You have been running the numbers on an investment property for months. Then the May 2026 Budget lands and the tax treatment you were modelling no longer applies to the asset class you were looking at. That is the situation many residential investors now face, and the contrast with commercial property is worth understanding clearly before making any decisions.
What the Budget actually changed
On 12 May 2026, as part of the 2026-27 Federal Budget, the Government announced it would reform negative gearing and capital gains tax arrangements, and these measures are now law.
The negative gearing change works like this. From 1 July 2027, negative gearing for residential property will be limited to new builds that add to housing supply. Investors affected by the changes will no longer be able to offset rental losses against salary or other personal income. Instead, losses can only be offset against residential rental income or future capital gains from rental properties.
Existing property owners, including those already under contract before the announcement, are grandfathered and can continue to access negative gearing under the current rules. The cut-off is contracts exchanged after 7:30pm AEST on 12 May 2026.
On CGT, the change is broader. From 1 July 2027, the 50% CGT discount will be replaced with cost base indexation and a 30% minimum tax on net capital gains for assets held more than 12 months. The changes are not limited to residential property but apply to all CGT assets held by individuals, trusts and partnerships.
Where commercial property sits after the Budget
The 2026 Budget removed negative gearing on established residential investment property only. Commercial property, including industrial, medical and allied health, large format retail and office, retains full negative gearing treatment. Investors can still offset interest and holding costs against other income.
That is the structural tilt the title refers to. It is not that commercial property received a new concession. It is that the Budget removed a long-standing concession from established residential while leaving the same rules in place for commercial. The gap between the two categories, which barely existed before, is now material.
On CGT, commercial property held outside super does not escape the new regime. Commercial property is not shielded from the CGT changes. From 1 July 2027 the 50% CGT discount is replaced with cost base indexation and a 30% minimum tax on the real gain for commercial as much as for established residential. The difference on exit is real but less stark than the difference on income. Commercial investors outside super will need to factor the new CGT treatment into their hold-period modelling, which is a conversation for a licensed tax adviser.
Commercial yields are typically higher than residential, so many quality commercial assets are positively geared or income neutral from the outset. Negative gearing tends to apply in the early years of a heavily leveraged purchase, or during vacancy or capital works. In other words, the negative gearing advantage for commercial is real but may be less central to the investment case than it was for established residential, where low yields made the tax offset a key part of the return model.
Where SMSFs sit in all of this
The SMSF position is the clearest outcome in the Budget for property investors. On negative gearing, the SMSF position is unambiguous. The official Treasury factsheet states directly that the changes will apply to 'individuals, partnerships, companies and most trusts' and that 'superannuation funds (including SMSFs) will be excluded.'
SMSFs can continue to deduct losses on both new and established properties acquired after Budget night. Inside the fund, rental losses reduce taxable income at the fund's 15% accumulation rate, not an investor's marginal rate, so the dollar saving is different in scale but the mechanism is preserved.
On CGT, the fund's existing treatment is also preserved. The Budget confirmed that the one-third (33.3%) CGT discount for complying super funds is preserved. That means the effective CGT rate inside an SMSF in accumulation phase on assets held more than 12 months remains approximately 10%. In pension phase, subject to the Transfer Balance Cap, it remains 0%.
The comparison with a personally held established residential property purchased after Budget night is stark. An individual investor on the top marginal rate previously faced an effective CGT rate of roughly 23.5% under the 50% discount. If the proposed rules take effect from 1 July 2027, they would face a 30% minimum on their real gain after indexation. That same gain inside an SMSF in accumulation phase is taxed at 10%. In pension phase: zero.
One important note for SMSF investors: from 10 August 2026, new residential LRBAs (loans held directly by an SMSF via a bare trust) are no longer available. A commercial LRBA inside the fund remains available, subject to lender requirements and SIS Act compliance. For residential property, EWC works with a unit trust structure where the fund invests equity and the borrowing sits in the trust, not the fund. A straight cash purchase of residential property inside the fund is also possible. All of these structures have specific rules and the right one depends on individual circumstances, which is why specialist SMSF accounting advice is essential before setting anything up.
A worked illustration
Consider two investors, each earning $180,000 in salary, each looking at a $700,000 property that generates a $12,000 net annual rental loss in its early years.
Investor A buys an established residential property in their personal name after Budget night. From 1 July 2027, that $12,000 loss cannot reduce their salary income. It is quarantined and carried forward to offset future residential property income only. The immediate tax benefit they were counting on is gone.
Investor B buys the same type of property inside their SMSF. The $12,000 loss reduces the fund's taxable income at 15%, saving approximately $1,800 in fund tax each year. That is not the same as a personal tax deduction at the top rate, but it is a real, ongoing saving that remains available under the new rules.
On exit after seven years, if both properties had appreciated to $950,000, Investor A would face a 30% minimum tax on the inflation-adjusted gain. Investor B's fund would pay approximately 10% in accumulation phase, or nothing in pension phase.
These are illustrative figures only. Actual outcomes depend on individual tax positions, fund structure, hold period, and the specific legislation as it applies to each case. Nothing here is a return projection or a promise of any tax outcome.
What to consider next
The rules have shifted, and the practical questions for investors now are structural rather than tactical:
- Understand which category your target property falls into. Established residential, new build residential, and commercial all sit in different places under the new rules. The definitions matter, and they are worth confirming with a licensed tax adviser before signing anything.
- Assess whether your ownership structure still fits your goals. Personal name, SMSF, unit trust, and company structures each carry different tax, borrowing, and compliance implications. An SMSF specialist accountant and a licensed financial adviser are the right people to map this out for your specific position.
- Get your finance sorted early. Lender appetite for SMSF commercial loans, standard investment loans, and construction finance differs meaningfully. A mortgage broker who works across both residential and commercial SMSF lending can tell you what is actually available at the time you are ready to act.
If you want to understand how EWC sources commercial or new build residential properties for investors and SMSF trustees, and how we coordinate the property and finance process, visit /services or book a call to talk through your situation.
General information only, not personal financial advice. Speak with a licensed adviser before acting.