Negative Gearing and CGT Changes: What the 2026 Federal Budget Means for Property Investors
On Budget night, 12 May 2026, the Federal Government announced the biggest change to property investment tax in a generation. Negative gearing and capital gains tax are both being reformed. These measures have since passed into law, and they take effect from 1 July 2027.
There has been a lot of noise about what this means. Some of it has been alarming, and some of it has been wrong. This guide walks through what actually changed, when it starts, who it affects and, importantly, what stays exactly the same. It is written in plain language, because these rules affect real decisions and everyone deserves to understand them clearly.
From 1 July 2027, the tax benefits of negative gearing and the 50% capital gains tax discount are being wound back for established residential property. New builds are exempt and keep both benefits. Anything you already owned on Budget night is protected under the old rules.
First, the two terms in plain English
Negative gearing is what happens when the cost of owning an investment property, mainly the loan interest, is higher than the rent it brings in. That shortfall is a loss. Under the current rules, you can subtract that loss from your other income, such as your salary, which lowers your tax bill. That is the tax benefit people are referring to when they say a property is "negatively geared."
Capital gains tax, or CGT, is the tax you pay on the profit when you sell an investment for more than you paid. Right now, if you have held the asset for more than twelve months, you only pay tax on half of that profit. That is the "50% CGT discount." It is one of the most valuable features of property investing in Australia today.
Both of these are changing for established property. Here is exactly how.
What is changing, and what is not
Negative gearing
From 1 July 2027, negative gearing will be limited to new builds. If you buy an established residential property after 7:30pm on Budget night, 12 May 2026, you will no longer be able to offset the rental loss against your wages or salary. Instead, that loss is "quarantined." You can still use it, but only against income from residential property, including rent from other properties or a future capital gain. You can also carry unused losses forward into future years.
If you buy a new build, nothing changes. You keep the ability to deduct losses against all of your income, exactly as investors can today.
Capital gains tax
From 1 July 2027, the flat 50% CGT discount is being replaced for individuals, trusts and partnerships. In its place come two things: cost base indexation, which lifts your purchase price in line with inflation so you are only taxed on your real gain rather than the part that is just inflation, and a minimum 30% tax rate on the gain. Only gains that build up after 1 July 2027 are affected. Any gain you have already made before that date stays under the current rules.
Again, new builds are treated differently. Investors in new builds can choose either the existing 50% discount or the new indexation method when they sell, whichever suits them better.
The dates that matter
Three dates do most of the work here. Getting them straight removes most of the confusion.
- 12 May 2026, 7:30pm. This is the line in the sand. Any property you held at this moment, including any you had already signed a contract on but not yet settled, is protected. It keeps the old rules for as long as you own it.
- Between now and 30 June 2027. Nothing has changed yet. The current rules on negative gearing and the 50% discount still apply. This is a window to understand your position and get advice.
- 1 July 2027. The new rules switch on for established property bought after Budget night. New builds are carved out and keep the current benefits.
Who is affected, and who is protected
It helps to think of investors in three groups.
If you already own an investment property. You are grandfathered. Properties held at 7:30pm on 12 May 2026, including those under contract at that time, continue under the current rules until you sell. This was a deliberate design choice, to protect people who made decisions based on the law as it stood.
If you buy an established property after Budget night. You are the group most affected. From 1 July 2027, your negative gearing losses can only offset residential property income, not your wages, and when you sell, the new CGT method applies to gains built up after that date.
If you buy a new build. You are largely carved out. New builds keep negative gearing against all income, and keep the choice of the 50% CGT discount. The Government's stated aim is to direct tax support towards new housing supply, so new construction was deliberately protected.
The reforms do not remove these tax settings from the market. They concentrate them into new builds. For buyers focused on new and off-the-plan property, the two most valuable tax features of Australian property investing remain available, by design and now in law.
A few other points worth knowing
- Your own home is not affected. The main residence exemption is unchanged. If you sell the home you live in, these CGT changes do not touch you.
- Superannuation funds are not changing at this stage. The CGT treatment for super funds has not been altered by these measures.
- Discretionary trusts have a separate change. A minimum 30% tax on discretionary trust income applies from 1 July 2028, a year later, with some exceptions and transitional relief. If you invest through a trust, this is worth discussing with your accountant.
- The market view. Commonwealth Bank has estimated that established investment properties may end up around 3% lower in price than they otherwise would have been, with dwelling price growth to December 2026 revised to about 3%. Forecasts are not guarantees, but they point to a market adjusting to a two-tier system.
What this could mean for your thinking
None of this is a reason to rush, and none of it is advice about what you personally should do. But a few themes are clear enough to be useful.
The reforms create a genuine distinction between established and new property that did not exist before. For investors who value negative gearing and the CGT discount, new builds are now the pathway that retains both. That is not a marketing claim, it is the structure of the legislation.
There is also a transition window. The new rules do not begin until 1 July 2027, which gives time to understand your position, model different scenarios with your accountant, and make considered decisions rather than reactive ones.
Most importantly, everyone's situation is different. Your marginal tax rate, how you hold your investments, your timeframe and your goals all change how these rules land for you. The right next step is a proper conversation with the right professionals.
Weighing up new versus established in this new landscape?
Have a clear, no-pressure conversation about how these changes fit your goals and your plans.
Send an EnquiryThis article is general information only and is current as at July 2026. It explains publicly announced and legislated tax measures in general terms and does not take account of your personal circumstances. It is not financial, legal, taxation or investment advice, and nothing here is a recommendation to buy, sell or hold any property or to adopt any tax position. Tax law is complex and its application depends on your individual situation. Please confirm your position with the Australian Taxation Office and a qualified accountant, tax adviser or financial adviser before making any decision.