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Confirmed Budget Changes: Negative Gearing, CGT & SMSF Property Rules
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Federal Budget Latest Updates - 02/07/2026
On 25 June 2026, the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 passed both houses in Parliament. It received Royal Assent on 26 June 2026.
This bill confirms two of the three major reforms announced in the May Budget: the changes to negative gearing and the changes to capital gains tax. A late amendment, added to secure the Greens' support in the Senate, also added a third change that wasn't part of the original Budget announcement - a ban on SMSFs borrowing to buy residential property.
The 30% minimum tax on discretionary trust, which is a common discussion point, is not part of the bill and remains a separate, unlegislated propose. More on that below.
Negative Gearing - Confirmed
From 1 July 2027, negative gearing for established residential properties will be limited to new builds only.
According to the ATO: "Properties held at announcement (7:30pm AEST, 12 May 2026) will be exempt from negative gearing changes"
In practical terms, if you bought your investment property or signed a binding contract before 7:30pm on Budget night, nothing changes for you. If you buy an established residential property after that date, any rental loss can no longer be offset against your wages or salary from 1 July 2027 onward, it can only be offset against rental income or capital gains from residential property.
New builds remain unaffected by this restriction regardless of when they're purchased.
Capital Gains Tax - Confirmed
From 1 July 2027, the 50% CGT discount that individuals, trust, and partnerships have relied on for the past 27 years is being replaced.
The ATO describes it this way: "Replace the 50% CGT discount for individuals, trust, and partnerships with cost base indexation and a 30% minimum tax rate on capital gains."
In place of simply halving your gain, the system will adjust your original purchase price for inflation (indexation) and then apply a 30% minimum tax rate to whatever real gain remains. The ATO also confirms: "The CGT reforms will only apply to gains that accrue after 1 July 2027" - meaning if you already own an asset, only the portion of the gain made after that date is affected.
SMSF Residential Property Borrowing - Now Banned
This wasn't in the original 12 May Budget. According to Parliament of Australia's record of the House agreeing to Senate Amendments, it was added on 23 June 2026 as part of a deal between the government and the Australian Greens to get the broader tax bill through the Senate.
The change is a single, precise amendment to the Superannuation Industry (Supervision) Act 1993. It adds a new condition that says a limited recourse borrowing arrangement (LRBA) for real property is only permitted if that property is business real property. Residential property doesn't meet that definition, so SMSFs will no longer be able to use an LRBA to borrow residential property going forward.
The Bill passed both houses of Parliament on 25 June 2026 and received Royal Assent on 26 June 2026. The ban itself takes effect 45 days after Royal Assent - landing around 10 August 2026.
What this means if it applies to you:
If your SMSF already has an LRBA to a residential property, nothing changes. These arrangements are fully grandfathered.
If you've already signed a contract before the ban commences, you're protected, even if settlement happens after the ban takes effect.
Commercial and business property LRBAs are entirely unaffected. If your SMSF is borrowing to buy the premises your business operates from, that strategy remains available.
If you've been considering a residential property purchase through your SMSF using borrowed funds, the window to act is now genuinely narrow.
What’s Still Not Law – The Trust Tax
We get this question regularly. To remove any confusion, here is our answer.
The proposed 30% minimum tax on discretionary trusts was announced as part of the same 12 May Budget, but it sits in separate legislation to the bill that has just passed. The ATO’s dedicated page on this measure states plainly: “This measure is not yet law”
It's reasonable to expect the government will proceed with this measure, given it has stated its intention clearly and has the Parliamentary numbers to do so eventually — but until it's law, the detail isn't locked in. We'll publish an update the moment that changes.
If you operate through a discretionary trust, there's no need to take any action right now. But if you'd like to understand what the proposed changes would mean for your situation in advance, we're happy to walkthrough it.
What Should You Do Now
If you own an investment property bought before 12 May 2026: nothing changes for you under the negative gearing or CGT rules until you sell.
If you're considering buying an established investment property: get advice before you commit, as the financial case has changed for purchases made after Budget night.
If your SMSF has, or you were considering, a residential property LRBA: speak with us now if you haven't already locked in a contract, given the ban commences around 10 August 2026.
If you operate through a discretionary trust: no actionneeded yet, but it's worth understanding your position ahead of any future legislation.
