceased estate. Similar relief is also proposed where an interest in a property is transferred to a spouse as a result of a relationship breakdown. 

The ATO has provided guidance on the operation of the changes to SMSF limited recourse borrowing arrangements effective 10 August 2026.

Under the changes LRBAs entered into on or after 10 August 2026 to purchase real property, can only be used to acquire business real property.  This change means SMSFs can no longer enter into new LRBAs to acquire ordinary residential investment properties from that date.

The ATO has issued a reminder that payment of super contributions on government funded Parental Leave Pay will commence to be paid this financial year. 

The scheme commenced on 1 July 2025, with super contributions on government funded Paid Parental Leave paid the following financial year. Those that received government funded Paid Parental Leave in 2025-26 will have super contributions at the Super Guarantee rate (currently 12%) paid into their super this financial year.  

The contributions will be taxed at 15% in the super fund and will count toward the individual’s concessional contribution cap in the year that the contribution is made.