Last night, Treasurer Jim Chalmers handed down his fifth Federal Budget - and it's one that anyone with a stake in property needs to sit up and pay attention to. While the headlines have focused on housing affordability and intergenerational inequality, the detail buried in the budget papers tells a more nuanced story - one with real implications for commercial property investors, developers, and business owners across Western Sydney.
Here's what you need to know.
Capital Gains Tax: The Rules Are Changing
The big one. From 1 July 2027, the blanket 50% Capital Gains Tax (CGT) discount - which has been a cornerstone of Australian property investment strategy since 1999 - is being replaced for existing properties.
Instead, gains will be calculated using an inflation indexation model, compensating investors for the eroding effect of inflation on their purchase price rather than simply halving the taxable gain. For assets purchased before the budget, the current 50% discount will be proportionately grandfathered in.
There's also a new wrinkle: a minimum CGT floor of 30%. This is designed specifically to discourage investors from timing property sales around periods of low income - like retirement - to minimise their tax bill.
What does this mean in practice? The impact will vary significantly depending on where you've invested, how long you've held the asset, and how much it has grown in value. Assets held for longer periods in markets with steadier, more modest growth - like many of the commercial precincts across Western Sydney - are likely to perform more favourably under the new indexation model compared to markets that have seen sharp, short-run appreciation.
Negative Gearing: Residential is Out, New Builds Are In
This is the other major structural shift. From 1 July 2027, negative gearing - the ability to offset investment property losses against your regular income - will be restricted to new build residential properties only. For existing residential properties purchased from budget night, any losses will only be deductible against rental income, with excess losses carried forward to future years.
Importantly, there was no explicit mention of commercial property in the negative gearing changes. This is significant for Western Sydney investors and business owners who hold commercial assets, as the current treatment of commercial property losses appears to remain intact - though the full detail of the legislation will be critical to watch.
Exemptions to the new residential negative gearing rules include properties held in widely-held trusts, superannuation funds, build-to-rent developments, and government housing programs - all of which happen to be emerging commercial asset classes of growing interest in the Western Sydney market.
Discretionary Trusts: A New Tax Floor Coming
If you hold property through a discretionary trust, take note. From 1 July 2028, discretionary trusts will be subject to a minimum 30% tax rate. Treasury data revealed that trust levels had more than doubled over the past two decades, with the wealthiest 10% of households holding over 90% of private trust value. This measure is squarely targeted at that concentration.
For commercial investors who use trust structures for asset holding and wealth planning, this is a conversation to have with your accountant sooner rather than later. The effective date of 2028 gives some runway, but restructuring strategies - if warranted - take time.
SMSFs and Commercial Property: No Changes (For Now)
One area that drew significant pre-budget speculation was self-managed super funds (SMSFs) - specifically, whether the Government would crack down on SMSF lending into residential property. The budget papers were notably silent on this front, with no explicit changes to limited-recourse borrowing arrangements (LRBAs).
This is good news for many business owners across Western Sydney who use their SMSF as a vehicle to purchase the commercial premises they operate from - paying rent back into their own fund through a buy-leaseback model. That strategy remains fully intact under current legislation.
Budget papers did flag that exemptions apply to "compliant" superannuation funds, placing added emphasis on SMSF trustees meeting their reporting and compliance obligations.
The Bigger Picture: What Shifts in Residential Could Mean for Commercial
Perhaps the most interesting consequence of this budget isn't what it does to commercial property directly - it's what it does to the residential market, and where that money flows next.
The combined effect of limiting negative gearing to new residential builds and reshaping CGT settings is, by Treasury's own modelling, designed to support an additional 75,000 first-home buyers over the next decade. But for existing residential property investors, the calculus around holding, acquiring or exiting residential assets has fundamentally changed.
Independent research from REA Group's economics team suggests these changes are likely to drive some investors away from residential property toward other asset classes - with commercial property flagged as a natural beneficiary, particularly for those seeking stronger income returns, longer lease profiles, and better depreciation benefits.
What Should You Do Now?
This budget introduces changes with a relatively long lead time - most don't take effect until 1 July 2027 or later. That's time to plan, not panic.
Whether you're a long-term commercial investor assessing how your CGT position changes, a developer weighing up new build incentives, or a business owner who's never considered owning your own premises, the landscape has shifted - and it's worth understanding exactly where you stand.
If you'd like to talk through what this means for your portfolio or your business, the team at RWC Western Sydney is here to help.