TL;DR – Key Changes for Property Investors
- Properties you already own are largely protected (grandfathered).
- New builds remain fully negatively geared.
- Established properties bought after Budget night will have rental losses quarantined from mid-2027.
- The 50% CGT discount is being replaced by indexation from 1 July 2027.
- Timing of purchases and sales now matters significantly.
👉 If you own investment property or are thinking of buying, read on.
The 2026 Federal Budget introduced two of the biggest changes to property investment taxation in years — changes to negative gearing and Capital Gains Tax. While these still need to pass through Parliament, the direction is clear and the impact will be significant for many investors.
Here’s what you need to know.
Negative Gearing - What's Changing?
If your investment property costs more to hold than it earns in rent — meaning your deductible expenses (including loan interest) exceed your rental income — you have a rental loss. Negative gearing is the ability to offset that rental loss against your other income, like your salary.
Currently, that means a rental loss can reduce the tax you pay on your wages. That's the bit that's changing.
The new rules
If you already owned a residential investment property before 7:30pm AEST on 12 May 2026 (Budget night): You're grandfathered. The current negative gearing rules continue to apply until you sell that property. Nothing changes for you right now.
If you buy an eligible brand-new residential build after Budget night: Also protected. New builds are explicitly carved out — the current negative gearing rules continue to apply.
If you buy an established residential property after Budget night but before 1 July 2027: Short grace period. You can offset rental losses against your salary until 30 June 2027. From 1 July 2027 onwards, those losses are quarantined — they can only be used against residential property income or residential property capital gains.
If you buy an established residential property from 1 July 2027: Negative gearing against salary and wages is off the table entirely. Any rental losses are locked away and can only ever be used against rental income or residential property capital gains.
What does this mean in practice?
Example 1
Betty buys an established investment property in August 2026. She can negatively gear against her salary until 30 June 2027. From 1 July 2027, any ongoing rental losses can only be used against other rental properties she owns.
Example 2
Bill buys a brand new apartment off-the-plan in 2027. He can continue to negatively gear against his salary under the current rules.
Example 3
Barbara buys an established investment property in July 2027. The property makes a $20,000 rental loss. Under the old rules and assuming Barbara was on the highest marginal tax rate the loss would reduce the amount of tax payable by $9,400. Under the new rules that loss cannot reduce your salary tax bill.
This is a significant change to the cashflow maths for property investors. If you're thinking about buying an investment property, the timing and type of property now matters a lot more than it did before.
What's not affected?
Commercial property is not the target of this change. Investment properties held inside super funds — including SMSFs — are excluded. So is residential property held in widely held trusts.
Capital Gains Tax - What's Changing
How CGT works now
When you sell an asset you've held for more than 12 months — an investment property, shares, a managed fund, or similar — you're currently entitled to a 50% CGT discount. That means only half of your capital gain is added to your taxable income.
If you made a $200,000 capital gain on a property you'd held for five years, only $100,000 would be taxable.
The new system from 1 July 2027
The 50% CGT discount is being replaced with cost base indexation.
Instead of halving the gain, you'll adjust the cost base for inflation, then pay tax on the real (inflation-adjusted) gain — with a minimum tax rate of 30% applying.
Let's use an example.
You bought an investment property for $500,000. You sell it for $700,000.
Under the current system: $200,000 gain, less 50% discount = $100,000 taxable.
Under the new system: the cost base is adjusted for inflation — say it moves to $525,000. Your indexed gain is $175,000. That $175,000 is the amount exposed to tax, at a minimum rate of 30%.
For high-growth assets, this can be significantly worse than the current system. The faster an asset has grown and the lower your original cost base, the harder this hits.
The transition — what happens to assets you already own?
This is the important nuance.
If you sell before 1 July 2027: the current rules apply in full.
If you already own an asset and sell after 1 July 2027: the gain isn't simply split in two. The growth up to 1 July 2027 can use the current rules. The growth after that date falls under the new system. This means valuations at 1 July 2027 are going to matter a great deal for planning purposes.
New residential property gets a choice
There's a carve-out for eligible new residential properties. If you buy a qualifying new build, when you eventually sell you get to choose between:
- The 50% CGT discount (current system), or
- The new indexation method plus 30% minimum tax
You pick whichever gives the better outcome. But this applies to new builds only — not established properties.
What about pre-CGT assets?
Assets acquired before 20 September 1985 have historically been outside the CGT system entirely. Under this reform, the pre-1 July 2027 gain remains exempt — but any growth after 1 July 2027 may be taxable. If you or a family member holds a long-standing pre-CGT asset, this is worth reviewing before mid-2027.
What Should You Do Now?
- If you’re thinking of buying an established investment property, the timing now matters more than before.
- If you’re considering selling in the next 12–18 months, the date of sale relative to 1 July 2027 could make a material difference to your tax bill.
- Valuations as at 1 July 2027 may become important for future planning.
- Keep excellent records of all purchase costs, renovations, and holding costs.
These changes are still proposed and could be modified before becoming law. However, the overall direction is unlikely to change significantly.
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For the full picture on how rental properties work for tax (including what you can claim each year), see our Rental Property Tax Guide.
