Commercial v residential: Be aware of ‘nuanced’ changes

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Dan Hill, national director, commercial for Opteon, said the federal Budget is likely to accelerate a reallocation of capital, with tighter tax settings on residential investment pushing more investors to seriously consider commercial property for its relative tax efficiency and income profile.

“But the CGT story is more nuanced than the headlines suggest, and that nuance matters particularly for clients holding commercial assets in personal or trust structures,” Hill said.

In a recent analysis, Opteon said there has been little focus on what the announced changes mean specifically for property held inside SMSFs, and what June represents for property-holding funds from a valuation compliance perspective.

It stated that much post-Budget analysis has noted that commercial property benefits comparatively from the Budget’s residential focus.

“The negative gearing restrictions are residential-specific: commercial property (office, industrial, retail, and alternative assets) retains full deductibility of losses against other income, with no restriction based on asset type or acquisition date,” it stated.

“For SMSF clients already holding commercial property, including business real property leased to a member’s business, that comparison matters. But there is a distinction most of the commentary has glossed over, and it matters particularly for clients holding commercial property in personal or trust structures outside superannuation.”

According to Opteon, commercial property is not shielded from the CGT changes: “Unlike residential property, where new builds retain the choice of the existing 50 per cent CGT discount or the new indexation regime, commercial property has no equivalent concession. 

“Commercial assets held by individuals, trusts, and partnerships face the full 30 per cent minimum CGT tax from 1 July 2027, with no new-build carve-out and no alternative treatment available. The picture is more nuanced than a simple ‘residential bad, commercial good’ framing.”

Opteon noted that in regard to negative gearing, commercial property is unaffected by the restrictions. Established residential property acquired after Budget night is restricted. On this dimension, commercial has improved comparatively.

For CGT, the analysis continued, both established residential and commercial property face the new 30 per cent minimum tax from 1 July 2027. New residential builds retain flexibility (choice of old or new treatment).

“Commercial has no equivalent. On this dimension, commercial has not improved, and is in one respect less flexible than new residential,” Opteon said. 

“Furthermore, inside an SMSF the existing one-third CGT discount appears preserved for both residential and commercial property held within the fund, pending legislation. This is where the structural advantage is most clearly expressed.”

According to Opteon, commercial property’s advantage is most cleanly expressed inside the SMSF, where the CGT treatment appears more favourable than for individual or trust investors.

Additionally, business real property leased to a related party continues to offer a legitimate and tax-efficient structure, provided the lease is conducted at arm’s length and at market rent.

“Independent rental assessments and regular market value certifications are the documented foundation that makes those arrangements defensible under existing NALI rules,” it stated.

“This year’s 30 June 2026 valuation carries additional weight for two compounding reasons. First, it serves simultaneously as the annual compliance figure and, for trustees making the Division 296 cost base reset election, the reference point for that once-only, irrevocable decision.

“Second, commercial property valuations require additional lead time: income capitalisation methodology, lease evidence analysis, and capitalisation rate benchmarking cannot be compressed without compromising quality and defensibility.”

Keeli Cambourne
May 26, 2026
smsfadviser.com