The Federal Government’s first major tax reform Bill has now passed Parliament and will become law. The changes include reforms to negative gearing, capital gains tax, worker tax deductions and income tax offsets. For property investors, SMSF trustees and future home buyers, the most important changes relate to how residential investment properties will be treated for tax purposes from 1 July 2027.
From 1 July 2027, negative gearing for residential investment properties will be limited to new builds. This means future investors will generally only be able to access negative gearing benefits where the property being purchased adds to housing supply. Importantly, the government has confirmed that grandfathering provisions will apply for people who already own investment properties, meaning existing arrangements are expected to be protected.
The Bill also changes the treatment of capital gains tax. From 1 July 2027, the current 50% capital gains tax discount for individuals, trusts and partnerships will be replaced with cost base indexation and a minimum 30% tax rate on capital gains. The government says this is designed to better align the treatment of income earned from work with income earned from assets, while also reducing some of the tax settings that have encouraged investment into existing housing stock.
As part of the agreement to pass the reforms, amendments were also included that affect Self-Managed Super Fund residential property lending. New borrowing arrangements through SMSFs for residential property are expected to be restricted, closing the pathway that has allowed some SMSFs to use Limited Recourse Borrowing Arrangements to purchase residential property. Transitional and grandfathering provisions will be important, particularly for anyone already in the process of purchasing through an SMSF.
For investors, the key message is that the rules are changing, and timing matters. Anyone considering purchasing an investment property, especially through an SMSF, should seek advice early from their broker, accountant and financial adviser. These changes may affect borrowing capacity, tax outcomes, property selection and long-term wealth strategy, so it is important to understand how the new rules may apply before making decisions.