When the government announced the 2026 Federal Budget in May, we broke down the proposed property tax changes affecting capital gains tax (CGT) and negative gearing for investors.
The new rules have now passed the Senate with amendments, including one significant add: a ban on new self-managed superannuation fund (SMSF) borrowing for residential property.
So what does this actually mean for you? We’ve summarised what’s stayed the same, what’s changed, and what property investors and small businesses should be thinking about right now.
Recap of budget proposal: capital gains tax and negative gearing
The Budget presented a package of proposed tax reforms aimed at reshaping property investment.
If you can’t quite remember every detail (there was a lot to take in), here’s a quick refresher on the key measures:
- Capital gains tax (CGT) – from 1 July 2027: Replacing the 50% CGT discount with a consumer price index (CPI)-based cost base indexation method for eligible assets held for more than 12 months, alongside a new 30% minimum tax applying to net capital gains arising from those assets. Transitional rules were also proposed.
- Negative gearing – from 1 July 2027: Restricting deductions for losses on established residential properties purchased after 12 May 2026. New residential builds would remain fully eligible, while existing property owners would generally be protected under grandfathering provisions.
See full breakdown: Federal budget 2026-27 – What you need to know
New SMSF borrowing amendment
Not part of the original Budget proposals, this amendment was introduced during the legislative process as part of securing Senate support.
It prevents SMSFs from entering into new limited recourse borrowing arrangements (LRBAs) to purchase residential property.
The way residential property inside super is taxed remains unchanged. The key change is not how SMSFs pay tax, but how future residential property purchases can be funded.
Here’s what you need to know:
- New SMSF borrowing for residential property will be banned from 10 August 2026 (45 days after Royal Assent).
- Existing SMSF property loans will be protected, including existing LRBAs and future refinancing under those arrangements, provided they continue to meet current rules.
- The change is prospective only, meaning SMSFs with existing arrangements won’t need to unwind or restructure their current loans.
- Contracts entered into before 10 August 2026 may be protected, even if settlement happens after that date.
See also: Important changes to Division 296 for super balances over $3 million
Investor? Steps to take now
What does this mean if you’re an investor? You don’t necessarily need to make immediate changes. But it’s worth understanding how the new rules may affect your investment strategy, timing and future plans.
Here’s some advice on what to explore based on where you are:
You’re assessing your next property purchase
You’re considering adding another property to your portfolio and have been factoring the potential benefits of negative gearing into your plans.
The key questions now are:
- Will the property fall within the new rules?
- Does the timing of the purchase affect the available deductions?
- Would a different investment strategy, such as purchasing a new build, better align with your objectives?
Understanding the tax implications upfront can help ensure your investment decision is based on the full picture.
See also: New draft tax ruling for short-term rentals – explained
You’re considering an SMSF property strategy
You’ve been considering whether an SMSF property strategy could help support your longer-term retirement goals.
The change doesn’t necessarily stop the strategy, but it does mean timing, structure and planning will become even more important.
You may need to consider:
- Whether your strategy can be implemented before the start date
- Whether your funding arrangements are still achievable
- Whether an SMSF remains the right structure for your investment objectives
The change doesn’t remove the ability for SMSFs to hold residential property; it changes how future purchases can be funded.
You already hold investment assets
You already have property investments, structures or trust arrangements in place and are thinking about how these changes may affect your plans.
Any changes to your strategy should start with a clear understanding of:
- Which rules apply to your existing position
- Whether transition provisions protect your arrangements
- How future decisions, such as refinancing, selling or restructuring, may be impacted
A review now can help ensure your current structures continue to support your long-term goals.
See also: The land tax deadline is looming! Don’t get caught ‘unfixed’
Going concern GST: Avoid surprise tax on commercial property
Staying across the changes for small businesses
The coming months will be about getting into the details (because, unfortunately, tax reform rarely comes with instructions).
As further guidance is pushed out and the remaining measures move forward, we’ll be here focusing on understanding what the final rules mean practically – so we can advise you.
