The Government’s changes to CGT and negative gearing have passed Parliament, after Labor secured a deal with the Greens in the Senate.
One condition of the Greens’ support was ending the ability of self-managed super funds (SMSFs) to borrow money to buy residential investment properties. Existing borrowings will not be affected.
The Association of Superannuation Funds of Australia said the change would bring SMSFs “in line with the rules that apply to all other super funds”.
Here’s what you need to know.
CGT
CGT applies to the profit from the sale of an investment, including property and shares.
Since 1999, if you held an investment for more than 12 months, you only paid tax on half the profit when you sold it.
From 1 July 2027, the flat 50%discount is gone. Instead, youroriginal purchase price will beadjusted to account for inflation.You’ll only pay tax on the gain above that adjusted figure.
But, no matter what, you’ll always pay a minimum tax rate of 30% (ongains made after 1 July 2027).
Negative gearing
Gearing refers to borrowing money from a bank for a purchase, such as an investment property.
Negative gearing is when a landlord spends more on an investment property than they make from the rental income.
Under negative gearing, this loss can be deducted from their taxable income, so they pay less tax overall.
The Government announced negative gearing will be restricted to newly built properties, taking effect from 1 July 2027, but applying to homes bought on or after Budget night (12 May).
Parliament
While the Government has a majority in the House of Representatives (lower house), it has 30 senators in the Senate (upper house).
In a full Senate of 76 members, a majority is 39 votes. This means the Government needs support from other parties or crossbench senators to pass legislation through the Senate.
The Greens hold 10 Senate seats, so with their support Labor would have 40 votes, enough to pass the bill.
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Changes
Labor negotiated with the Greens to secure the votes needed to pass the reforms.
Under the deal, people with self-managed super funds (SMSFs) will no longer be able to borrow through their SMSF to buy residential investment properties. Industry and retail super funds are already subject to similar restrictions.
An SMSF is a super fund that individuals manage themselves, rather than having their retirement savings managed by an industry or retail super fund.
“This will take some demand out of the housing market and it will mean that there is less opportunity for people in SMSF to show up to auctions and use their tax advantages to outbid renters and prospective first home buyers," -Greens Senator Nick McKim in a press conference after the deal was announced.
Opposition
The Coalition voted against the changes.
Speaking to 2GB on Wednesday,Opposition Leader Angus Taylor described Labor's deal with the Greens as “dodgy”, “dishonest” and “dangerous”.
Taylor argued the Government wants “all super funds run by big industry super fund bureaucracies because they're their mates”.
He also claimed Labor “hates” self-managed super funds.
Response
The Association of Super Funds in Australia CEO Mary Delahunty said super funds are “generally prohibited” from borrowing as the super system “exists to preserve savings for retirements.”
“The law restricts funds from taking on the risk that a leveraged investment could have an outsized negative effect on those savings,”Delahunty said.
She added: “Until now, SMSFs have been the exception to this rule,” but now would be “in line with the rules that apply to all other super funds.”
What’s next?
The CGT changes will apply from the 2027-28 financial year, meaning gains made after 1 July 2027 will be taxed under the new rules.
The negative gearing changes will also begin on 1 July 2027.
However, both changes only apply to properties purchased on or after Budget night, 12 May.
