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 officially passed both houses of Parliament.
The Greens joined the government in the Senate to block the Coalition’s attempt to delay a vote on the changes and the bill was then sent to the House of Representatives for a final vote to pass the legislation in its amended form.
The measures comfortably passed the lower house by 98 votes to 39 votes.
The controversial bill – which has been passed through both houses of Parliament in just under a month – amends four taxation laws to replace 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 1 July 2027.
Tax cuts are also set to come in, providing a non-refundable tax offset from the 2027–28 financial year for Australian resident individuals who earn labour income.
The bill will also provide for a $1,000 standard deduction from FY26–27 for work-related expenses for individuals who are Australian tax residents and derive assessable labour income.
The personal income tax cuts, the instant work-related deduction, and the instant asset write-off changes will come into effect on 1 July 2026, while the CGT overhaul, negative gearing restrictions, and working Australians tax offset will commence on 1 July 2027.
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 will be introduced later in the year, which is set to spell out detailed carve‑outs and updated rules for discretionary trusts.
Bill includes ban on SMSF residential borrowing
The legislation was voted through 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 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 Senator Nick McKim of the Greens to the tax bill set out the finer details of the ban, with real property that constitutes business real property still being able to be acquired using an LRBA.
This change does not preclude an SMSF from undertaking an LRBA in respect of 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, while acquisitions entered into before commencement will also be protected – even where settlement occurs after commencement.
The surprise concession has been met with shock and dismay, with many members of the broking industry and lending industry saying that the move to ban borrowings for residential property investment through self-managed super funds (SMSFs) would discourage investment.
Australia’s non-bank lenders have also blasted the changes, saying that the ban will damage retirement outcomes, distort competition, and sow chaos in live deals.
Many brokers specialising in property investment credit advice have also voiced alarm at the changes, as a large proportion of their business is based on SMSF residential borrowing.
Impacted brokers have told The Adviser that the ban on new residential borrowing had significantly impacted pipelines, unsettled trustees, and raised fresh questions about who benefited from the reform.
Government promises to remove ‘widow’s tax’ in second tranche of legislation
It was also reported on Wednesday (24 June) that the estimated 680,000 properties that were jointly owned before the budget would lose the grandfathered CGT and negative gearing exemptions if one of the co-owners died or they divorced.
Yet the government confirmed on Thursday (25 June) 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 be tabling an amendment on Thursday to close up the clause.
“We have made clear from the get-go, from the evening the budget was announced that we were aware that there would be tranches of legislation, that would require us to work through some particular and specific interactions of tax law in subsequent legislation,” Finance Minister Katy Gallagher told the Senate.
“So, we were aware of some of the issues that Senator Pocock is raising around grandfathering and shared ownership, and we were working through them in the usual way, and we intend to address these, the arrangements for jointly owned assets in circumstances like inheritance, or divorce, in subsequent legislation.”
Gallagher reiterated that the amendment to resolve the issue in the second tranche of budget legislation would operate in the same manner as Pocock’s amendment.
Senator Pocock said these 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”.
“It allows the transferee to choose to apply the same concession to a later capital gain that the transferee would have been entitled to apply immediately before the transfer,” he said.
‘Certainty now critical’: MFAA
The Mortgage & Finance Association of Australia (MFAA) has said its priority is ensuring mortgage and finance brokers have the clarity and certainty they need to continue supporting borrowers, investors, and small-business owners through the transition.
Throughout the legislative process, the MFAA advocated on behalf of its members and the clients they support, including lodging a submission to the Senate inquiry, supporting COSBOA’s Fair Go campaign, and raising concerns about the proposed changes to capital gains tax, discretionary trust taxation, and the decision to prohibit new limited recourse borrowing arrangements (LRBAs) for residential property within self-managed super funds (SMSFs).
MFAA’s executive of policy, Naveen Ahluwalia, said certainty and clear implementation would be critical.
“Mortgage and finance brokers facilitate more than 81 per cent of Australia’s residential home lending and are already helping clients navigate an increasingly complex policy and economic environment... our focus turns to ensuring brokers and their clients have the certainty and clarity they need to move forward with confidence,” she said.
“The Government now has an important opportunity to provide timely guidance and work closely with industry to ensure implementation is clear, practical and avoids unintended consequences for borrowers, investors and small businesses.”
Ahluwalia said the MFAA remained disappointed by the decision to prohibit new residential property lending through SMSFs, warning the measure risks further weakening investor confidence at a time Australia continues to face significant housing supply challenges.
“We remain concerned that restricting new SMSF lending for residential property removes an established and well-regulated pathway for investment that has supported housing supply for many years,” Ahluwalia said.
“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 constructively with government, regulators, and industry stakeholders while providing members with guidance and resources to help them understand the practical implications of the reforms.
[Related: Lenders unite to condemn SMSF resi borrowing ban]
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