July 2026 Newsletter: CGT and negative gearing reforms enacted

 

The Government’s flagship CGT and negative gearing reforms have now become law, with the relevant Bills receiving Royal Assent on 26 June 2026.

The reforms implement the Budget measures announced on 12 May 2026, including the replacement of the 50% CGT discount with a cost base indexation regime from 1 July 2027 and the introduction of a 30% minimum tax on capital gains. Transitional provisions will apply to split pre and post 1 July 2027 gains, including for pre-CGT assets.

Negative gearing will also be significantly restricted from 1 July 2027. For residential properties acquired on or after 12 May 2026, rental losses will generally be quarantined and unable to offset salary, business or other investment income. Concessions remain available for new residential dwellings.

The legislation also introduces the $250 Working Australians Tax Offset from the 2028 income year and a $1,000 standard deduction for work related expenses from the 2027 income year.

Senate amendments

Before passage, the legislation was amended in the Senate following negotiations with the Australian Greens and crossbenchers.

A notable addition is a new restriction on SMSF limited recourse borrowing arrangements (LRBAs). From 45 days after Royal Assent, SMSFs will only be able to use new LRBAs to acquire business real property, effectively preventing the use of future LRBAs for residential property investments. Existing arrangements and certain refinancings are grandfathered.

Other amendments include:

• removing ministerial discretion to determine additional asset classes eligible for CGT discount treatment;
• increasing the turnover threshold for the small business 50% active asset reduction from $2 million to $10 million from 1 July 2027;
• preserving incentives for deductible gifts by reducing gains subject to the 30% minimum tax where deductible gifts have been made;
• replacing ministerial discretion regarding minimum tax exemptions with a statutory list of exempt payments, including certain pensions and social security payments;
• narrowing ministerial discretions relating to the negative gearing loss quarantining regime; and
• embedding the formula for calculating the Working Australians Tax Offset directly in the legislation.

The enactment of the reforms marks one of the most significant changes to the taxation of capital gains, residential property investment and trusts in recent years.

Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 – Parliament of Australia

Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026 – Parliament of Australia