The 2026 Tax Environment: What Changed and Why It Matters
The tax environment described in this guide was one of the factors encouraging some business owners to consider new housing supply and commercial property. The announced settings distinguished between established residential property, new builds and commercial property.
Negative gearing and new-build settings
Under the measures described in the original finance guide, residential property investors who purchased after 7:30pm on 12 May 2026 would, from 1 July 2027, no longer be able to offset rental losses against wage or business income. Those losses would instead be quarantined and used against future rental income or capital gains from residential property.
The announced exemptions included new builds, widely held trusts, superannuation funds, build-to-rent and investors supporting government housing programs. Commercial property was described as unaffected.
In summary, the announced position was:
- Established residential property purchased after Budget night: negative-gearing losses would be quarantined to rental income.
- New builds: negative gearing would be retained, with eligible investors able to choose between the existing 50% CGT discount and new indexation rules at sale.
- Commercial property: unaffected by the announced negative-gearing changes.
- Existing holdings: grandfathered under the current rules until sold.
CGT and the proposed replacement of the 50% discount
The guide described announced changes under which gains on assets held by individuals, trusts and partnerships would, from 1 July 2027, be taxed on an indexed basis with a 30% minimum tax. In a low-inflation environment, indexation may provide less relief than the existing 50% CGT discount.
Superannuation funds were expected to retain their existing CGT treatment inside the fund, including the one-third CGT discount. Division 296 was treated separately because it added a personal tax layer for members above the relevant total superannuation balance threshold.
Key point: The original guide identified new builds as having greater optionality under the announced settings than established residential property. This is particularly relevant where the exit strategy involves retaining completed stock as an investment. The current legislative position should be confirmed before relying on these settings.
Division 296 and High Superannuation Balances
The guide also considered Division 296 and its potential effect on business owners with higher superannuation balances. As described in the source guide, the measure imposed an additional personal tax on realised superannuation earnings attributable to the proportion of a member's total superannuation balance above the relevant threshold.
The source guide outlined the following settings:
- balances between $3 million and $10 million: an additional 15% tax on realised earnings attributed to the proportion above $3 million;
- balances above $10 million: an additional 25% tax on realised earnings attributed to the proportion above $10 million;
- thresholds indexed annually to CPI in specified increments;
- limited recourse borrowing arrangement debt inside an SMSF not inflating the total superannuation balance for Division 296 purposes; and
- a one-time election for SMSFs to reset the cost base of directly held assets to market value at 30 June 2026 for Division 296 purposes.
For a business owner holding commercial property inside an SMSF, the interaction between the asset value, member balance and any future sale can be material. Any election may be irrevocable and may apply across all directly held assets rather than being selected asset by asset.
This is an area where current, specialist superannuation and tax advice is essential. The structure should not be changed, and a valuation should not be commissioned or relied upon, without confirming the enacted rules and the member's broader position.
A Development Scenario: What the Numbers Look Like
Consider a building services company director in Queensland who has identified a 900sqm block in a growth corridor. Approval is expected for four townhouses with an estimated completed value of $650,000 each. The total land acquisition cost is $820,000, including approximately $36,000 in stamp duty, and the fixed-price construction quote is $1,240,000.
Indicative project costs
- Land purchase, including estimated stamp duty: $820,000
- Fixed-price construction contract: $1,240,000
- Consultant fees for architect, engineer and planning: $62,000
- Finance costs, including fees, legal and quantity surveyor: $44,000
- Capitalised interest over 18 months at approximately 6.5%: $112,000
- Contingency at 5%: $62,000
Total project cost: $2,340,000
Indicative result
- Gross realisable value, based on four sales at $650,000: $2,600,000
- Less total project cost: $2,340,000
- Less estimated selling costs at 2.5%: $65,000
Net development profit: $195,000, or approximately 7.5% of GRV.
A 7.5% margin provides limited protection against cost overruns, delays or lower sale prices and may not satisfy a lender's required feasibility margin. The land may need to be cheaper, the completed values stronger or the project restructured before proceeding.
Reducing the land acquisition cost to $680,000 and increasing the estimated sale value to $680,000 per townhouse would lift the indicative profit to approximately $452,000, or 16.6% of GRV. Small movements in land cost and completed values can materially affect project viability.
SMSFs and Property Development
SMSF property rules are complex, particularly where borrowing, development activity and related parties are involved. The distinction between acquiring an asset and improving or developing it is critical.
Activities an SMSF may be able to undertake
- Purchase residential investment property through a limited recourse borrowing arrangement, provided the property is held for investment and is not occupied by members or relatives.
- Purchase commercial property through an LRBA and lease it to a related business on arm's-length, market terms.
- Hold development land and engage a builder where construction is funded from existing fund assets rather than borrowed funds, subject to the specific structure and advice.
- Invest in a managed fund or syndicate undertaking development, provided the investment satisfies the sole-purpose test and arm's-length requirements.
Activities that may breach the rules
- Using LRBA borrowings to improve or develop the property rather than acquiring the asset in its original state.
- Purchasing residential property from, or selling it to, a related party.
- Allowing members or their relatives to occupy residential property held by the fund.
- Undertaking development as a trading business in a way that conflicts with the sole-purpose test.
A commonly considered strategy is for an SMSF to acquire commercial property and lease it to the member's business on market terms. Residential development using borrowed funds is materially different. Business owners should obtain specialist SMSF legal and tax advice before signing a contract or arranging finance.
How Lenders Assess a Development Application
Development finance is assessed differently from a standard residential loan. The lender is not only asking whether the borrower can service the debt. It is assessing whether the project itself is viable because the loan is secured against an asset that does not yet fully exist.
Feasibility
The lender will expect a professionally prepared feasibility covering acquisition costs, construction, consultants, finance, contingency, end values, profit on GRV, loan-to-cost and loan-to-value ratios. A basic spreadsheet or vendor-prepared estimate may not be sufficient.
Builder
The lender will review the builder's licence, insurance, experience and financial position. A fixed-price building contract is commonly required so the lender can assess the build cost before committing.
Planning
An approved planning permit and completed plans materially strengthen an application. Some specialist lenders may consider projects before approval, but the risk, pricing and conditions may be different.
Experience
Prior development experience is valuable. Where the borrower has not completed a development before, a suitably experienced project manager and relevant industry experience in construction, engineering, building services or trades can help support the credit case.
Exit strategy
The lender needs to understand how the facility will be repaid. The exit may involve selling completed stock, refinancing retained properties into investment loans or using a combination of both.
Presales
Presale requirements depend on the lender, project size, location and borrower strength. Smaller two-to-four dwelling projects may sometimes proceed without presales through a specialist lender. Larger projects and major-bank applications are more likely to require presales.
How Business Income Affects the Application
Many development lenders still require personal serviceability behind the project. Business income matters, but it is assessed differently from wage income.
Potential advantages
- Strong, consistent business income can give lenders additional comfort behind the project.
- Equity in commercial property owned by the business or its owners may support the funding structure.
- Industry experience in construction, engineering or trades may demonstrate relevant capability.
- A documented record of managing subcontractors, project timelines and cost control may help the lender understand the borrower's experience.
Common complications
- Self-employed income is generally assessed using declared income from tax returns, often over two years.
- Income retained in a company or trust may not be treated in the same way as income flowing through to the individual.
- Lenders may request business bank statements in addition to tax returns and financial statements.
- Recent changes in business structure or limited ABN history can narrow the available lender options.
A tax-minimisation strategy that suits the operating business can reduce the income a lender is prepared to recognise. The accountant and finance broker should discuss this before the application is lodged.
Banks and Non-Bank Development Lenders
The lender should be selected around the project, borrower profile, presale position and timeframe rather than interest rate alone.
Major banks
- generally lower pricing;
- more conservative loan-to-cost and loan-to-GRV settings;
- greater likelihood of presale requirements for larger projects;
- longer and more structured approval processes; and
- best suited to experienced developers, larger projects and stronger balance sheets.
Non-bank and specialist lenders
- generally higher pricing that reflects project and borrower risk;
- more flexibility around leverage, presales and borrower experience;
- potentially faster assessment for a complete, lender-ready file; and
- often better suited to smaller developments, earlier-stage developers or tighter timeframes.
The cheapest loan is not necessarily the best funding solution. Conditions, presale requirements, valuation methodology, quantity-surveyor controls, line fees, default pricing and the lender's capacity to meet the project timetable all matter.
GST and Property Development
GST is one of the most commonly misunderstood areas of property development. Business owners who deal with GST in their operating business can still be caught by property-specific rules.
GST registration
A one-off development may still constitute an enterprise for GST purposes. Where the project meets the registration threshold, the entity undertaking the development may need to be registered before making a taxable supply.
New residential property sales
The sale of newly built residential dwellings is generally a taxable supply. GST can therefore materially affect the feasibility and settlement proceeds and should not be treated as an adjustment to consider at the end of the project.
The margin scheme
Where eligible, the margin scheme may allow GST to be calculated on the margin between the sale price and the original acquisition cost rather than on the full sale price.
Using the Queensland scenario from the guide:
- standard method: three townhouses at $650,000 each produce $1,950,000 in gross realisable value, with indicative GST of $177,273;
- margin scheme: where the land was acquired for $820,000 from a private, non-GST-registered vendor, the indicative margin is $1,130,000 and GST is $102,727; and
- indicative difference: $74,546.
The calculation is illustrative only. Eligibility depends on the acquisition and transaction history, and specialist tax advice is required.
Rules that commonly create problems
- The margin scheme must be agreed in writing in the contract before settlement.
- The way the land was acquired can affect eligibility.
- The chain of title and GST treatment of prior transactions can matter.
- Construction costs do not reduce the margin used in the margin-scheme calculation.
- GST withholding can reduce the amount received by the developer at settlement.
Input tax credits during construction
Where the developing entity is registered and making taxable supplies, it may be able to claim input tax credits for GST paid on eligible construction and project costs through its BAS. This affects cash flow throughout the build, not only the final tax position.
GST planning should happen before exchange. The purchasing entity, registration status, margin-scheme eligibility and treatment of input tax credits can all be influenced by decisions made when the site is acquired.
Development Profit, Capital Gains and Hold Strategies
Development profit is generally treated differently from a capital gain. Where property development is undertaken as a business or commercial activity, the profit will commonly be treated as ordinary income.
The distinction becomes important where the strategy is to retain some completed stock as a long-term investment rather than sell every property as part of the development.
- Development profit: active development carried on as a business or commercial activity is generally taxed as ordinary income.
- Hold strategy: a later sale of completed stock genuinely held as an investment may be treated as a capital gain, subject to the facts, structure and eligibility requirements.
The structure and intention should be established and documented before the land is acquired. Tax treatment cannot safely be engineered after the commercial outcome is known.
Choosing the Development Entity
How a development is structured affects tax, asset protection, funding, profit distribution and the eventual exit. The entity should be selected before exchange.
Individual or partnership
Profit from an active property development undertaken as a business or commercial activity is generally assessable as ordinary income. Personal marginal tax rates may apply, depending on the circumstances.
Company
A company may provide a lower initial tax rate on development profit than the top personal marginal rate. However, further tax consequences can arise when retained profit is distributed, and companies generally do not receive the CGT discount on genuine capital gains.
Discretionary trust
A trust may provide flexibility, but proposed changes to the taxation of trust distributions can affect the expected outcome. Any development using a discretionary trust should be modelled against both the current law and announced changes that may apply before the project profit is distributed.
The appropriate structure depends on the project, participants, funding, tax position and long-term strategy. Specialist legal and tax advice should be obtained before the purchasing entity signs the contract.
What You Need Before Applying for Development Finance
A lender-ready application starts well before the finance application itself.
Project information
- approved planning permit and plans;
- fixed-price building contract; and
- independent feasibility study.
Builder information
- builder's licence;
- insurance certificates;
- company and project history; and
- evidence that the builder is licensed, insured and capable of delivering the project.
Financial information
- two years of personal and business tax returns and financial statements;
- recent business bank statements;
- statement of assets and liabilities; and
- evidence of the equity contribution or deposit funds.
Experience
- developer CV or project history;
- relevant industry experience;
- details of the project manager and professional team; and
- prior projects and professional credentials.
The stronger and more complete the application, the easier it is for a lender to assess the project, the borrower and the path to completion.
Frequently Asked Questions
Do CGT changes affect development profit?
In many cases, active development profit is taxed as ordinary income rather than as a capital gain. CGT settings are more likely to matter where completed stock is genuinely retained as an investment. The treatment depends on the facts, intention and structure, and tax advice is essential.
Can I use equity in my home to fund a development?
Equity released from an existing property may be used to fund the land deposit or part of the acquisition cost, subject to lender approval. The risks should be carefully considered, particularly where the family home could become exposed to the development.
Can a company or trust take out the development loan?
Yes. Development loans are commonly structured through companies and trusts, although lenders may require personal guarantees. The entity should be selected before exchange because it affects tax, asset protection and the funding structure.
Do I need presales before I can obtain development finance?
It depends on the lender, project size, location, leverage and borrower profile. Some smaller projects may proceed without presales through specialist lenders, while larger projects and major banks are more likely to require them.
What is Wood Associates' role in a development transaction?
Wood Associates helps business owners pressure-test the feasibility, structure the funding, identify suitable lenders and coordinate the finance process. We also work with the client's accountant, solicitor and other advisers so that lending is considered alongside the broader transaction.
Why a Broader Finance Conversation Matters
Most finance brokers place loans. Development finance for a business owner can require a broader conversation because the issues are not purely about lending. They can involve business income, entity structure, GST, tax treatment, exit strategy and the effect on the operating business if the project is delayed or underperforms.
Our role is to understand the project and the borrower, help identify the right funding pathway and ensure the file is presented in a way that addresses the lender's real concerns.
- Commercial finance: lender selection, funding structure and negotiation around the project, borrower profile and timeframe.
- Business understanding: interpreting self-employed income and presenting the business owner's position clearly in the credit submission.
- Advisory coordination: pressure-testing the feasibility, identifying issues early and bringing the appropriate accountant, solicitor and advisers into the process.
- National reach: considering differences in lender policy, property markets and state-based transaction costs.
If you are assessing a site, reviewing a feasibility or asking whether development finance could work for your situation, the best time to start the funding conversation is before you commit.
Learn more about development and construction finance or speak with Chris Capponi and the Wood Associates Finance team about the project and its funding requirements.