Is No More Negativity a Positive Thing? CGT and Negative Gearing Reform Clears the House

The Change

Two Pillars of Australian Investment Tax, Both Being Rewritten at Once

If you own an investment property, hold shares outside of super, run a family trust, or are simply planning to sell an asset some day, the rules you have been working with for the last twenty-five years are about to change.

The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 — referenced on the Parliament of Australia website under bill ID r7493 — passed the House of Representatives in late May 2026 and is now before the Senate Economics Legislation Committee, with a report due back by 22 June 2026.

The Bill contains four schedules. Two of them — the CGT overhaul and the negative gearing restriction — will materially change after-tax returns on almost every form of long-held Australian investment. The other two introduce a new Working Australians tax offset and a $1,000 standard deduction for work-related expenses.

This article focuses on the two schedules that matter most for investors. If you want to talk about how the work-related deduction and offset affect your individual return, get in touch — the rest of this piece is about your capital.

Capital Gains Tax

The 50% CGT Discount is Being Replaced With Indexation

For more than twenty-five years, the 50% capital gains tax discount has been a defining feature of how Australians invest. Hold an asset for at least twelve months, sell it as an individual or a trust, and only half of the gain is taxable. That rule is being removed for CGT events happening on or after 1 July 2027.

In its place, the Bill restores cost base indexation for individuals and trusts. The cost base of a CGT asset will be indexed for inflation over the period the asset is held from 1 July 2027 onwards, which reduces the size of the taxable gain. The policy intent is straightforward: under indexation, only the real gain — the gain above inflation — is taxed.

For assets you already own, there is a transitional mechanism. Individuals and trusts holding a CGT asset on 30 June 2027 will be treated as having sold and reacquired that asset at its market value just before 1 July 2027. Any gain (or loss) on the pre-July 2027 portion is calculated under the existing rules — including the 50% discount — but is deferred until you actually sell. Indexation then runs from 1 July 2027 forward.

In practical terms, that means you do not lose access to the 50% discount on capital gains that have already accrued by 30 June 2027. But every dollar of growth from 1 July 2027 onwards is in the new system.

"Indexation rewards holding through inflation. Discount rewarded holding for twelve months. They are not the same incentive, and they reward very different investor behaviour."

Capital Gains Tax

A New 30% Minimum Tax on Capital Gains

The second leg of the CGT reform is a brand-new Division 119 in the Income Tax Assessment Act 1997, which imposes a 30% minimum rate of tax on certain capital gains made by Australian-resident individuals.

The way it works is essentially a top-up. The ATO works out what your basic income tax would be if the capital gain were removed from your assessable income, and what your basic income tax actually is with the gain included. If the difference is less than 30% of the gain, you pay an extra amount of income tax to bring the effective rate up to 30%.

This is targeted at a long-standing planning technique: realising large capital gains in income years where the rest of your income is unusually low, so that the entire gain is taxed at low or even zero marginal rates. Under Division 119, that strategy stops working as well as it used to.

There are exemptions for recipients of social security payments and certain means-tested government payments, so low-income individuals are not adversely affected. There are also carve-outs for gains that qualify under the new dwellings and affordable housing concessions (see below).

Division 119 applies to capital gains from CGT events happening on or after 1 July 2027.

Capital Gains Tax

Pre-CGT Assets Will Finally Be Brought Into the System

For the first time since CGT was introduced in September 1985, pre-CGT assets are being brought into the regime.

If you hold a CGT asset on 30 June 2027 that was a pre-CGT asset on that day, the Bill treats you as having sold and reacquired it just before 1 July 2027 at its market value. Any gain or loss on the pre-July 2027 portion is disregarded — so the pre-CGT history of the asset remains tax-free up to 30 June 2027 — but from 1 July 2027 onwards, growth is taxable under the new rules.

If you or a family trust holds pre-1985 assets, this is a moment to take stock. Valuations as at 30 June 2027 will become important records, because they fix the cost base for everything that comes after.

Concessions

New Dwellings and Affordable Housing Keep a 50% (or 60%) Discount

Not all assets are being moved into the indexation system. The Bill carves out two categories where the existing-style CGT discount continues to be available:

• New residential dwellings — eligible for a 50% discount on capital gains
• Affordable housing — eligible for up to a 60% discount

For these assets, individuals (and certain trusts) can choose between the discount and indexation. That election is made at the point the relevant CGT event happens. Capital gains that qualify for these concessions also sit outside the new 30% minimum tax in Division 119.

The policy direction is unmistakable: tax settings are being deliberately tilted towards new construction and toward housing that helps with affordability, and away from established stock.

Negative Gearing

Net Rental Losses on Established Residential Property Are Being Quarantined

Schedule 2 of the Bill inserts a new section 26-155 into the Income Tax Assessment Act 1997. It limits the deductibility of losses from residential dwellings used or held as residential accommodation.

The mechanics are simpler than the rhetoric around them. From the 2027–28 income year, if your deductions from quarantined residential dwellings exceed your assessable income from those dwellings, the excess is not deductible against other income. You cannot offset the loss against your salary, your business income, or your other investments. The excess becomes a "quarantined amount" that can only be used to:

1. reduce a future net capital gain on the property, or
2. carry forward and be applied against future net rental income from the same quarantined residential dwellings.

For most individual investors holding a single negatively geared established rental, that is a fundamental change to how the after-tax return is built.

Negative Gearing

What Is Grandfathered, and What Is Not

The most important date in the entire Bill is 7:30pm AEST, 12 May 2026 — Budget night. If you last acquired an interest in a residential dwelling before that time, that property is excluded from the quarantine. Existing investors holding established stock at Budget night are grandfathered.

If you acquired your interest on or after Budget night, the quarantine applies from 1 July 2027 onwards — unless the property qualifies as a "new residential dwelling" or fits within one of the other carve-outs listed in the Bill.

The carve-outs in section 26-155(2) and (4) include:

• residential dwellings acquired before Budget night
• new residential dwellings (with detailed requirements to be set by Ministerial determination)
• residential dwellings used for certain activities, purposes, businesses or enterprises specified by the Minister
• widely held unit trusts, complying superannuation entities, and certain other specified entities
• amounts that relate to providing a fringe benefit

The "new residential dwelling" definition is critical and the legislation explicitly leaves the detail to a future legislative instrument — the Minister can specify rules around the kind of dwelling, the kind of interest, the circumstances of creation (vacant land build, substantial renovation, replacement of a demolished dwelling), title structure, and whether the dwelling "genuinely adds to the supply of residential dwellings in Australia". Investors planning around new builds should expect more detail before 1 July 2027.

Interaction

The CGT and Negative Gearing Changes Reinforce Each Other

It is worth pausing on how these two reforms interact, because they are not independent.

Historically, the trade-off in residential property investment has been: accept a rental loss each year, deduct it against your salary at the top marginal rate, and rely on the 50% CGT discount to keep the eventual capital gain lightly taxed. The Bill compresses both halves of that trade-off at the same time.

• On the income side, the rental loss can no longer be deducted against your salary for newly acquired established residential property.
• On the capital side, the 50% discount is replaced with indexation, and a 30% floor is placed under the effective tax rate on the eventual gain.

For investors weighing up new builds versus established stock, the after-tax case for new builds is now materially stronger than it was before Budget 2026.

Action Plan

What You Should Do Now

The legislation is not yet law — the Senate Committee report is due 22 June 2026 and the Senate vote follows — but the policy direction is clear, the start dates are fixed in the Bill, and the negative gearing cut-off date (12 May 2026) is already behind us. Decisions made now have real consequences for how you are taxed in 2027–28 and beyond.

1. Confirm the acquisition date of every residential investment property you own. The grandfathering test in section 26-155 turns on whether you "last acquired" the interest before 7:30pm AEST on 12 May 2026. For contracts entered into around that date, the exact timing matters.
2. Plan around 30 June 2027 valuations. Every CGT asset held by an individual or trust on that date is treated as sold and reacquired at market value. For assets where the line between pre- and post-1 July 2027 growth will matter (real property, private company shares, long-held portfolios, pre-CGT assets), independent valuations are now part of your tax record-keeping.
3. Re-test your property investment thesis under the new rules. If your model relied on a tax refund each year from rental losses plus a 50% CGT discount on exit, both of those assumptions need to be redone. New builds and affordable housing remain comparatively favoured.
4. Be careful about realising gains "early" purely to lock in the 50% discount. The transitional rules already preserve the 50% discount on growth accrued to 30 June 2027 — you do not necessarily need to sell to capture it. But the deferred-gain rules are detailed, and the right answer is asset-specific.
5. For trusts, expect new reporting obligations. The Bill inserts a new section 115-235 requiring trustees to give beneficiaries detailed statements categorising capital gains as residential, non-residential, deferred residential or deferred non-residential. Trustees and their advisers should plan for the changes to trust distribution statements ahead of the 2027–28 year.
6. Talk to Hawkeye before you sign anything. The interaction between the new CGT rules, the negative gearing quarantine, and your existing structure (individual ownership, trust, SMSF, company) is not something to navigate from a generic article. We are working through the Bill in detail with our investor clients now.

Tax News

Payroll is About to Become More Complicated for Business Owners

From 1 July 2026, the Payday Super reforms will transform how Australian employers handle superannuation. Here is what every business owner needs to know.

The Change

The Quarterly System is Ending

If you employ staff, you already know the rhythm: pay super quarterly, lodge by the 28th day after the quarter ends, move on. That routine is about to disappear.

The Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill passed through parliament in November 2025, and with it came the single largest overhaul to superannuation payment obligations in decades. From 1 July 2026, the quarterly superannuation guarantee cycle will be replaced by what the government is calling Payday Super.

The concept is straightforward: every time you pay your employees, you will have seven business days to remit their superannuation to the correct fund. Not seven calendar days — seven business days, which still leaves very little margin for error when you factor in processing times, public holidays, and the realities of running a business.

This is not a minor administrative tweak. It fundamentally changes how payroll, cash flow, and compliance intersect for every employer in Australia.

New Terminology

Qualifying Earnings Replace Ordinary Time Earnings

Along with the new payment timeline comes a new calculation base. The familiar concept of Ordinary Time Earnings (OTE) is being retired in favour of a broader measure called Qualifying Earnings (QE).

QE is the new foundation for calculating the 12% superannuation guarantee, and it captures more than OTE ever did. It includes:

• All components previously classified as OTE
• All commissions, regardless of structure
• Directors' fees
• Any salary-sacrifice reductions
• Payments to contractors who are engaged primarily for their labour

Each payday now becomes a "QE day". The individual SG amount for that pay run is simply 12% multiplied by the Qualifying Earnings for that day. No more aggregating across the quarter and hoping it balances out.

The maximum super contributions base still applies, but it now operates as an annual limit rather than being assessed quarterly. This changes the maths considerably for high-earning employees, and it is something you need to track carefully across the full financial year.

"This is not a change you can afford to learn about on 2 July. Every employer needs a transition plan in place well before the start of the new financial year."

Compliance

The Penalties are Steep

Under the current quarterly system, a missed deadline is inconvenient but manageable. Under Payday Super, the consequences of even a single late payment are significantly more severe.

If super is not received by the employee's fund within those seven business days, the employer triggers the Superannuation Guarantee Charge (SGC). The redesigned SGC is composed of four elements:

1. Individual final SG shortfalls — the super that should have been paid but was not
2. Notional earnings component — interest calculated by daily compounding at the General Interest Charge (GIC) rate, representing the investment return the employee missed
3. Administrative uplift of 60% — a punitive loading applied on top of the shortfall amount
4. Choice loading — an additional charge if the employer failed to pay into the employee's chosen fund

That 60% administrative uplift is the number that should concern you the most. It can be reduced if you lodge a voluntary disclosure statement with the ATO before they issue an assessment — but only if you get in early. Once the ATO contacts you first, the full uplift applies.

Company directors should also note that unpaid SGC can result in personal liability through Director Penalty Notices. And unlike many business expenses, the GIC on unpaid SGC is not tax deductible. It is a pure cost with no offset.

Infrastructure

The Small Business Clearing House is Closing

Many small employers have relied on the government's free Small Business Super Clearing House (SBSCH) to process their quarterly super payments. That service is being discontinued.

If your business currently uses the SBSCH, you will need to transition to a commercial clearing house operator before 1 July 2026. This is not optional — the free service will simply stop accepting payments.

Beyond the clearing house itself, your payroll software and any Digital Service Providers (DSPs) you use need to be capable of processing super payments within the new seven-day window. If your current payroll system batches super quarterly and does not support per-pay-run processing, now is the time to have that conversation with your provider. Waiting until June will leave you scrambling.

Transition Risk

Watch Out for the June Quarter Transition

There is a timing trap built into the changeover that every employer needs to understand.

The June 2026 quarter (covering April, May, and June) is the final quarter under the old system. You still have until 28 July 2026 to pay that quarter's superannuation guarantee — that deadline has not changed.

But here is the problem: if you pay the June quarter SG after 1 July, that money arrives in the employee's super fund during the 2026–27 financial year. At the same time, you will also be making Payday Super contributions for every pay run from 1 July onwards. The result is a "bunching" effect where an employee receives both the old quarterly payment and the new per-payday contributions within the same financial year.

For many employees, particularly those on higher salaries or with salary sacrifice arrangements in place, this bunching could push their total concessional contributions above the expected $32,500 cap for 2026–27. Excess concessional contributions are taxed at the employee's marginal rate rather than the concessional 15%, which can create a significant and unexpected tax bill for your staff.

The government has indicated it is considering transitional measures to address this overlap, but as of March 2026, nothing has been legislated or confirmed. You cannot rely on a fix that does not yet exist.

What you can do right now is identify which employees are at risk. Anyone earning above $200,000, anyone with active salary sacrifice arrangements, and anyone already making voluntary contributions should be flagged. You may need to adjust the timing of your June quarter payment or coordinate with affected employees to pause voluntary contributions temporarily.

Action Plan

What You Should Do Now

You have roughly three months before Payday Super takes effect. That sounds like a reasonable amount of time, but the operational changes required are substantial. Here is where to start:

1. Talk to your accountant. If you do not already have a relationship with a firm that understands these changes, contact Hawkeye. We have been preparing our clients for this transition since the legislation passed.
2. Confirm your payroll provider can meet the seven-day requirement. Speak to your DSP or software provider and get written confirmation that their system will support per-pay-run super processing from 1 July.
3. Start paying super on payday now. You do not have to wait until July. Voluntarily aligning your super payments with each pay run now gives you three months to identify and fix any issues in your process before compliance becomes mandatory.
4. Review your cash flow. Moving from four large quarterly payments to a super payment every pay cycle is a significant shift in cash flow timing. Model this out and make sure your business can handle the more frequent outflows without strain.
5. Plan for the June quarter transition. Identify at-risk employees, consider paying the June quarter SG before 30 June if possible, and communicate with staff who have salary sacrifice arrangements.
6. Transition away from the Small Business Clearing House. If you currently use the SBSCH, select and onboard with a commercial clearing house provider well before the deadline.