Key points

• Schedule 1 of the Treasury Laws Amendment (Delivering an Efficient and Trusted Tax System) Bill 2026 (the Bill) removes the condition that a gift to a deductible gift recipient be valued at $2 or more before the donor may claim a tax deduction. The amendments apply to gifts made from 1 July 2024.
• Schedule 2 of the Bill streamlines how trustees of closely held trusts report beneficiary tax file numbers (TFNs) to the Commissioner of Taxation and clarifies the Commissioner’s notification obligations where a TFN reported to the Commissioner is either incorrect or does not exist.
• Schedule 3 of the Bill consists of 3 parts:
  • Parts 1 and 3 of Schedule 3 propose minor amendments that are technical in nature and do not alter policy outcomes.
  • Part 2 enables a Public Trustee, acting for a client who has a self-managed super fund (SMSF), to approve the appointment of a person as a trustee of the SMSF, or a director of the SMSF’s corporate trustee. The amendments also authorise that person to be remunerated for their services.
• Schedule 4 of the Bill amends the ITAA97 to exclude R&D activities relating to tobacco and gambling from the R&D Tax Incentive, except for activities conducted for the sole purpose of harm minimisation. The changes will commence for income years starting on or after 1 July 2025
• At the time of writing, the Bill had not been referred to or reported on by any parliamentary committees.

Introductory Info

Date of introduction: 25 March 2026
House introduced in: House of Representatives
Portfolio: Treasury
Commencement: Schedules 1 and 2 commence on the first 1 January, 1 April, 1 July or 1 October to occur after Royal Assent. Schedules 3 and 4 commence the day after Royal Assent.

Purpose and structure of the Bill

The purpose of the Treasury Laws Amendment (Delivering an Efficient and Trusted Tax System) Bill 2026 (the Bill) is to amend the Income Tax Assessment Act 1997 (ITAA97), Income Tax Assessment Act 1936 (ITAA36), Treasury Laws Amendment (More Competition, Better Prices) Act 2022, Superannuation Industry (Supervision) Act 1993 (SISA) and Australian Securities and Investments Commission Act 2001 (ASIC Act) to:

• encourage low value donations to deductible gift recipients (DGRs) by removing the requirement that a gift must be at least $2 before a donor can claim a tax deduction, for a gift made on or after 1 July 2024 (Schedule 1)
• support pre-filling of beneficiary income tax returns by requiring trustees of closely held trusts to report in the trust’s income tax return the tax file numbers of beneficiaries when they have an entitlement, from 1 July 2026 (Schedule 2)
• make minor and technical amendments to legislation within the Treasury portfolio, including to allow a Public Trustee that is acting for a client who has an SMSF to approve a person to be the trustee or the director of the trustee company of the client’s SMSF (Schedule 3)
• exclude activities related to gambling and tobacco from Research and Development (R&D) Tax Incentive eligibility, from 1 July 2025 (Schedule 4).

Policy position of non-government parties/independents

At the time of writing, no publicly available statements from non-government parties or the independents concerning the Bill could be identified.

Background

Schedule 1: Removing the $2 threshold for deductions for gifts or contributions

Background and policy development

In 2022–23, around 4.4 million people claimed tax deductions totalling $2,260 million for gifts or donations to DGRs. Of the total deductions claimed, 93% went to individuals with above-median incomes, and 82% was claimed by individuals in the top income decile (2025–26 Tax Expenditures and Insights Statement, p. 28). 

In the October 2022–23 Budget, the Government announced that the ‘Productivity Commission will review the current framework to incentivise philanthropy in the not-for-profit sector’ (Budget Paper No. 2, p. 194).

On 10 May 2024, the Productivity Commission delivered its final report, Future foundations for giving, making 19 recommendations. Recommendation 4.1 proposed removing the $2 threshold for tax-deductible donations (p. 139).

On 18 December 2024, as part of the 2024–25 Mid-Year Economic Fiscal Outlook (MYEFO), the Government announced it would implement further reforms as part of its commitment to double philanthropic giving by 2030. 

In a media release dated 5 December 2024, the Assistant Minister for Competition, Charities and Treasury, Dr Andrew Leigh, confirmed that the Government would implement Recommendation 4, noting that the measure ‘will support greater participation in philanthropy, by encouraging small donations including rounding up purchases at the point of sale in store and online’.

Why the change?

The Australian Government seeks to encourage charitable donations by allowing a person who donates over $2 to DGR-endorsed entities to claim a tax a deduction against their personal income tax. While the Productivity Commission found that the personal income tax deduction does increase giving, it was not possible to determine the extent to which it did so (p. 120).

It is also difficult to determine how much is donated in Australia but not captured through the tax system. One reason is that donations of less than $2 are ineligible for a tax deduction, meaning these donations are not recorded in the tax data (p. 126).

The $2 threshold is a product of history (p. 137):

• In 1915, income tax deductions for giving were introduced with relatively high minimum thresholds:
  • £5 for donations to the war effort
  • £20 for charitable donations

  (equivalent to $578 and $2,313 respectively in 2022 dollars).

• In 1927, the minimum threshold was reduced to £1.
• In 1966, when Australian currency was decimalised, the £1 threshold was converted to $2.
• The real value of the $2 minimum threshold has steadily eroded. For example, $2 in 1966 is equivalent to almost $30 in 2022 dollars.

Why the Productivity Commission recommended removal despite previous mixed reviews

Previous reviews have recommended different approaches to the minimum deductibility threshold (p. 138). After considering these views, the Productivity Commission concluded that removing the $2 tax‑deductibility threshold would be unlikely to materially increase compliance costs for charities, as there is no legal requirement to issue receipts, and charities can choose to issue receipts only above a specified amount. It therefore recommended removing the threshold (Recommendation 4.1, p. 139).

The Productivity Commission reported:

• The Henry Tax Review (2010) recommended raising the threshold from $2 to $25 to reduce compliance and receipt keeping/issuing burdens for donors/DGRs, although advances and increases in uptake of technology have reduced the compliance costs relating to generating and keeping receipts.
• By contrast, the Not-for-profit Sector Tax Concession Working Group (Treasury 2013) and the Industry Commission (1995) recommended removing the threshold entirely, citing simplicity and negligible revenue impact, and allowing charities discretion over issuing receipts.
• Participant views were mixed, for example:
  • BDO advisory services supported removing the threshold to resolve legal and accounting uncertainty around small recurring donations, eg, whether a weekly $1 donation was a $52 donation made in weekly payments, or 52 donations, each under the $2 threshold.
  • Others (Creative Australia and Order of Australia Association Foundation) supported removal in principle but raised concerns about administrative costs, particularly for organisations that issue receipts manually.
  • The Sydney Children’s Hospital Foundation cautioned that removing the threshold could result in receipt costs exceeding the value of very small donations.
• Changes to the threshold may affect donor behaviour, including encouraging ‘micro- donations’ (such as ‘round up’ donations at supermarket checkouts) if the threshold were removed.
• Balnaves Foundation was concerned that removing the threshold could impose obligations on businesses offering round up donations to provide receipts for small donations; however, DGRs are not legally required to issue receipts, and the ATO accepts alternative forms of substantiation, such as bank statements or internet banking confirmations (Future foundations for giving, p. 138).

Retrospective application

Schedule 1 applies retrospectively to donations or gifts made on or after 1 July 2024. The Explanatory Memorandum (EM) (p. 6) states that the retrospective application is beneficial to donors who have donated to DGRs since that date.  

Stakeholder comment

In a media release dated 6 December 2024, Philanthropy Australia welcomed the removal of the $2 threshold, but noted more significant reforms would be needed to fix the system and grow giving.

In January 2025, Gotax Advice supported the change as ‘a win for taxpayers and charities alike’. 

Schedule 2: Modernising tax administration systems

Background and policy development

The Modernising Tax Administration Systems (MTAS) project was first announced in the 2022–23 March Budget as the Digitalising Trust Income Reporting and Processing measure (Budget Paper No. 2, pp. 18–19). The Government explained that trust income reporting and assessment calculation processes have not been automated to the same extent as individual or company tax returns, resulting in longer processing times and limited pre-filling opportunities.

To address this, the measure was intended to allow all trust tax return filers to lodge returns electronically, expand pre-filling, and automate ATO assurance processes. The ATO implemented a first tranche of changes from 1 July 2024.

In the 2024–25 MYEFO (p. 195), the Government announced $76 million in additional funding over 4 years from 2024–25 to further modernise ATO income tax reporting systems. The measure aims to expand ATO’s prefilling capabilities, so that trust income distributed to beneficiaries can be prefilled in the same way as salary and wages, and bank interest.

To support these changes, the Bill seeks to amend the law to require trustees to report beneficiaries’ tax file numbers (TFN) on the trust income tax return’s Statement of Distribution where a beneficiary has an entitlement to a share of the income of the trust. This measure is expected to increase receipts by $81.6 million over five years from 2023–24 and finalises the Digitalising Trust Income Reporting and Processing project (EM, p. 2 and 2024–25 MYEFO, p. 195).

On 1 February 2026, Treasury completed public consultation on the Modernising tax administration systems draft legislation. Submissions have not been published.

Separately, the ATO has undertaken working-group style consultations, including meetings held on 1 December 2025 and 21 January 2026, and on 24 March 2026 confirmed the delivery of further system improvements through Tax Times 2026 and 2027.

What does Schedule 2 do?

Schedule 2 streamlines how trustees of closely held trusts report beneficiary TFNs to the Commissioner of Taxation (p. 7) and clarifies the Commissioner’s notification obligations where a TFN reported to the Commissioner is either incorrect or does not exist (p. 11).

Trust concepts and tax rules relevant to Schedule 2

Schedule 2 amends TFN reporting rules specifically for closely held trusts, and relies on a number of key trust and taxation concepts. To assist understanding, this section provides brief explanations of the relevant concepts and rules. 

What is a trust?

A trust ‘is a fiduciary relationship between a trustee who is the legal owner of property and one or more beneficiaries for whose benefit the property is held. The distinguishing feature of this relationship is the trustee’s obligation to act honestly and in good faith to serve the interests of the beneficiaries.’ The Australian Taxation Office (ATO) simply defines a trust as ‘an obligation for a person or other entity to hold property or assets for beneficiaries.’

What is a trustee and a beneficiary?

At general law, a trustee may be an individual or an entity (for example, a family friend, or a company). The tax legislation defines a ‘trustee’ under subsection 6(1) of the ITAA36 as follows:

“trustee” in addition to every person appointed or constituted trustee by act of parties, by order, or declaration of a court, or by operation of law, includes:

1. an executor or administrator, guardian, committee, receiver, or liquidator; and
2. every person having or taking upon himself the administration or control of income affected by any express or implied trust, or acting in any fiduciary capacity, or having the possession, control or management of the income of a person under any legal or other disability;

A beneficiary may be a person, company, partnership or others. While the term ‘beneficiary’ is not defined in the tax legislation, a trustee may also be a beneficiary of a trust so long as it is not the sole beneficiary. 

Beneficiaries may have an entitlement to trust income or capital that is set out in the trust deed or they may acquire an entitlement because the trustee exercises a discretion to pay them income or capital.

How are trusts taxed?

A trust is not a separate legal entity at general law and is generally treated as a flow-through vehicle for tax purposes rather than a taxable entity.

The assessable income of a trust must be ‘flowed through’ to individual beneficiaries who are entitled to the income or capital distribution, assessed in their hands, at their individual tax rates (see Division 6 (trust income) in Part III of the ITAA 1936).

What is a ‘closely held trust’?

A ‘closely held trust’ is defined in section 102UC of the ITAA36 as either:

1. a discretionary trust; or
2. a fixed trust where up to 20 individuals hold between them fixed entitlements to 75% or more of the income or capital of the trust

except where a trust is an excluded trust.

In simple terms, a ‘closely held trust’ is a trust controlled by a small number of beneficiaries or controllers, often members of the same family or a closely connected business group. In practice, many family trusts and small unit trusts fall into this category.

Certain trusts are expressly excluded from the definition, for example:

• a complying superannuation fund
• a complying approved deposit fund
• a pooled superannuation trust, and
• a unit trust whose units are listed on the Australian Stock Exchange. 

These trusts are therefore not treated as ‘closely held trusts’ for the purposes of section 102UC of ITAA36.

Closely held trusts are subject to specific integrity rules designed to enable the ATO to verify that a beneficiary's share of the trust net income is correctly included in the beneficiary's income tax return. Two special rules apply:

• trustee beneficiary (TB) reporting rules, and
• TFN withholding rules. 

What is a fixed trust?

Subsection 995-1(1) of ITAA97 provides that ‘a trust is a fixed trust if entities have fixed entitlements to all of the income and capital of the trust’.

What is a discretionary trust?

A ‘discretionary trust’ is a trust that is not a fixed trust within the meaning of section 272-65 of Schedule 2F to the ITAA36.

Discretionary trusts are commonly used by families. Under a discretionary trust, the trustee has the flexibility (or discretion) to distribute income and capital among a range of beneficiaries. The trustee may also have the power to add or remove beneficiaries. From a commercial perspective, this flexibility provides the trustee with the ability to supplement the income of lower earning beneficiaries who are usually family members, with tax typically borne by beneficiaries with lower individual tax rates.

Special rules applying to closely held trusts

Trustee beneficiary reporting rules

The trustee of a closely held trust must report information to the ATO about each trustee beneficiary's share of the trust's net income or tax-preferred amounts in a Trustee Beneficiary Statement. If the trustee fails to satisfy the reporting requirements, trustee beneficiary non-disclosure tax is imposed at the highest marginal rate plus Medicare levy on the untaxed part of the share of the net income. The reporting requirements are contained primarily in Part III Division 6D of ITAA36 (sections 102UA to 102UV). (Section 102UI, ITAA36 provides that the expression ‘tax-preferred amount’ of a trust means: income of the trust that is not included in its assessable income in working out its net income; or capital of the trust.)

A person is a trustee beneficiary of a closely held trust if the person is a beneficiary of the trust in the capacity of trustee of another trust: section 102UD, ITAA36. 

TFN withholding rules

Separate rules apply to encourage beneficiaries of closely held trusts to quote their TFN to the trustee. Where a beneficiary's tax file number is not quoted, the trustee is required to withhold tax from trust distributions.

Beneficiary TFN reporting

Schedule 2 requires that trustees must report beneficiary TFNs at the same time the trust tax return is lodged if the beneficiary (p. 10):

• is presently entitled to a share of the income of the trust for the income year, and
• has quoted their TFN at any time before the trustee lodges the trust’s tax return.  

The TFN must be disclosed in the approved form, which is expected to be the Statement of Distribution in the trust tax return for the income year. The trustee will be required to report the TFN in the trust tax return for all future income years that the beneficiary is presently entitled to a share of income of the trust.

A trustee is not required to report a trustee beneficiary’s TFN where the TFN has already been reported in a trustee beneficiary statement under Division 6D of Part III of the Income Tax Assessment Act 1936 (ITAA36) (see further explanation below).

These amendments replace the current requirement for trustees to lodge quarterly TFN reports for the quarter in which a beneficiary quotes their TFN. The changes are intended to support prefilling of beneficiary income tax returns.

Existing beneficiary TFN reporting framework

Thomson Reuters Westlaw explains that under section 202DP of ITAA36, the trustee of a closely held trust must currently report, on a quarterly basis, any TFNs quoted by beneficiaries. However, the trustee is not required to report a beneficiary’s TFN where:

1. the beneficiary is within a class of beneficiaries excluded from the TFN withholding rules;
2. a beneficiary has already quoted their TFN to the trustee in connection with an investment to which Pt VA of ITAA 1936 applies: paragraph 202DP(1)(b); or
3. the trustee has already reported the beneficiary's TFN under Div 6D of Pt III (about trustee beneficiary non-disclosure tax under section 102UA: paragraph 202DP(1)(c)).

Commissioner’s obligation to notify trustees of incorrect TFNs

After a beneficiary’s TFN has been provided to the ATO by a trustee, section 202DR of the ITAA36 deals with the situation where the quoted TFN has been cancelled or withdrawn or is otherwise incorrect. In these circumstances, where the Commissioner is satisfied that the beneficiary has a TFN they may inform the trustee of the correct TFN (subsection 202DR(1)). In circumstances where the Commissioner is not satisfied that the beneficiary has a TFN, they must notify the trustee of this (subsection 202DR(4)).

The proposed amendments to section 202DR of the ITAA36 at items 2 to 4 of Schedule 2 to the Bill achieve two purposes (p. 11):

• Discretionary notification: Where a quoted TFN is cancelled, withdrawn, or otherwise incorrect, and the Commissioner identifies the beneficiary’s correct TFN, the Commissioner may notify the trustee of the correct TFN in appropriate circumstances. If this occurs, the beneficiary is taken to have quoted the correct TFN on the same day they originally quoted the incorrect TFN.
• Mandatory notification: The Commissioner must notify the trustee where the beneficiary does not have a TFN because the quoted TFN is cancelled, withdrawn, or otherwise incorrect, and the Commissioner is not satisfied that:
  • the beneficiary has provided the correct TFN,
  • the beneficiary has a TFN, or
  • it is reasonable to notify the trustee of the correct TFN using Commissioner’s discretion (discussed above).

The amendments ensure that the trustee can comply with TFN withholding obligations where required.

Schedule 3: Minor and technical amendments

What do Parts 1 and 3 of Schedule 3 do?

• Part 1 amends the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 to correct a typographical error.
• Part 3 amends the Australian Securities and Investments Commission Act 2001 to improve readability and clarity, reducing the risk of misinterpretation.

These minor amendments are technical in nature and do not alter policy outcomes.

What does Part 2 of Schedule 3 do?

Part 2 enables a Public Trustee, acting for a client who has a self-managed super fund (SMSF), to approve the appointment of a person as a trustee of the SMSF, or a director of the SMSF’s corporate trustee. The amendments also authorise that person to be remunerated for their services.

What problem does Part 2 address?  

Part 2 addresses a long-standing practical problem that can arise where an SMSF trustee (or director of a corporate trustee) becomes legally incapacitated or dies, but the Public Trustee is unable, or prudentially constrained, from acting or appointing a replacement.

SMSFs require trustees or directors with sufficient capacity to manage investments and ensure compliance with superannuation law. Where a trustee loses capacity or dies, an SMSF may be unable to operate or remain compliant unless a replacement trustee or director can be validly appointed.

Why replacement trustees are difficult to appoint?

In his journal article ‘Loss of trustee capacity in SMSFs’ (pp. 130-133), Neal Dallas highlights some of the complexities involved in replacing an incapacitated trustee, which are summarised below.

Not all SMSF trust deeds or company constitutions provide for the automatic removal of an incapacitated trustee or director (p. 130). In practice:

• Power to remove an incapacitated trustee often sits with members, who may include the incapacitated person.
• This can create a deadlock or “catch‑22”, where the members cannot exercise the power of removal because one of those members is the incapacitated trustee, who may be unable or unwilling to remove themselves.
• Loss of capacity may be gradual or intermittent, further complicating decisions about resignation or removal (p. 130).

Similar difficulties arise for corporate trustees. The Corporations Act 2001 does not generally provide for the automatic removal of an incapacitated director. As with individual trustees, removal depends on the company constitution, and most standard constitutions do not provide for automatic removal on the grounds of incapacity (p. 130).

By clarifying that a Public Trustee may approve and remunerate a replacement trustee or director for an SMSF member who has lost capacity, or dies, Part 2 provides a practical pathway to:

• avoid governance deadlocks
• restore compliance with SMSF trusteeship requirements and
• protect the ongoing operation of affected SMSFs.

Schedule 4: Exclusion of tobacco and gambling related activities from the Research and Development Tax Incentive

What does Schedule 4 do?

Schedule 4 proposes to amend the ITAA97 to exclude R&D activities relating to tobacco and gambling from the R&D Tax Incentive, except for activities conducted for the sole purpose of harm minimisation. The changes will commence for income years starting on or after 1 July 2025 and were announced in the 2024-25 MYEFO.

What is the R&D tax incentive?

The R&D tax incentive provides targeted tax offsets designed to encourage more companies to engage in R&D. The ATO advises that the incentive has 2 core components:

• a refundable tax offset equal to the entity’s company tax rate plus an 18.5% premium for eligible entities with an aggregated turnover of less than $20 million per annum, provided they are not controlled by income tax-exempt entities
• a non-refundable tax offset for all other eligible entities equal to the entity’s company tax rate plus a two-tiered premium determined on the notional R&D expenditure as a proportion of total expenditure for the income year:
  • 8.5% for R&D expenditure up to 2% of total expenditure
  • 16.5% for R&D expenditure above 2% of total expenditure.

Entities may be able to carry forward unused offset amounts to future income years. The rate of the R&D tax offset is reduced to the company tax rate for that portion of an entity's notional R&D deductions that exceeds $150 million for an income year.

The ATO publishes R&D tax incentive transparency reports, which provide transparency on the benefits received by R&D entities.

Background and policy development

In October 2024 ATO published the R&D Tax Incentive Transparency Report. In November 2024, the Australian Financial Review (AFR) highlighted aspects of that report, which indicated that ‘novelty fast food, gambling, tobacco and alcohol’ had benefited from the tax incentive. In particular, the AFR reported on:

other unexpected claimants of a tax break meant to encourage hard scientific innovation. This includes the $43 million claim by gaming giant Tabcorp, up 11 per cent on the prior year; poker machine behemoth Aristocrat ($18.9 million); The Lottery Corporation ($10.4 million); Austria’s slot machine maker Ainsworth Game Technology ($7.9 million); and US-owned bookmaker PointsBet ($7.5 million).

In the 2024–25 MYEFO (pp. 197–198), the Government announced that activities related to gambling and tobacco would be excluded from R&D Tax Incentive eligibility for income years starting on or after 1 July 2025. Excluding these activities will ensure that the Government is not subsidising this type of research and development. Activities that are solely for the purpose of harm reduction, such as reducing addiction, will remain eligible to receive support. This measure is estimated to increase receipts by $12.0 million and decrease payments by $8.0 million over five years from 2023–24 (EM, p. 4).

On 8 December 2025, the Government released an exposure draft of legislation to implement this measure. Consultation closed on 30 January 2026 and submissions do not appear to have been published (though some stakeholders have published their submissions independently, as discussed below).

Stakeholder comments

In its submission on the exposure draft legislation, the Interactive Games & Entertainment Association (IGEA) raised concerns about the proposal’s potential impact on the video games industry. In particular, the IGEA was concerned that the draft legislation’s (and the Bill’s) exclusion of ‘activities related to gambling services, gambling and gambling-like practices’ was wider than the exclusion applying to the digital games tax offset (DGTO).

Under section 378-25 of the ITAA97, a game is not eligible for the DGTO ifs it is ‘a gambling service (within the meaning of the Interactive Gambling Act 2001), or is substantially comprised of gambling or gambling‑like practices’. The IGEA was concerned that without the inclusion of the phrase ‘substantially comprised of’:

the scope of excluded [R&D Tax Incentive] activities could be significantly broader than under the DGTO. These discrepancies may lead to conflicting interpretations regarding which specific activities qualify under each scheme, uncertainty, over-breadth and unintended consequences. Ensuring consistency between these provisions is important for avoiding uncertainty in how chance‑based or thematic game elements are treated across the ITAA (p. 3).

Accordingly, the IGEA recommended the amendment of the draft Bill to ‘ensure that only activities substantially comprised of gambling or gambling‑like practices are excluded from RDTI eligibility’ (p. 3).

Referring to the exposure draft legislation, Swanson Reed (R&D tax advisors) acknowledged  the social harms associated with gambling and tobacco but cautioned that narrowing the R&D Tax Incentive eligibility could undermine certainty and business confidence, arguing that the incentive is most effective when it remains broad‑based, market‑driven, and stable.