Budget 2026-27: What Has Changed and What Remains Uncertain?

The 2026-27 Budget tax package is now progressing through Parliament, and several late

developments have potential implications for SMSF trustees and investors. These include

proposed restrictions on borrowing to acquire residential property within superannuation, changes affecting the taxation of investments held outside super, and a range of business CGT measures announced on 18 June. While some long-standing superannuation settings remain unchanged, the interaction of these reforms may influence future structuring, investment and succession planning decisions. This briefing outlines the current position and identifies areas where further review may be appropriate.

What Is Now Law, What Is Passing, What Is Still Proposed

Three different timelines are in play, and the distinction matters for any advice given this week:

Division 296: Enacted in March 2026. Commences 1 July 2026. This is settled law.

CGT, negative gearing, the Working Australians Tax Offset and the $1,000 standard

deduction: Contained in the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, which the Government has secured Greens support to pass through the Senate this sitting fortnight, ahead of the 2 July winter recess. As part of that deal, the Greens have secured amendments - most relevantly for SMSFs, a prohibition on borrowing to acquire residential property (covered below).

The 30% minimum tax on discretionary trusts, and the new start-up CGT concession:

Separate, later legislation - still proposed, not in the bill passing now. The trust measure remains slated for 1 July 2028 and has not been withdrawn.

SUPERANNUATION TAX - NOW LAW, EFFECTIVE 1 JULY 2026

Division 296: Confirmed and Commencing

Division 296 was not softened, deferred or abandoned in the Budget. It commences on 1 July 2026 in its final legislated form. The first ATO assessments - based on Total Super Balance (TSB) at 30 June 2027 - will issue in the 2027/28 financial year.

How it works: An additional tax applies to the proportion of super earnings attributable to

balances above $3 million: 15% on the share between $3m and $10m, and a further 10% (25% in total) on the share above $10m. Critically, the final law taxes realised earnings only; unrealised (paper) gains are excluded. Both thresholds are CPI-indexed, in $150,000 and $500,000 increments respectively.

This is a tax on the individual, not on the fund. It cannot be reduced by deductions or offsets.

Members may elect to have the liability released from the fund via a release authority, but that is a choice, not a default.

Transitional window - act before 30 June 2027: For the 2026/27 income year, the application of Division 296 is based on a member's total superannuation balance at 30 June 2027. This differs from the ongoing framework that is intended to apply from 2027/28 onwards.

Accordingly, individuals with balances approaching or exceeding the relevant thresholds may experience different outcomes in the first year of operation compared with subsequent years. Whether any planning opportunities or implications arise will depend on individual circumstances and should be considered in the context of broader retirement, taxation and estate planning objectives.

The transitional rules are limited to the initial year of operation and are not expected to continue beyond 2026/27.

CAPITAL GAINS TAX - SMSF TREATMENT

Super Is Quarantined from the CGT Overhaul

The headline CGT reform replacing the 50% individual discount with cost-base indexation and a 30% minimum tax on gains does not apply to superannuation funds. SMSFs and all complying funds retain their existing treatment under Division 295 of the ITAA 1997.

What stays in place inside super: The one-third (33⅓%) CGT discount on assets held at least

12 months, producing an effective rate of 10% in accumulation phase. In pension phase, capital gains remain entirely tax-free. These arrangements are unchanged.

As proposed changes affect the taxation of investments held personally or through trusts from 1 July 2027, the relative tax outcomes achieved under different ownership structures may change. The significance of those changes will depend on the nature of the asset, holding period and individual circumstances.

SMSF BORROWING - IMPORTANT: NEW RESTRICTION

Borrowing to Buy Residential Property Inside Super Could Being Closed

As part of the Greens’ support for the package, the Government has agreed to an amendment prohibiting SMSFs from using limited recourse borrowing arrangements (LRBAs) to acquire residential property. This is the single most consequential change for SMSF property strategy and it was not part of the May Budget.

What is changing: SMSFs have been able to borrow to buy property via LRBAs since 2007,

relying on the exception in section 67A of the SIS Act to the general prohibition on fund

borrowing. The amendment removes that exception for residential property.

What we know - and what is still to be confirmed: The amendment text was not yet public at

the time of writing, so the following is based on the Government’s and the Greens’ statements and should be confirmed against the final wording:

• Scope appears confined to residential property: commercial and business real property

LRBAs (for example, premises leased back to a member’s business at arm’s length) appear to sit outside the prohibition. Mixed-use property is a grey area.

• It appears prospective: the Government has referred to “limiting new arrangements going

forward,” which suggests existing LRBAs continue. Treatment of refinancing or variation of an

existing arrangement is unconfirmed.

• The proposed start date is the 45th day after the amending Act receives Royal Assent. Existing arrangements entered into before commencement will be grandfathered, as would refinancing arrangements that maintain or refinance pre-commencement borrowings. Acquisitions entered into before commencement will also be protected, even where settlement occurs after commencement. 

In short: If enacted in its current form, the proposed measure would significantly restrict the future use of borrowing arrangements to acquire residential property within SMSFs. The SMSF advantage on the CGT side remains intact for ungeared assets, listed investments and commercial/business real property, but a client who was contemplating borrowing to buy an established residential property in their fund should pause and seek advice on timing and structure.

A separate note to follow: We will issue a dedicated follow-up on the SMSF investment options that remain available for residential exposure where borrowing is no longer permitted, including ungeared structures and other compliant pathways. This briefing deliberately does not pre-empt that detail.

INDIVIDUAL INVESTORS; PROPERTY - EFFECTIVE 1 JULY 2027

CGT and Negative Gearing Outside Super

These changes do not affect your SMSF, but they matter for assets held personally, in a family trust, or for property purchases planned outside super.

Capital gains tax – individuals. From 1 July 2027 the 50% discount is replaced with cost-base

indexation, the purchase price is lifted each year for CPI and only the above-inflation gain is taxed plus a minimum 30% tax on net capital gains.

Key design details: The reforms are prospective - gains accrued before 1 July 2027 keep the 50% discount, with a deemed re-acquisition at market value on that date for assets held across it. Investors in new residential builds can choose between the 50% discount and the indexation method. The main residence exemption is untouched. Age Pension and income-support recipients are exempt from the minimum tax. Pre-CGT assets are brought into the net for gains accruing after 1 July 2027.

New - business carve-outs announced 18 June (now part of the package): Two

adjustments were made in response to the business and start-up sectors:

Small business 50% active asset reduction, the turnover threshold lifts from $2 million to $10

million, aligning it with the instant asset write-off. Treasury says this captures around 98% of

active businesses. It applies on top of the new indexation method on eligible active assets held 12+ months.

Important caveat: the lift attaches to this one concession only. All four small business CGT

concessions are retained, but the 15-year and retirement exemptions still sit behind the existing basic conditions, notably the $6 million maximum net asset value test, which is unchanged and remains the gate that most affects growing businesses.

Innovative start-up concession, a consultation paper proposes preserving the choice of the

existing 50% discount for founders, employee-share participants and early investors in qualifying start-ups (broadly, new equity in an unlisted, independent company under 10 years old with turnover below $50m). Still at consultation stage.

Negative gearing – individuals. From 1 July 2027, losses on established residential property

acquired after 7:30pm AEST on 12 May 2026 can no longer be deducted against other income such as wages. Those losses can be offset against residential rental income and carried forward, but the traditional benefit of negative gearing against a salary is gone for new purchases of established property.

What is and isn’t grandfathered: All property held before Budget night (12 May 2026) is fully

grandfathered, existing arrangements continue until sale. New builds retain the full ability to offset losses against all income. Only established property purchased after Budget night is caught.

What this means for SMSFs specifically: The negative gearing changes apply to individuals,

not complying funds, and meaningful negative gearing inside an SMSF was always uncommon (the 15% fund rate, and nil in pension phase, blunts the value of a rental loss). For most funds this aspect changes little. The material SMSF development this cycle is not negative gearing, it is the residential LRBA prohibition set out above.

STRUCTURAL POSITIONING - STRATEGIC, WITH ONE CAVEAT

Where the SMSF Structure Now Sits

The SMSF Landscape Has Changed

The combined effect of the 2026-27 reforms is not straightforward. While a number of long-standing superannuation tax settings remain unchanged, new restrictions and additional tax measures mean trustees may need to reassess existing assumptions and strategies.

• The existing CGT treatment of complying superannuation funds remains unchanged. By

contrast, proposed changes to the taxation of investments held personally or through trusts may alter the relative outcomes achieved under different ownership structures from 1 July 2027.

• Proposed restrictions on borrowing to acquire residential property through SMSFs would remove a strategy that has historically been available to some trustees using limited recourse borrowing arrangements.

• Division 296 introduces an additional layer of tax for individuals with larger superannuation

balances and should be considered alongside any comparison of superannuation and non-

superannuation investment structures.

• Pension phase continues to receive concessional tax treatment under current legislation,

including the exemption of eligible retirement-phase income and capital gains from tax.

For many investors, the key question is no longer whether one structure is universally preferable to another. Rather, it is whether their existing arrangements remain appropriate given the interaction of superannuation, taxation, estate planning, asset protection and succession considerations. The answer will depend on individual circumstances and objectives.

WEALTH TRANSFER and SUCCESSION - REVIEW REQUIRED

Discretionary Trusts: Still Proceeding for 2028

From 1 July 2028, a 30% minimum tax is proposed on the taxable income of discretionary trusts, levied at the trustee level, with non-corporate beneficiaries receiving non-refundable credits. This is not a tax on distributions as such, it is a minimum tax on the trust’s net income, which removes the benefit of streaming income to lower-taxed beneficiaries.

Two points of clarification: The measure has not been withdrawn. It is not in the bill passing

now, which can create the impression it has been dropped; it sits in separate, later legislation still slated for 1 July 2028. Stakeholder pressure may yet refine the detail, but it remains on the books.

Testamentary trusts confirmed exempt. As part of the 18 June announcements, the Government confirmed discretionary testamentary trusts are excluded from the minimum tax - relevant to estate-planning structures.

Expanded rollover relief is proposed to be available for three years - from 1 July 2027 to 30 June 2030 - to facilitate certain restructures from discretionary trusts into companies or fixed trusts without triggering immediate CGT or duty consequences.

The availability of this relief may be relevant for families and business owners who hold significant assets in discretionary trust structures, particularly where succession planning, intergenerational wealth transfer or long-term ownership arrangements are being considered.

Whether any restructuring is appropriate, and the timing of any action, will depend on the final legislation and the circumstances of the trust, its beneficiaries and the underlying assets. Clients with significant trust-held assets may wish to discuss the implications of the proposed changes with their professional advisers.

SMSF PROPERTY HOLDERS - COMPLIANCE NOTE

The Division 296 Valuation Burden Is Real

Important clarification: The inflation-adjusted CGT discount and 30% minimum tax from 1 July 2027 are individual-taxpayer changes. They do not apply to SMSFs, which retain the one-third discount and pension-phase exemption. The valuation concern below is a Division 296 issue, not a consequence of the broader CGT changes.

Funds that elected to reset their CGT cost base at 30 June 2026 were required to revalue all assets at that date, including direct property. Annual market-value revaluation of direct property is already an ATO requirement; Division 296 adds the need to retain adjusted cost-base records for five years after disposal. Combined with TSB measurement, in-house asset testing and - now - the LRBA changes, this is a documentation load many trustees are not yet set up to manage.

Our view: For trustees holding direct property, particularly where member balances are

approaching relevant Division 296 thresholds, maintaining a consistent and appropriately

documented valuation methodology may become increasingly important. The appropriate

approach will depend on the fund's circumstances and asset profile.

NEXT STEPS

Things Worth Considering

This is general information only. Anything relevant to your situation should be discussed with your adviser before acting.

• Individuals with total superannuation balances approaching or exceeding $3 million may wish to understand how Division 296 operates and whether any transitional provisions are relevant to their circumstances.

• Trustees who currently hold, or were considering acquiring, residential property using a limited recourse borrowing arrangement may wish to consider the implications of the proposed residential LRBA restrictions. Further information on potential alternatives and planning considerations will be provided separately.

• Funds that elected to apply the CGT cost-base reset at 30 June 2026 may wish to ensure

supporting valuations and records are appropriately maintained.

• Business owners may wish to consider the relevance of the expanded $10 million active asset reduction threshold and the proposed start-up concession when assessing future succession, sale or restructuring opportunities, noting that other eligibility requirements continue to apply.

• Families with significant assets held through discretionary trusts may wish to assess the

potential impact of the proposed trust taxation measures and the availability of the proposed rollover relief period commencing 1 July 2027.

• Investors with assets held outside superannuation may wish to consider the potential

implications of the proposed CGT and property taxation changes from 1 July 2027 as part of any broader review of their arrangements.

The Vivace Advisory Team

SMSF Taxation Advisory

Important: This briefing is general information only and does not constitute personal financial or tax advice. It reflects our understanding as at 23 June 2026. Division 296 is enacted and commences 1 July 2026. The CGT, negative gearing and related measures in the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 - including the SMSF residential LRBA prohibition and the business CGT carve-outs - are passing through Parliament with amendments and are not yet finally enacted; the 30% discretionary trust minimum tax and the start-up concession remain proposed. Final legislation and detail may differ. You should seek advice specific to your circumstances before making any decision.

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