Tax Reform Is Now Law: CGT, Negative Gearing and the SMSF Borrowing Ban Explained

The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 has passed both houses of the Australian Parliament, ending more than a month of legislative uncertainty for property investors, accountants, and financial planners across the country. The bill cleared the Senate by 35 votes to 25 on 25 June 2026, with the House of Representatives agreeing to Senate amendments by 98 votes to 39 on the same day. The legislation is awaiting Royal Assent from the Governor-General, after which the most consequential of its measures will take effect approximately 45 days later.

The bill implements sweeping changes across capital gains tax, negative gearing, superannuation borrowing, and personal income deductions. It did not pass in the form originally tabled. The price of Greens Senate support was a late amendment that bans self-managed superannuation funds from entering new limited recourse borrowing arrangements for residential property — a restriction with immediate practical consequences for SMSF trustees planning new property acquisitions.

This article sets out what the legislation does, what it does not do, and what Australian property investors need to understand before the implementation dates arrive.

How the Legislation Passed: The Greens Deal

The original bill — covering capital gains tax reform, negative gearing restrictions, the Working Australians Tax Offset, and the instant work deduction — did not have the numbers to pass the Senate without crossbench support. On 23 June 2026, Prime Minister Albanese and Treasurer Chalmers announced a deal with the Australian Greens under which the government accepted an amendment banning new SMSF limited recourse borrowing arrangements for residential property.

The amendment was tabled by Senator Nick McKim on behalf of the Greens. According to Senator McKim, the amendment was intended to close what the Greens described as a route through which high-net-worth investors could continue to use SMSF structures to acquire established residential property, potentially circumventing the intent of the negative gearing restrictions applied to individual and trust ownership structures.

The Coalition voted against the bill at both readings. The final Senate vote of 35 to 25 reflected Labor plus Greens support, with the major opposition parties and some crossbenchers voting against.

Schedule 1: Capital Gains Tax — Replacing the 50 Per Cent Discount

From 1 July 2027, the 50 per cent capital gains tax discount available under section 115-A of the Income Tax Assessment Act 1997 to individuals, trusts, and partnerships will be replaced with a system of cost-base indexation and a 30 per cent minimum tax rate on capital gains.

Under the new regime, an investor's cost base — what they paid for the asset, plus acquisition costs, improvement costs, and certain holding costs — will be indexed for inflation using the Consumer Price Index. Only the gain above that inflation-adjusted cost base will be assessed for tax. That indexed gain is then subject to a minimum tax rate of 30 per cent.

The change is prospective. The 50 per cent discount continues to apply to gains accruing up to 30 June 2027. An investor who purchased a property in 2015 and sells it in 2029 will calculate the gain across two periods: the portion accruing before 1 July 2027 remains eligible for the 50 per cent discount; only the post-July 2027 component falls under the new indexation regime.

This creates a defined and immediate obligation for all investors holding established property: a formal independent valuation as at 30 June 2027 will be required to correctly apportion the gain between the two periods. This valuation requirement applies to all holders — not only those intending to sell — and will impose compliance costs that, according to CPA Australia's Treasury submission, Treasury's own regulatory impact statement significantly underestimated.

New Builds: A Choice of Regime

The legislation preserves and reinforces the relative attractiveness of new residential construction. Investors disposing of new residential dwellings or affordable housing on or after 1 July 2027 may choose between the 50 per cent CGT discount (or up to 60 per cent for qualifying affordable housing) and the new indexation plus 30 per cent minimum tax regime. Where an investor elects the discount, the 30 per cent minimum tax does not apply to that asset.

Small Business CGT Concessions: Retained

The four existing small business CGT concessions — the 15-year exemption, the 50 per cent active asset reduction, the retirement exemption, and the rollover — remain in place under the legislation as passed. Business owners holding commercial property or business assets within the relevant thresholds are not affected by the CGT reforms.

Schedule 2: Negative Gearing — Restricted to New Builds for New Purchases

From the 2027–28 income year, investors who acquired residential property after 7:30pm AEST on 12 May 2026 — Budget night — will no longer be able to offset losses from that property against salary, wages, or business income. Negative gearing losses on post-Budget established properties will only be deductible against rental income or capital gains from other residential properties.

Properties held at Budget night, including those under contract and awaiting settlement, are fully grandfathered. Those investors retain the ability to negatively gear against all income for as long as they hold the property.

New residential builds are exempt from the restriction. For properties meeting the definition of a new dwelling — not previously sold as a residence and not previously occupied — negative gearing against all income continues to be available, as does the choice of the 50 per cent CGT discount or the new indexation regime on disposal.

The SMSF Borrowing Ban: What Changed at the Last Moment

The most significant late addition to the bill — and the measure with the shortest implementation timeline — is the ban on self-managed superannuation funds entering new limited recourse borrowing arrangements for residential property.

The amendment inserts a new paragraph into subsection 67A(2) of the Superannuation Industry (Supervision) Act 1993. LRBAs allow an SMSF to borrow to purchase a single asset held inside a bare trust. If the loan defaults, the lender can only claim that one asset; the rest of the fund remains protected. The mechanism has been available to SMSFs since 2007 and was expanded in 2010.

The ban applies to new residential property LRBAs only. Existing arrangements are fully grandfathered. LRBAs for commercial real property — including commercial premises used in a related party's business — are not affected. SMSF investment in shares, managed funds, exchange-traded funds, and other assets is entirely unaffected. The concessional tax rates within superannuation — 15 per cent in accumulation phase, zero in pension phase — also remain unchanged.

The ban is expected to commence approximately 45 days after Royal Assent, placing the effective date around mid-August 2026. SMSF trustees who are currently under contract to purchase residential property via an LRBA should seek urgent advice from their SMSF specialist or solicitor to confirm whether their arrangement will be grandfathered before the commencement date.

What This Means Practically

Before this amendment was added, SMSF ownership of established residential property purchased outright — not via LRBA — remained unaffected by the negative gearing changes, because superannuation operates under its own provisions of the ITAA 1997. The LRBA ban now removes the only pathway through which a new investor could use a leveraged SMSF structure to acquire established residential property after the commencement date. SMSF trustees who already hold residential property outright are entirely unaffected. Those with existing residential LRBAs are grandfathered.

Discretionary Trusts: 30 Per Cent Minimum Tax from 1 July 2028

The legislation confirms a 30 per cent minimum tax on income distributed through discretionary trusts from 1 July 2028. A three-year rollover relief window allows existing structures time to assess their position.

The practical effect is to reduce the income-splitting advantage that has historically made family discretionary trusts tax-effective for investors whose beneficiaries sit in different marginal tax brackets. Trust distributions will be subject to a floor of 30 per cent regardless of the marginal rate of the individual beneficiary receiving them. Anyone holding investment property in a discretionary trust, or considering establishing one, should seek advice from a qualified tax specialist before 2028.

Schedules 3 and 4: Personal Tax Measures

The $1,000 instant standard deduction for work-related expenses — Schedule 4 — takes effect from the 2026–27 income year, which commenced on 1 July 2026. Australian resident taxpayers earning labour income may claim a $1,000 deduction for work-related expenses without retaining receipts or substantiating individual claims. Those with legitimate expenses exceeding $1,000 may still itemise through the standard substantiation process.

The Working Australians Tax Offset (WATO) — Schedule 3 — introduces a $250 non-refundable tax offset for Australian residents earning labour income, applying from the 2027–28 income year. As a non-refundable offset, it reduces tax payable but is not paid out where the offset exceeds tax liability.

Implementation Timeline

1 July 2026 (already in effect): The $1,000 instant standard deduction for the 2026–27 income year.

Approximately mid-August 2026 (45 days after Royal Assent): The ban on new SMSF limited recourse borrowing arrangements for residential property.

1 July 2027: CGT changes — replacement of the 50 per cent discount with indexation and 30 per cent minimum tax for gains accruing from that date. Negative gearing restriction — losses from post-Budget-night established property purchases limited to rental and property income. Working Australians Tax Offset from the 2027–28 income year.

1 July 2028: The 30 per cent minimum tax on discretionary trust distributions.

What Investors Need to Do Now

The legislation is now law. The period of uncertainty that led CPA Australia to advise its members they could not give definitive guidance to clients has ended. Investors, accountants, and financial advisers can now act on confirmed legislative text.

Investors holding established residential property purchased before 12 May 2026 retain full negative gearing treatment under grandfathering. A formal independent property valuation as at 30 June 2027 will however be required to correctly apportion CGT gains — a cost that applies to all holders of established investment property, not only those intending to sell.

SMSF trustees considering entry into a new residential LRBA face a narrow window of approximately six to eight weeks before the ban commences. The implications of acting in that window should be assessed with qualified legal and financial advice before any commitment is made.

Investors evaluating ownership structures for new property acquisitions should note that the legislation materially widened the gap between established and new property treatment. A qualified tax specialist modelling the after-tax outcomes of each structure — individual, trust, SMSF, company — against a specific investor's position will produce materially different results than was the case before this legislation passed.

Key Sources

• Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 — Parliament of Australia, aph.gov.au (passed both houses 25 June 2026)
• Income Tax Assessment Act 1997 (Cth) — section 115-A; Divisions 40 and 43 — legislation.gov.au
• Superannuation Industry (Supervision) Act 1993 (Cth) — subsection 67A(2) as amended — legislation.gov.au
• Budget 2026–27 — Tax Reform factsheet — budget.gov.au
• CPA Australia — Federal Budget 2026–27 analysis and Treasury submission — cpaaustralia.com.au
• Australian Taxation Office — CGT discount and SMSF LRBA guidance — ato.gov.au

General Advice Warning: This article provides general information only and does not constitute financial, taxation, or legal advice. The information reflects the legislation as passed by both houses of Parliament on 25 June 2026 and awaiting Royal Assent. Readers should seek advice from a registered tax agent, financial adviser, or solicitor before making any decisions based on this legislation.