Negative gearing has changed for residential property. Where does that leave commercial?

This article explains what has changed, what applies to commercial property and what doesn't, and what investors should think about before their next purchase.

The reforms are now law

The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 passed the Senate on 25 June 2026, after being introduced to the House of Representatives on 28 May. It received Royal Assent on 26 June 2026. The main elements are:

• Negative gearing: from 1 July 2027, residential dwellings bought after 7:30pm AEST on 12 May 2026 (Budget night) will no longer qualify for negative gearing.
• Exemptions: net rental losses from new residential dwellings are exempt, as are losses from dwellings bought before Budget night.
• Capital gains tax: the 50% CGT discount is replaced, and a 30% minimum tax rate applies to capital gains accruing on and after 1 July 2027.
• Further changes: a second, more technical bill is expected later this year. It will set out detailed exemptions and new rules for discretionary trusts.

Source: Treasury Laws Amendment (Tax Reform No. 1) Bill 2026; law firm and industry commentary.

What doesn't apply to commercial property

The negative gearing restriction applies only to residential property. Commercial property is not affected by it.

As a result, commercial property is now treated more favourably than established residential property bought after Budget night. An investor who buys an established house or apartment after that date can only offset rental losses against residential rental income or residential capital gains, from 1 July 2027. Different rules apply to a commercial property purchase.

That doesn't automatically make commercial property the better investment. Commercial property has always behaved differently from residential property, and the tax change doesn't alter that (see below).

What does apply to commercial property

The CGT overhaul applies broadly

The CGT changes cover all capital gains accruing from 1 July 2027, not just residential gains. That includes gains on commercial property. The new rules replace the 50% discount with indexation, so only real (inflation-adjusted) gains are taxed, and apply a 30% minimum tax on gains. Gains that accrued before 1 July 2027 can still receive the 50% discount.

Small business CGT concessions remain

The existing small business CGT concessions remain in place. This matters for business owners who own the premises their business operates from. Eligibility depends on individual circumstances, so specialist tax advice is essential.

Trust structures will change

Many commercial properties are held in discretionary trusts. Changes to how those trusts are taxed are due from 1 July 2028, with the detail still to come in the second bill. Investors buying through a trust should check how their structure will be treated before committing.

SMSFs: commercial borrowing remains, with an important catch

The reform package also included a change that wasn't in the Budget papers: from 10 August 2026, SMSFs can no longer enter into new limited recourse borrowing arrangements (LRBAs) to buy residential property.

SMSFs can still borrow to buy commercial property, but the test is narrower than "commercial versus residential". The new rule turns on whether the property meets the legal definition of business real property. Some properties that seem commercial don't meet it. For example, a mixed-use building such as a shop with a flat upstairs is not business real property.

Specialists have warned that some cases are unclear. For example, it may be uncertain whether an SMSF can borrow to buy a brand-new commercial property or one bought off the plan. Existing SMSF loans are unaffected, and refinancing is carved out from the reforms.

Lenders are already adjusting

Major lenders, including ANZ, NAB and Macquarie, have already updated their serviceability policies. They now recognise negative gearing only for new builds or established properties bought before the Budget. For investors with mixed portfolios, this can affect borrowing capacity across all their lending, not just new purchases.

Commercial property: what hasn't changed

The tax changes don't alter the basic differences between commercial and residential property. Investors considering commercial property should weigh up:

• Income profile: commercial yields have traditionally been higher than residential yields, but income depends on the tenant and the lease.
• Vacancy risk: commercial vacancies can last much longer than residential ones, and finding a new tenant may require incentives or fit-out spending.
• Lease quality: lease length, rent review terms and the tenant's financial strength drive both value and lending appetite.
• Lending terms: commercial lending typically involves lower maximum LVRs, more scrutiny of the lease and tenant, and different valuation methods from residential lending.
• State taxes: in Victoria, the transition to the Commercial and Industrial Property Tax adds an ongoing cost for many properties after they're bought. See our article on buying commercial property in Victoria.

Questions to ask before your next purchase

1. Will this property be held for the long term, and how does the new CGT regime affect your expected after-tax return?
2. Which entity will own it, and how will the trust changes from 2028 affect that structure?
3. If buying through an SMSF, does the property clearly meet the business real property definition, both now and for as long as the loan runs?
4. How dependent is the investment on one tenant, and what is your plan if the tenant leaves?
5. Have you received tax advice specific to your situation? General rules are a starting point, not a decision.

The Funding Door view

Tax settings can change where investors look, but the basics of a sound property loan stay the same: quality security, a sustainable income stream and a clear repayment strategy. Whether you're buying commercial or residential property, the structure should suit the asset, the borrower and the plan.