Treasury Laws Amendment (Removing the Widows and Spouses Tax) Bill 2026: what it proposes

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Treasury Laws Amendment (Removing the Widows and Spouses Tax) Bill 2026: what it proposes

The Treasury Laws Amendment (Removing the Widows and Spouses Tax) Bill 2026 is a private senators' bill introduced by Senators Matt Canavan and David Pocock on 13 August 2026. It responds to a gap in the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, which became law on 25 June 2026. That Act grandfathered existing negative gearing and capital gains tax arrangements for property held before 7:30pm on 12 May 2026, but the grandfathering could be lost when a jointly held investment property was transferred to a single owner following the death of one owner or the breakdown of a marriage or de facto relationship — an effect that has been described as a 'widows and spouses tax'. The bill would amend the tax law so that the grandfathered treatment is preserved when property transfers on death or pursuant to a family law court order or a binding financial agreement. As introduced, the bill was read a first time in the Senate on 13 August 2026 and the second reading was moved the same day. It is before the Senate and has not been enacted.

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Evidence review

What the bill would do

The bill would amend the Income Tax Assessment Act 1997 so that grandfathered negative gearing and capital gains tax arrangements continue to apply when a jointly held investment property is transferred following the death of a joint owner, or a marriage or de facto relationship breakdown.

The Tax Reform No. 1 Act 2026 restricted negative gearing and capital gains tax concessions for new investments from the 2026-27 Budget measures, while grandfathering properties already held at 7:30pm on 12 May 2026. The bill's sponsors argue that the Act's grandfathering provisions did not clearly preserve the treatment when ownership changed from joint to single ownership on death or divorce.

The bill would clarify that a transfer of property because of the death of a joint tenant or pursuant to a family law court order or binding financial agreement does not cause the loss of the grandfathered treatment, consistent with the amendment that Senator Pocock had earlier withdrawn after the Government gave an undertaking to fix the issue.

Evidence review

Why the bill was introduced

The so-called 'widows tax' issue emerged during debate on the Tax Reform No. 1 Bill 2026 in June 2026, when evidence before a Senate committee indicated that jointly owned assets would no longer benefit from grandfathered exemptions if they were transferred to single ownership.

Senator Pocock raised concerns that this would unfairly affect people, particularly women, if a property was transferred when one partner died or a couple divorced. He introduced an amendment to protect access to grandfathered tax concessions, which the Government agreed to address in later legislation, and he withdrew his amendment.

The Government subsequently released exposure draft legislation on 4 August 2026 to fix the issue. Senators Canavan and Pocock introduced this bill on 13 August 2026 to give the fix legislative effect, saying they were concerned about the delay.

Evidence review

Who the bill would affect

The bill would primarily affect joint owners of investment properties that were held before 12 May 2026 and benefit from the grandfathering of negative gearing and capital gains tax concessions.

In the event of the death of one owner or the breakdown of a marriage or de facto relationship, the surviving or former spouse would retain the grandfathered treatment rather than losing it on the transfer of the property into single ownership.

The bill does not change the underlying Budget measures — the restriction of negative gearing and capital gains tax concessions for new investments — and does not extend grandfathering to properties purchased after the cut-off.

Evidence review

Relationship to the Government's exposure draft

The Government released its own exposure draft to address the same issue on 4 August 2026, with consultation open until 21 August 2026. The Treasury consultation page describes the draft as addressing the application of the grandfathering rules when ownership of a jointly held property changes.

The bill introduced by Senators Canavan and Pocock would achieve a similar result through the parliamentary process rather than waiting for the Government's subsequent legislation.

The Parliament returned on 11 August 2026 for a two-week sitting. Because the Government's consultation closes on 21 August and the Parliament rises shortly after, the timing of any government fix versus this bill is a matter for the chamber.

Evidence review

Parliamentary status

The bill was introduced in the Senate and read a first time on 13 August 2026, with the second reading moved the same day. It is listed as before the Senate in the 48th Parliament.

To become law, the bill would need to pass the Senate, be agreed to by the House of Representatives, and receive Royal Assent. As a private senators' bill, it does not form part of the government's legislative program, and its progress depends on the support of the Senate and the Government.

No proposed amendments had been circulated as at 16 August 2026.

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