The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 has been passed by the Senate with amendments, confirming changes to negative gearing and capital gains tax (CGT) laws. The legislation restricts negative gearing on established residential properties purchased after 7:30pm AEST on 12 May 2026, with net rental losses quarantined and only applicable against future residential property income or capital gains.
New builds are exempt from the restrictions, with properties that genuinely add to housing stock remaining fully eligible for negative gearing. However, the definition of new builds has conditions, including that the property must not have been previously sold or occupied for more than 12 months.
Negative Gearing Restrictions
Widely held trusts, build-to-rent developments, and investors participating in government housing programs are excluded from the restrictions and retain existing negative gearing treatment. Superannuation funds, including self-managed superannuation funds (SMSFs), are also excluded, although a separate change affects SMSF borrowing for residential property.
Properties held at the announcement, including those under contract but not yet settled at 7:30pm on 12 May 2026, are grandfathered, with existing negative gearing treatment applying until sale. The 50% CGT discount for individuals, trusts, and partnerships is being replaced from 1 July 2027.
Under the new framework, capital gains on assets held longer than 12 months will be adjusted for inflation via cost base indexation, and a 30% minimum tax rate will apply to the remaining real gain. Gains accrued before 1 July 2027 will be assessed under the current rules, with only post-transition gains falling under the new framework.
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CGT Framework and SMSF Borrowing
The main residence exemption remains unchanged, and income support recipients, including Age Pension recipients, are exempt from the 30% minimum tax. Superannuation funds, including SMSFs, retain their existing CGT treatment, with the one-third discount in accumulation phase and CGT exemptions in pension phase preserved.
A ban on new SMSF borrowing for residential property has been introduced, as the price of Greens support. The amendment makes a single change to the Superannuation Industry (Supervision) Act 1993, allowing new limited recourse borrowing arrangements (LRBAs) to be used only to acquire business real property.
Existing residential LRBAs are fully grandfathered, including future refinancing, with no existing arrangements needing to be unwound. The ban is prospective, taking effect from 10 August 2026, and exchange of contracts before commencement provides protection, even if settlement occurs after.
The Australian Taxation Office (ATO) is yet to publish detailed guidance on how it expects taxpayers to calculate and substantiate gains under the new rules, including valuation requirements. As a result, property owners and investors should seek independent advice from a qualified tax adviser or accountant regarding their specific circumstances, particularly for assets acquired after 7:30pm on 12 May 2026, or likely to be sold post-1 July 2027.
SMSF trustees who are mid-process on a residential LRBA should act urgently, as the window closes on 10 August 2026.
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