Tax & Policy  ·  Federal Budget 2026

Negative gearing and CGT reforms pass Parliament

After clearing both houses in under a month, the government's housing tax overhaul is now law. Here is what is changing for property investors — and exactly when each measure begins.

The housing tax reforms on negative gearing and capital gains tax have officially passed both houses of Parliament. On Thursday (25 June), the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 cleared its final hurdle, with the Greens joining the government in the Senate to block the Coalition's attempt to delay the vote.

The bill was then sent to the House of Representatives for a final vote and comfortably passed the lower house by 98 votes to 39 — capping a fast-moving process that took the legislation through both chambers in just under a month.

What the bill changes

The controversial bill amends four taxation laws. Its centrepiece replaces the 50 per cent capital gains tax discount for individuals, trusts and partnerships with cost-base indexation and a 30 per cent minimum tax rate on capital gains accruing on and after 1 July 2027. It also moves to limit negative gearing for residential property investments to new builds from the same date.

Tax relief is arriving alongside the tightening. The legislation introduces a non-refundable tax offset from the 2027–28 financial year for Australian resident individuals who earn labour income, plus a $1,000 standard deduction from FY26–27 for work-related expenses for residents who derive assessable labour income.

Relief for small business and start-ups

On 18 June, the government announced sweeping capital gains tax carve-outs for small businesses and start-ups, including raising the turnover threshold for the small-business 50 per cent active asset CGT concession from $2 million to $10 million.

Treasury also released a consultation paper setting out the Innovative Business CGT Concession (IBCC) — a discount designed to preserve the existing 50 per cent CGT relief for genuine start-ups. A second, more technical bill is expected later in the year to spell out detailed carve-outs and updated rules for discretionary trusts.

A surprise ban on SMSF home loans

The legislation passed after the bill received official support from the Australian Greens on Tuesday (23 June), with the Albanese government agreeing to a range of demands from the minority party. Chief among these was a controversial agreement to ban limited recourse borrowing arrangements (LRBAs) for residential property held by superannuation funds.

Under the agreement, new residential SMSF loans written under an LRBA structure will be blocked 45 days after the legislation receives royal assent, while existing facilities and contracts in train will be grandfathered. An amendment moved by Greens Senator Nick McKim set out the finer details, with real property that constitutes business real property still able to be acquired using an LRBA.

The change does not preclude an SMSF from undertaking an LRBA for other acquirable assets — such as shares in a company or units in a unit trust — subject to the usual tests. Refinancing arrangements that maintain or refinance pre-commencement borrowings will also be grandfathered, and acquisitions entered into before commencement are protected even where settlement occurs afterwards.

The surprise concession has been met with shock and dismay, with lenders warning the ban will damage retirement outcomes, distort competition and sow chaos in live deals.

Non-bank lenders and investment-focused advisers have voiced alarm, with many noting that a large proportion of their business is built on SMSF residential borrowing. Industry contacts say the ban on new residential lending has already affected pipelines, unsettled trustees and raised fresh questions about who benefits from the reform.

Fixing the ‘widow’s tax’

It was reported on Wednesday (24 June) that an estimated 680,000 properties jointly owned before the budget would lose their grandfathered CGT and negative gearing exemptions if one co-owner died or the owners divorced. The government confirmed on Thursday that it would rectify the co-owner issue in the second round of budget legislation later in the year, after independent Senator David Pocock said he would table an amendment to close the clause.

“We have made clear from the get-go, from the evening the budget was announced, that there would be tranches of legislation,” Finance Minister Katy Gallagher told the Senate. “We were aware of some of the issues Senator Pocock is raising around grandfathering and shared ownership… we intend to address the arrangements for jointly owned assets in circumstances like inheritance or divorce in subsequent legislation.”

Senator Pocock said the amendments sought to ensure “certain CGT (and negative gearing) concessions remain available where an asset is transferred because of a family law court order or the death of a joint tenant” — allowing the transferee to apply the same concession a later capital gain would have attracted immediately before the transfer.

Industry calls for certainty

The Mortgage & Finance Association of Australia (MFAA) said its priority is ensuring brokers and advisers have the clarity they need to support borrowers, investors and small-business owners through the transition. Throughout the process the association lodged a submission to the Senate inquiry and raised concerns about the changes to CGT, discretionary trust taxation and the LRBA prohibition.

MFAA executive of policy Naveen Ahluwalia said certainty and clear implementation would be critical, and that the association remained disappointed by the decision to prohibit new residential lending through SMSFs.

“Australia needs more homes, and policies should encourage sustainable investment and provide confidence for those looking to invest in housing.”

The MFAA said it would continue working with government, regulators and industry stakeholders while providing members with guidance on the practical implications of the reforms.

This article is general information only and does not constitute tax, financial or legal advice. Adapted from industry reporting; figures and dates reflect the bill as passed on 25 June 2026.