Michael and Rebecca have worked at the same firm for years, sat two desks apart, and have almost identical numbers behind them. Each has around one hundred and fifty thousand dollars they could put toward an investment property in 2026, similar salaries, similar super balances, similar appetite for a bit of debt, and honestly, similar taste in property too, both drawn to the same kind of established, walkable suburb rather than anything flashy. Over coffee recently, they realised they were about to make very different decisions without either of them fully understanding the two completely different tax worlds they were each about to step into. One of them is buying in their own name. The other is buying through her self managed super fund. Neither choice is simply right or wrong, but the gap between them is bigger than either of them expected, and a lot of it comes down to one date, 10 August 2026.
Michael’s Path: Buying in His Own Name
Michael is looking at a two bedroom unit close to a train line, built in the 1990s, already lived in by a string of tenants over the years, priced at a level his one hundred and fifty thousand dollars would cover as a healthy deposit. Before this year’s budget changes, this would have been a fairly ordinary negative gearing story, borrow most of the purchase price, claim the shortfall between rent and expenses against his salary, and rely on the fifty per cent capital gains tax discount when he eventually sold, the same playbook plenty of Australians have followed for the last two decades. That story does not work the same way anymore. Since the May budget reforms, negatively gearing a loss against personal income is now restricted to new build properties bought outside super. Michael’s unit, already lived in, does not qualify, so any shortfall between his rent and his loan repayments simply sits as a loss he cannot use to reduce his salary tax the way his older brother did on a near identical purchase back in 2016. The capital gains treatment has changed too, moving away from a flat fifty per cent discount toward a system that only taxes the inflation adjusted real gain, rather than the full nominal profit, when the property is eventually sold, which generally means a larger tax bill on paper gains that were partly just inflation to begin with, but a smaller one on genuine, real growth in value.
None of that makes Michael’s plan a bad one, it just makes it a different one to the plan his older brother used. If Michael specifically wants the negative gearing benefit back, his real options are to buy a new build instead of an established property, something straight from a developer or recently completed, or to accept that an established property now needs to be assessed purely on its rental yield and long term growth, without leaning on a tax deduction to make the numbers work in the meantime. Plenty of good investment properties still make sense under the new rules, they just need to be judged on different criteria than they used to be.
Rebecca’s Path: Buying Through Her SMSF
Rebecca is looking at a similar kind of property, an established townhouse not far from where she grew up, and her fund has enough of a balance, combined with her one hundred and fifty thousand dollars, to make a purchase like this realistic once a loan is added on top. Her path branches depending on one thing, whether she can exchange contracts before 10 August 2026. If she can, and her fund borrows through an LRBA to help fund the purchase, the arrangement is protected even though the loan ban technically starts a few weeks later, and her fund keeps the concessional tax treatment super is known for, fifteen per cent tax on rental income while she is in accumulation phase, dropping to zero once she moves into pension phase, along with concessional treatment on the eventual sale.
It is worth being precise about what that actually means, because the phrase negative gearing gets used loosely here in a way that overstates the benefit. Any shortfall between Rebecca’s rent and her loan repayments reduces the tax her fund pays on its own income, not the tax Rebecca pays personally on her salary, since a super fund is taxed as its own separate entity, entirely separate from Rebecca’s personal tax return. It is a real benefit, just a narrower and differently shaped one than the personal negative gearing Michael’s older brother used to rely on, and it is worth not confusing the two when comparing the paths on paper.
If Rebecca cannot exchange contracts before 10 August, her options narrow considerably. A new residential LRBA will not be available to her at all, not this property, not any other established residential property, regardless of how good the deal looks. She could still buy the townhouse with cash sitting in her fund, with no loan and therefore no shortfall to offset against anything, simply paying concessional tax on whatever rent comes in from day one. That is a perfectly sound way to hold property inside a fund, it is simply a different shape of investment to a geared purchase, with a smaller initial exposure for the same amount of cash, since there is no borrowed money doing any of the heavy lifting.
What Actually Separates the Two of Them
Strip away the specific property types and the two paths differ in three practical ways rather than one simple better or worse. The first is tax, where Michael’s options outside super now hinge entirely on whether he buys new, while Rebecca’s options inside super hinge entirely on timing relative to 10 August. The second is control over the money. Michael can sell his unit and spend the proceeds on whatever he likes whenever he likes, use it as a deposit on his own home one day, or simply bank the profit. Rebecca’s property sits inside her super, which generally means the money stays locked away until she reaches a normal condition of release such as retirement, a real cost even when the tax treatment along the way is generous, and one that matters far more to some people than others depending on how they feel about their money being out of reach for decades. The third is leverage. Michael can keep borrowing against his own name for future purchases without much restriction, walking into a bank next year and starting the whole process again if he wants to. Rebecca’s ability to borrow again inside her fund for another residential property effectively ends at the same moment her current window does, leaving only commercial property loans or straight cash purchases available to her fund afterwards, which changes how she would need to think about building a portfolio inside super from here on.
If Neither Path Fits, There Are Other Doors
Not everyone reading this has a fund large enough for a direct purchase, or a contract ready to exchange before the deadline, and it is worth knowing there is more than one door even once the LRBA option closes for a particular fund. A direct LRBA is not the only way to gain property exposure inside super. Listed property trusts, essentially shares in a portfolio of properties traded on the share market, let a fund gain exposure to property, including residential and commercial property, without borrowing at all and without the compliance overhead of a bare trust structure. Unlisted property syndicates and pooling arrangements with other SMSFs offer a similar idea on a smaller, more direct scale, several funds combining resources to buy a single property between them, though the legal structuring around this needs to be done carefully to stay compliant and avoid inadvertently breaching related party rules. None of these options replicate exactly what a direct LRBA purchase offers, particularly the leverage, but they are worth knowing about rather than assuming property inside super is now an all or nothing proposition once 10 August has passed.
So which path is actually right for you. Rather than answering that in the abstract, which would mean guessing at numbers that are not actually yours, here are the questions worth sitting with honestly before you decide.
- Do you have a contract that could realistically be exchanged before 10 August 2026, or is that window already closed for you in practice?
- Is the property you are looking at an established one, or would a new build also genuinely suit what you are trying to achieve?
- How comfortable are you having this money effectively locked away until retirement, in exchange for a lower ongoing rate of tax along the way?
- If you are looking at your SMSF, does the property genuinely meet the business real property test we covered in part three, or would it need to be a straight cash purchase instead?
- Have you actually compared the two paths side by side with your own numbers, rather than with Michael’s or Rebecca’s?
Michael and Rebecca ended up making different decisions, and both were reasonable ones once they actually understood what they were choosing between, rather than going with whichever option their friends happened to be talking about at the time. If you want to work through your own numbers rather than a hypothetical pair of colleagues, that is exactly the kind of comparison our team can put together for you, weighing up buying inside your fund against buying in your own name using your actual figures, your actual timeline, and your actual property, so the decision you make is based on your situation rather than someone else’s.