This Bills Digest replaces a preliminary Digest published on 30 March 2026 to assist in early consideration of the Bill.
Key points
- The Treasury Laws Amendment (Delivering an Efficient and Trusted Tax System) Bill 2026 (the Bill) is an omnibus Bill that includes a number of unrelated measures.
- Schedule 1 of 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 tax file number (TFN) reporting by trustees of closely held trusts and clarifies the Commissioner of Taxation’s notification obligations where a reported TFN 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 Income Tax Assessment Act 1997 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.
- Other than Schedule 4, the measures proposed by the Bill are uncontroversial and broadly supported.
- Some stakeholders have cautioned that Schedule 4 could undermine the historically sector‑neutral design of the R&D Tax Incentive and Australia’s reputation as a destination for innovation. However, gambling reform advocates support the proposed amendments.
- The Bill was referred to the Senate Economics Legislation Committee for inquiry. The Committee reported on 30 April 2026, recommending that the Bill be passed.
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 (SIS Act) 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 streamlining TFN reporting by trustees of closely held trusts and clarifying the Commissioner’s notification obligations where a quoted TFN is cancelled, withdrawn, incorrect or does not exist, 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, except where activities are undertaken solely for harm minimisation purposes, from 1 July 2025 (Schedule 4).
As each Schedule to the Bill deals with separate measures, the background, issues and key provisions in relation to each will be discussed separately below.
Policy position of non-government parties/independents
In their Second Reading Speeches on the Bill, Centre Alliance MP Rebekha Sharkie and Teal Independent MP Dr Monique Ryan both expressed their support for the Bill. However, in relation to Schedule 4, Ms Sharkie moved an amendment to the second reading speech calling on the Government to exclude all R&D activities conducted by gambling and tobacco companies from eligibility for the R&D Tax incentive, including activities undertaken by research organisations that receive any funding from those industries. Ms Sharkie said:
I also call on the government to exclude from eligibility entities such as research organisations which obtain part or all of their funding from tobacco and gambling companies. Researchers in gambling harm research should not accept money from the gambling industry so that no actual bias influences their research and no perceived bias lessens the value of their research.
Ms Sharkie further cited concerns raised by lived‑experience experts and media reporting about the ethics of a proposed gambling harm education program being undertaken by a research centre that receives funding from the gambling industry. Dr Ryan similarly called for the removal of the exemption for activities conducted solely for harm-minimisation purposes.
Ms Sharkie relied on the ATO’s 2022-23 R&D Tax Incentive Report to highlight the scale of past support for the gambling industry:
There were no claims in relation to tobacco company research and development in that 2022-23 year. However—and this is really important—the same report indicates that 18 companies which identified as part of the gambling industry collectively claimed expenditure of more than $100 million in research and development tax incentives in that year.
We know gambling costs and impacts Australians. Financially, there was a loss of over $31 billion from gambling in 2022-23, making us the biggest losers globally on a per capita basis. Managing the harms caused by gambling costs Australians billions of dollars each year, and, of course, those billions of dollars don't equate to lives lost. In Victoria alone, gambling reportedly cost $14.1 billion in 2023 through financial impacts, emotional and psychological harm including depression and suicide, lost productivity, crime, relationship and family impacts including domestic violence, and other costs.
I don't believe that Australian taxpayers should also be subsidising gambling companies through tax incentives…
Ms Sharkie stated that the Government ‘has really done very little to address the impacts of gambling’ since the Murphy report into online gambling and its impacts on those experiencing gambling harm was handed down more than ‘a thousand days’ ago. Dr Ryan echoed concerns about delays in responding to the Murphy report.
(On 2 April 2026, the Prime Minister used a speech at the National Press Club to confirm that the Government would release its formal response to the Murphy report in the upcoming months.)
Nationals MP Kevin Hogan and Shadow Treasurer Tim Wilson indicated that the Coalition was not opposing the Bill, with Mr Hogan describing some measures as ‘very sensible and practical.’
However, Mr Hogan questioned the Government’s rationale for excluding gambling and tobacco industries from the R&D Tax Incentive ‘for the first time’ on ‘subjective reasons,’ and warned that this could set a precedent for further industry-based exclusions. The Coalition called for the issue of ‘how to determine what gambling is, or gambling isn’t’ to be further investigated. (For example, whether some kids games which give prizes to a winner would be considered a gambling activity.) In relation to tobacco, Mr Hogan queried whether the industry—described as being in “complete disarray” amid declining excise revenue, illicit tobacco, vaping and organised crime—should be excluded from the R&D Tax Incentive, and whether these broader issues were influencing the Government’s approach.
Mr Wilson was more critical of the Bill, especially Schedule 4, and warned that the Bill could lead to unintended consequences by adopting a ‘delusional approach from government, a state of denial about the full consequences of the measures it’s introduced.’
The Coalition supported the referral of the Bill to the Senate Economics Legislation Committee for inquiry to examine the full implications of the Bill.
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).
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 4.1, 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’.
On 18 December 2024, as part of the 2024–25 Mid-Year Economic Fiscal Outlook (MYEFO) (p. 197), the Government announced it would implement further reforms as part of its commitment to double philanthropic giving by 2030.
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 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 (pp. 137-138):
- 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) (Part 2, p. 60) 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) (p. 6) and the Industry Commission (1995) (p. 22) 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 Australian Taxation Office (ATO) accepts alternative forms of substantiation, such as bank statements or internet banking confirmations (Future foundations for giving, p. 138).
Key issues and provisions
Section 30-15 of the ITAA97 contains a table that lists the situations where a gift or contribution is tax deductible, the allowable types of gifts, the required conditions and recipient eligibility.
Items 1 to 6 of Schedule 1 to the Bill amend section 30-15 to remove the $2 minimum threshold for a gift or contribution to be tax deductible for certain recipients listed in subsection 30-15(2), including any entity covered by subdivision 30-B (which lists various types of DGRs, including health, education, research, and welfare organisations), ancillary funds, public libraries and National Trust bodies. The change does not apply to donations to political parties, independent candidates and members under subdivision 30-DA of the ITAA97.
Retrospective application
Schedule 1 applies retrospectively to donations or gifts made on or after 1 July 2024. The 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 that more ‘significant reforms’ would be needed to fix the system and ‘grow giving’. In January 2025, Gotax Advice also supported the change as ‘a win for taxpayers and charities alike’.
The amendments proposed in Schedule 1 are also supported by the Australian Charities and Not-for-profits Commission and Fundraising Institute Australia.
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 (TFNs) 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. Five submissions were received.
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:
- an executor or administrator, guardian, committee, receiver, or liquidator; and
- 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:
- a discretionary trust; or
- 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 of 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 TFNs to the trustee. Where a beneficiary's TFN is not quoted, the trustee is required to withhold tax from trust distributions.
Key issues and provisions
Beneficiary TFN reporting for closely held trusts
Item 1 of Schedule 2 to the Bill replaces the quarterly beneficiary TFN reporting framework in section 202DP of the ITAA36 with an annual reporting requirement. The trustee of a closely held trust will be required to report a beneficiary’s TFN to the ATO at the time the trust tax return is lodged where the beneficiary is presently entitled to the income of the trust for the income year, and has quoted their TFN any time before lodgement (EM, paragraph 2.14). TFNs are to be reported in the approved form (expected to be the Statement of Distribution) (EM, paragraph 2.14). A beneficiary need only quote their TFN once, but the trustee must continue reporting it in future years while the beneficiary remains presently entitled, unless notified by the Commissioner that the quoted TFN is incorrect.
The 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 ITAA36 (see stakeholder comment on Division 6D below).
Failure to report as required by proposed section 202DP will be an offence under section 8C of the Taxation Administration Act 1953 (TAA), which is an offence of absolute liability as set out in section 6.2 of the Criminal Code Act 1995.
In a submission to the Senate Standing Committee on Economics inquiry into the Bill, Chartered Accountants Australia and New Zealand (CA ANZ) supported Schedule 2, but called for the Bill to be amended to ‘repeal Division 6D and include all reporting of TFNs associated with distributions in the current proposal’. CA ANZ considered that Division 6D was ‘designed for a paper based tax administration environment that no longer exists’ and that:
the integrity outcomes historically delivered by Division 6D are now achieved through broader, contemporary reporting systems. Repealing or consolidating Division 6D into a single, modernised reporting framework would not create new opportunities for avoidance or deferral, nor would it reduce the Commissioner’s visibility of trust distributions. Instead, it would remove duplicative obligations and an outdated penalty based disclosure regime, improving clarity and compliance without weakening the tax system’s integrity (p. 2).
Commissioner’s obligation to notify trustees of incorrect TFNs for closely held trusts
Items 2 to 4 of Schedule 2 to the Bill amend section 202DR of the ITAA36 to clarify the Commissioner’s notification obligations where a quoted TFN is cancelled, withdrawn or incorrect. The Commissioner may notify the trustee of a correct TFN where identified, in which case the beneficiary is taken to have quoted it on the original quotation date (proposed subsections 202DR(1) and (2), existing subsection 202DR(3)).
Under subsection 202DR(4) as amended by items 3 and 4, 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 the Commissioner’s discretion (discussed above).
In this circumstance, the beneficiary is taken not to have quoted a TFN to the trustee, potentially triggering the trustee’s withholding obligations under sections 12-175 and 12-180 in Schedule 1 to the TAA.
Stakeholder comments
CPA Australia (p. 1) supported the proposed changes in the exposure draft legislation. However, it noted that where beneficiaries did not yet have a TFN by 30 June – for instance, because they were still in the process of applying for one – TFN withholding might be unintentionally triggered when a present entitlement was created. CPA Australia therefore recommended that:
an exception be made, so that TFN withholding does not apply if the beneficiary provides their TFN before the earlier of the trust income being distributed or the trust tax return being lodged. This practical change would ease compliance without undermining integrity, even though it sits outside the current scope of the Exposure Draft (p. 1).
Schedule 3: Minor and technical amendments
Parts 1 and 3 of Schedule 3 are minor amendments that are technical in nature and do not alter policy outcomes.
Part 2 of Schedule 3 amends the Superannuation Industry (Supervision) Act 1993 (SIS Act) to enable a Public Trustee, acting for a client with a self-managed super fund (SMSF), to approve the appointment of a person as a trustee of the SMSF, or as a director of the SMSF’s corporate trustee. The amendments also authorise that person to be remunerated for their services.
Background
What problem does Part 2 address?
Part 2 addresses a long-standing practical issue that arises where an SMSF trustee, or a director of a corporate trustee, is deceased, under a legal disability, or has a legal personal representative acting under an enduring power of attorney, and the Public Trustee is unable or prudentially constrained from acting or appointing a replacement (EM, p. 14).
For example, if a member becomes incapacitated, they can no longer be a trustee or director of a corporate trustee. If there is not a replacement trustee who can take their place, the fund may fail to meet the definition of an SMSF and become non-compliant under section 17A of the SIS Act. Unless alternative arrangements are made, this can force the affected member to leave the fund, triggering compulsory benefit payments in a lump sum, or rollover to a retail fund within six months under paragraph 17A(4)(b), and potentially resulting in significant transaction costs (including capital gains tax and duty) and the potential forced sale of assets. Further difficulties arise where the member may not be eligible to have their benefits paid out, or the other SMSF members may not want to sell assets to facilitate a benefit payment or rollover.
Meaning of ‘legal disability’
There is no definition of ‘legal disability’ in Commonwealth tax legislation, and it therefore takes its general law meaning (p. 866). The ATO considers a person to be under a 'legal disability' where they are unable to manage their own affairs, including due to mental impairment. The Australian Taxation Law 2021 states (p. 866) that ‘Infants, persons of unsound mind and bankrupts are those most commonly treated as being under a legal disability’ (p. 866).
The risk of incapacity is real
SMSFs require trustees or directors with sufficient capacity to manage investments and ensure compliance with superannuation law. However, as Pitcher Partners mentions:
…the risk of mental and physical impairment increases with age. Almost 30% of SMSF members are over 70 years old, and more than 15% are over age 75. By 2056, more than 1.1 million Australians are expected to have dementia, many of whom may have an SMSF.
Why are replacement trustees 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, the 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. Furthermore, the 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.
Key issues and provisions
Items 2 to 4 in Part 2 of Schedule 3 to the Bill amend section 17A of the SIS Act to allow a Public Trustee acting for a client with an SMSF to approve a person to be the trustee, or the director of the corporate trustee, of the client’s SMSF. This enables the fund to retain its SMSF status where a member is deceased, is under a legal disability, or has a legal personal representative acting under an enduring power of attorney. Item 5 amends subsections 17B(1) and (2) of the SIS Act to allow a person approved by a Public Trustee to act as trustee or director to be remunerated on an arm’s-length basis for services provided.
Stakeholder comments
CA ANZ supported these amendments, but recommended they be extended to allow solicitors who are appointed as a trustee of an SMSF as a result of agreeing to act as a client’s attorney under an enduring or general power of attorney and/or to act as a client’s executor for their deceased estate, to also be eligible to be remunerated for their trustee duties (pp. 2‑3).
Schedule 4: Exclusion of tobacco and gambling related activities from the Research and Development Tax Incentive
Background and policy development
In October 2024, the ATO published its first annual R&D Tax Incentive Transparency Report. In November 2025, the Australian Financial Review (AFR) highlighted data from the 2022-23 report, released in September 2025, 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 Treasury received 16 submissions, including 3 confidential submissions.
What does Schedule 4 do?
Schedule 4 amends the ITAA97 to exclude R&D activities relating to tobacco and gambling from access to the R&D Tax Incentive, except where activities are undertaken solely for harm minimisation purposes.
Overview of the R&D tax incentive
The Research and Development (R&D) tax incentive in Division 355 ITAA97 provides tax offsets to encourage 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.
The incentive is jointly administered by the ATO and Industry Innovation and Science Australia (IISA), and operates principally on a self-assessment basis. The ATO manages the rules for eligible entities and expenditure, while IISA is responsible for registering and assessing eligible R&D activities under Part III of the Industry Research and Development Act 1986.
Core, Excluded and Supporting R&D activities
To access the R&D Tax Incentive, entities must register eligible R&D activities (section 27A of the Industry Research and Development Act; section 355-1 of the ITAA97). R&D activities are classified as core R&D activities or supporting R&D activities (section 355-20).
Core R&D activities, as defined in section 355-25, are activities with outcomes that a competent professional can't know or determine in advance, based on current knowledge, information and experience. The outcomes of core R&D activities can only be determined by applying a systematic progression of work that is based on principles of established science and proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions.
Excluded core R&D activities, as listed under subsection 355-25(2) (including market research, and research in social sciences, arts or humanities) cannot be registered as core activities, but may still qualify as supporting R&D activities if they are directly related to an eligible core R&D activity, and conducted for the dominant purpose of supporting that core R&D activity.
Supporting R&D activities, as defined in section 355-30, are those that directly relate to core R&D activities.
Key issues and provisions
Schedule 4 to the Bill excludes R&D activities relating to tobacco and gambling from access to the R&D Tax Incentive, except where the activities are conducted solely for harm-minimisation purposes.
Exclusion of gambling related core and supporting activities
Items 1 to 3 of Schedule 4 exclude activities relating to a gambling service, gambling, or a gambling-like practice (unless conducted solely for harm-minimisation purposes) from eligibility as core R&D activities under proposed paragraph 355-25(2)(i) of the ITAA97. Item 4 of Schedule 4 extends this exclusion to supporting R&D activities under proposed subsection 355-30(3) of the ITAA97.
Concerns about breadth and scheme inconsistency
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) (pp. 2-3).
Under section 378-25 of the ITAA97, a game is not eligible for the DGTO if 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).
Tabcorp recommended that the harm minimisation exception be amended to ‘allow activities so long as they are undertaken for a purpose of generating new knowledge about minimising harm from gambling services, rather than “solely”’ for this purpose (p. 3). Tabcorp further submitted that the exception includes other public interest outcomes in addition to harm minimisation, ‘such as consumer protection, anti-money laundering (AML), and counter terrorism financing (CTF) systems’ (p. 1).
Exclusion of tobacco-related core and supporting activities
Item 3 of Schedule 4 of the Bill excludes activities relate to tobacco, tobacco-related products, nicotine products and vaping goods (EM, pp. 20-21) from eligibility as core and supporting R&D activities under proposed paragraph 355-25(2)(j), proposed subsections 355-25(5) and (6), and proposed subsection 355-30(4) of the ITAA97, except where the activity is conducted solely for harm minimisation purposes.
Commencement
Item 5 provides that the amendments made by Schedule 4 will commence for income years starting on or after 1 July 2025. Item 6 states that from 1 July 2025, the ATO is no longer bound by any advance finding made by IISA in relation to gambling or tobacco-related activities under section 355-705 of the ITAA97 (EM, p. 23). These activities are not eligible for the R&D Tax Incentive for an income year starting on or after 1 July 2025, regardless of whether an advance finding had already been made.
Stakeholder comments
Stakeholders including Swanson Reed, Responsible Wagering Australia, Intellect Labs, BDO and RSM Australia cautioned that the change could undermine the historically sector‑neutral design of the R&D Tax Incentive and Australia’s reputation as a destination for innovation. Economists John Howard (UTS), Russell Thomson (Swinburne University) and Bob Breunig (ANU) likewise cautioned against using the R&D Tax Incentive or the tax system more broadly to address social harms, while Beth Webster (Melbourne Institute) supported a public-interest test and suggested that the Government should go even further by limiting the tax incentive to potential export industries.
Grant Thornton noted that the impact of the exclusion may extend beyond gambling and tobacco operators to adjacent and enabling sectors.
In a submission to the Senate Standing Committee on Economics inquiry into the Bill, Responsible Wagering Australia (RWA) called on the Committee to recommend that Schedule 4 be removed from the Bill. Failing that, RWA called for the schedule to be amended to provide that ‘R&D activities that demonstrably support consumer protection, regulatory compliance and risk-reduction outcomes remain eligible’ for the incentive and insert a review mechanism to require the impact of Schedule 4 to be assessed.
The Gaming Technologies Association (GTA) also supported the inclusion of a statutory review provision to ensure that the amendments ‘do not inadvertently exclude future gaming policy reform agendas’ (p. 2). GTA does not support the Bill and recommended that Schedule 4 be amended to apply the exclusion from the R&D tax incentive only to ‘the development of games played for real money’ (p. 2).
The International Social Games Association (IGSA) was also concerned that the Bill would apply to games and recommended that the Bill be amended ‘to delete all references to games, including references to games with gambling-like practices’ (p. 1). The IGSA considers that ‘failing to ensure that games are still eligible for the tax incentive will result in further chilling of international investment and jobs being moved to sites outside of Australia’ (p. 1). Potential adverse impacts on investment in Australia were also raised by RSM Australia.
In contrast, the Alliance for Gambling Reform supports Schedule 4 as ‘a principled and deliberate policy decision by the Government to withdraw public innovation subsidies from activities whose profitability is causally linked to social harm’ (p. 1). The Alliance considers that Schedule 4 should ‘viewed as a foundational decision with implications for other Treasury-administered innovation and co-investment programs’:
To avoid mixed signals, if gambling-related activities are excluded from one form of public support (the R&D Tax Incentive) they should be excluded for other forms of public support through administrative or program-level settings (p. 2).