Tax Overhaul to Scrap 50% CGT Discount, Ban SMSF Property Borrowing

For legal professionals advising on property, superannuation, and tax planning, the agreed reforms present immediate compliance challenges and strategic opportunities. The shift from a simple 50% discount to indexed cost bases and a 30% minimum tax demands a complete rethink of asset disposal timing, while the SMSF borrowing ban curtails a popular but risky investment strategy.

The Australian government has secured a deal with the Greens to pass a contentious tax overhaul package, marking the most significant change to property investment taxation in decades. The agreement, announced on June 23, 2026, paves the way for the legislation to pass the Senate within two weeks, despite fierce opposition from the Coalition.

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The deal also retains a $250 annual tax offset for workers and a standard $1,000 deduction for work expenses.

Central to the reforms is the abolition of negative gearing for established properties and the replacement of the 50% capital gains tax (CGT) discount with a system that indexes the cost base to inflation and imposes a minimum 30% tax on gains. These changes, originally targeted at cooling the housing market and improving affordability, will now apply to all assets including businesses, a move that sparked outcry from the startup sector. In response, the government has promised a carve-out for innovative firms, though details remain vague. The Greens, whose votes were crucial, extracted several concessions: a ban on limited recourse borrowing arrangements (LRBAs) within self-managed super funds (SMSFs) to prevent investors from using superannuation to sidestep the CGT increase, and an extension of a parliamentary inquiry into cuts to the National Disability Insurance Scheme (NDIS). The deal also retains a $250 annual tax offset for workers and a standard $1,000 deduction for work expenses.

The political dynamics are striking. While Labor holds power, its Senate minority forced it to negotiate with the Greens, who leveraged their position to extract progressive amendments. The Coalition has labeled the package a “tax on aspiration” that will hurt young homebuyers and small businesses, but without the numbers to block it, the bill is all but assured passage. Prime Minister Anthony Albanese, Treasurer Jim Chalmers, and Finance Minister Katy Gallagher jointly emphasized that limiting LRBAs protects superannuation savings, citing multiple inquiries that raised concerns about the risks of such arrangements.

From a regulatory perspective, the changes introduce a new layer of complexity. The transition from a flat 50% discount to an indexed cost base and a 30% minimum tax will require detailed guidance from the Australian Taxation Office (ATO) and likely spark a wave of tax planning restructures. For SMSFs, the ban on LRBAs closes a favored strategy, redirecting investment flows toward other asset classes. The startup carve-out, while welcome, may create a two-tiered tax system that demands clear eligibility criteria to avoid disputes.

Market implications are already brewing. Property investors may rush to offload assets before the changes take effect, potentially causing a short-term price dip. Conversely, the removal of negative gearing could dampen demand for established housing, aligning with the government’s affordability goals. For startups, the retention of a favorable CGT treatment is critical to attracting venture capital and talent, but uncertainty over the carve-out’s scope could chill investment until details are legislated.

The CGT discount has been a cornerstone of Australian investment since its introduction in 1999, halving the tax on gains for assets held over 12 months. Its removal for established property, along with the abolition of negative gearing, represents a bold departure from decades of policy orthodoxy. The indexed cost base method, last used before 1999, will require investors to track inflation adjustments, adding administrative burden but potentially reducing tax for long-held assets in high-inflation environments. The 30% minimum tax floor ensures a baseline revenue take. For SMSFs, the LRBA ban is particularly significant: estimates suggest billions of dollars have flowed into property via these structures, and the new rules will limit future purchases, though existing arrangements appear grandfathered based on the ‘new arrangements going forward’ language in the ministers’ statement.