If you own an investment property or have been thinking about buying one, the 2026-27 Federal Budget introduces some of the biggest changes to property tax in decades.
The rules around rental losses and capital gains tax are both changing, and the date that matters is 12 May 2026.
Here is what is changing and what it means for your situation.
The Problem the Government Is Trying to Fix
Australia’s CGT discount has been in place since September 1999. The original idea was straightforward: because inflation erodes the real value of an asset over time, taxing the full nominal gain would be unfair. The Government introduced a 50% discount on gains from assets held longer than 12 months to address this.
But over nearly three decades, property prices have risen well beyond inflation. Someone who bought a house in Sydney in 2005 might have seen a nominal gain of $800,000, with only a fraction of that reflecting actual inflation. The rest is real economic gain, and under current rules, it still received a 50% discount regardless.
The Government’s position is that this created a tax advantage far beyond the original intent. The reform is meant to bring CGT back in line with what it was designed to do.
What Changes From 1 July 2027
The 50% Discount Is Being Replaced for Established Properties
From 1 July 2027, the 50% CGT discount will be replaced by cost base indexation and a minimum 30% tax rate on real capital gains for individuals, trusts and partnerships.
This applies across all CGT assets held for more than 12 months, including shares and investment properties.
For assets owned before that date, the old 50% discount still applies to gains that accrued up to 1 July 2027. Only gains accruing after that date fall under the new rules.
For new residential properties, investors can choose between the 50% CGT discount or the new indexation plus minimum tax arrangement, whichever gives a better outcome.
Only Gains After 1 July 2027 Are Affected
A point that much of the commentary has glossed over: the CGT reforms only apply to gains arising after 1 July 2027.
If you sell a property in 2029, the gain will be split between the pre-2027 and post-2027 periods. The old rules apply to the earlier portion. Existing property investors are not suddenly facing a different tax bill on years of past growth.
What Changes With Negative Gearing
The CGT reform sits alongside a separate but connected measure targeting negative gearing.
From that date, losses on established residential properties bought after 12 May 2026 can only be offset against residential rental income from other properties, or residential property capital gains. They cannot be deducted against wages, salary or other income.
Any losses that cannot be used in a given year are carried forward. They do not disappear, but they are quarantined to residential property income or gains in future years.
What Is Grandfathered
Properties acquired on or before 7:30 pm on 12 May 2026 are fully grandfathered. The existing negative gearing rules continue to apply for the life of those investments. Contracts entered before that time are also protected, even if settlement happens after that date.
Grandfathering continues until disposal. If you already own an established rental property, nothing changes for you under the negative gearing rules.
For new builds acquired after Budget night, full negative gearing continues. Investors in new construction can still offset losses against all other income, including wages.
Properties acquired after Budget night but before 1 July 2027 fall into a transition window. They can be negatively geared during that period, but the restricted rules apply from 1 July 2027.
What Counts as an Eligible New Build
The Government has been specific about what qualifies. This matters because the new build category keeps access to both full negative gearing and the 50% CGT discount option.
Eligible new builds include:
- A newly constructed apartment bought off-the-plan
- A duplex built through a knock-down rebuild replacing a single, free-standing house
- Any residential construction on previously vacant land
- A newly built property occupied for less than 12 months before being first sold
Not eligible:
- An established property recently extended to add bedrooms
- A free-standing house constructed through a knock-down rebuild replacing an older, smaller free-standing house
- A granny flat built adjacent to an established property where the main property was purchased after Budget night
- A newly built property occupied for more than 12 months before being sold to a subsequent investor
Only the first purchaser of a new build gets access to these concessions. If you buy a property previously sold as a new build, you are treated as buying an established property for both negative gearing and CGT purposes.
How This Fits Into the Broader Budget Picture
The CGT and negative gearing reforms are part of a wider package from the same Budget:
- A $250 Working Australians Tax Offset from 2027-28, delivered as a permanent annual offset for Australian workers
- An instant tax deduction of up to $1,000 for work-related expenses from 2026-27, removing the need to itemise for smaller claims
- The $20,000 instant asset write-off made permanent from 1 July 2026 for small businesses with turnover under $10 million
- The foreign buyer ban on purchases of established dwellings extended to 30 June 2029
What This Means If You Are Reviewing Your Structure
The changes with the most direct impact for most investors:
- Rental losses on established properties bought after 12 May 2026 can no longer offset wages or salary
- Those losses carry forward but stay quarantined to residential property income only
- The 50% CGT discount is gone for established properties acquired after Budget night
- Cost base indexation replaces it, so you only pay tax on real gains, at a minimum 30% rate
- Discretionary trust structures need a fresh look before the 30% minimum tax applies from 1 July 2028
For long-term holders, it is worth noting that if inflation runs at a reasonable rate, the indexation method could reduce your taxable gain more than the old 50% discount would have. The outcome depends on your hold period and timing.
That window matters. If your current structure needs rethinking, now is the right time to run through the numbers with a tax accountant before the rules lock in.
Book a consultation with our team to review how these changes affect your investment strategy.
For a detailed breakdown of the CGT changes, read our related guide: Capital Gains Tax Reform 2027: A Complete Guide
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