Australia: Major Changes to CGT and Negative Gearing

In brief

On 25 June 2026, the Treasury Laws Amendment (Tax Reform No.1) Bill 2026 ("Reform Bill") passed the Senate. First introduced to the House of Representatives on 28 May 2026, this Reform Bill implemented the first stage of a series of capital gains tax reforms announced in the 12 May 2026 Federal Budget.

After passing the House of Representatives, the Reform Bill was referred to the Senate Economics Legislation Committee ("Senate Committee") for a committee report to be considered before the Senate's vote on whether to pass the Reform Bill. The Senate Committee held public hearings on 15 and 16 June, and on 19 June 2026, the Senate Committee published its report, recommending that the Senate pass the Reform Bill.

Recommended actions

We recommend that taxpayers carefully review the treatment of their capital assets under these reforms, and particularly those who hold pre-CGT assets, noting these reforms are a departure from the ordinary treatment which would generally result in pre-CGT assets being carved out from reforms of the kind considered above.
We also recommend that, to the extent that taxpayers may begin to review their current tax structuring during the transitional period (being before 1 July 2027), that any restructuring which may be considered does not put the taxpayer at risk of falling afoul of the anti-avoidance framework. Temporary rollover relief which has been announced but not yet legislated by the Federal Government to apply for three years from 1 July 2027 may aid taxpayers in restructuring assets out of discretionary trust structures. To this end, we recommend that professional advice is sought before decisions on restructuring are made.

In more detail

Reform Bill

The key changes relating to CGT adjustments and limits on negative gearing proposed by the Reform Bill are summarised below.

CGT reforms

Schedule 1 of the Reform Bill provides for a framework that, from 1 July 2027, will remove the existing 50% CGT discount for CGT assets held by individuals, partnerships and trusts and replace it with cost base indexation.
Broadly, on 1 July 2027, there will be a 'deemed disposal' and reacquisition of capital assets. This process will also capture pre-CGT assets (being those acquired before 20 September 1985), which will carry a cost base of the market value of the pre-CGT asset as it was on 1 July 2027. In effect, this means from 1 July 2027, there will no longer be any pre-CGT assets.
With respect to the deemed disposal and reacquisition, any notional gains or losses from the deemed disposal will be deferred until the time when the asset is actually disposed of. On actual disposal, any notional gain (calculated by reference to the market value at deemed disposal) may be subject to the 50% CGT discount, and any gains arising following the deemed disposal may be subject to the cost base indexation method, subject to certain conditions (including a 12-month holding rule being met ("Indexation Reform"). The Reform Bill does not contain any proposed alterations to the method of calculating a capital loss.
Relatedly, from 1 July 2027, any net capital gains from disposal of a CGT asset will be subject to a 30% minimum capital gain tax rate ("Minimum CGT Reform").
There are limited exceptions to the above reforms. For the Indexation Reform, owners of new residential dwellings and affordable housing may choose whether to retain the current CGT discount or apply the new indexation framework. Further, the Indexation Reform will apply to Australian resident individuals and trusts, but not to companies, superannuation funds, life insurance companies, or foreign or temporary residents.
Although not considered in the Reform Bill, on 18 June 2026, in the context of mounting criticism that the CGT reforms could disproportionately impact entrepreneurial founders of (low cost base) companies, the Federal Government also announced that it would be introducing an 'Innovative Business CGT Concession' (IBCC) for founders, employees participating in employee share schemes, early-stage investors and general partners. To qualify for the IBCC, there are a range of eligibility conditions relating to both the company and investor, such as turnover, residency, and whether the investor is a natural person. If satisfied, the broad effect of the IBCC is to give eligible shareholders a choice between the existing 50% CGT discount and the new Indexation Reform and Minimum CGT Reform framework, aligning the treatment with that of an investor investing in a new residential dwelling (considered below).
For the Minimum CGT Reform, these will apply to individuals who were Australian residents any time during the income year, however, they will not apply to new residential dwellings or affordable housing if the 50% CGT discount is retained. There are also exemptions to the Minimum CGT Reforms for recipients of certain income support payments.

Negative gearing

Schedule 2 of the Reform Bill provides that, from 1 July 2027, residential dwellings acquired after 7:30pm (AEST) on 12 May 2026 (Federal Budget night) will no longer qualify for negative gearing treatment. Broadly, this will have the effect of quarantining net rental losses from existing residential dwellings so they may only be deductible against assessable income from residential dwellings ("Negative Gearing Reform").
Net rental losses which are from investments in new residential dwellings will be exempt from the Negative Gearing Reform, and so too will any net rental losses which arise from residential dwellings acquired before 12 May 2026.

Other comments

The 12 May Federal Budget advised of a 30% minimum tax on distributions from discretionary trusts, beginning 1 July 2028. These changes have not been incorporated into the Reform Bill and remain subject to change (such as a recent announcement that testamentary trusts may be excluded).

The CGT and negative gearing landscape is shifting.