Introduction
The 2026 Federal Budget proposes some of the most significant changes to property investment tax settings in many years.
The headline measures relate to negative gearing and capital gains tax, but the impact extends beyond residential property alone.
While the negative gearing changes are aimed mainly at housing, the capital gains tax (CGT) changes will also affect other investment assets, including shares, managed funds and trust structures.
For property investors, the key question is simple: how will these changes affect the way people buy, hold and sell investment properties?
The answer depends on whether you already own an investment property, whether you are planning to buy a new or established property, and whether your investment strategy relies heavily on tax deductions or long‑term capital growth.
What is changing?
From 1 July 2027, the Federal Government proposes to:
• Limit negative gearing benefits for residential property investments to new builds.
• Grandfather existing investment properties held before the announcement time.
• Replace the current 50% capital gains tax discount with cost base indexation.
• Introduce a 30% minimum tax rate on real capital gains.
• Apply the capital gains tax reforms broadly, not just to residential property.
• Keep the main residence exemption unchanged.
According to the Government’s Budget explainer, the reforms are intended to help more first home buyers enter the market, encourage investment in new housing supply, and make the tax system fairer and more efficient.
Treasury estimates the reforms could result in around 75,000 additional owner‑occupiers over the next decade, with house prices growing around 2% less over a couple of years than they otherwise would have.
What is negative gearing?
Negative gearing occurs when the cost of owning an investment property is higher than the income the property produces.
For example, an investor may receive rent from a tenant, but also have expenses such as loan interest, council rates, insurance, property management fees, body corporate fees, repairs and maintenance, depreciation and other allowable deductions.
If total expenses exceed rental income, the property incurs a taxable loss.
Under the current rules, many investors can use that loss to reduce their other taxable income, such as salary or wages.
Example: rental income of $35,000 less deductible expenses of $45,000 creates a rental loss of $10,000. Under the current system, that $10,000 loss may be used to reduce the investor’s taxable income from other sources.
The higher the investor’s marginal tax rate, the more valuable that deduction can be.
What is changing with negative gearing?
The proposed changes mean that, from 1 July 2027, negative gearing for residential property will generally be limited to new builds.
Investors who buy eligible new residential properties can continue to use rental losses to reduce other taxable income.
However, investors who buy established residential investment properties after the relevant dates will no longer be able to use rental losses to reduce salary, wages or other non‑property income.
Importantly, the losses do not disappear. They can generally be carried forward and used against future residential property income, including future rental profits or capital gains.
So the issue is not whether the loss can ever be used. The issue is when it can be used, and whether it helps the investor’s cash flow along the way.
Are existing property investors grandfathered?
Yes. Existing investment properties held before the announcement time of 7:30pm AEST on 12 May 2026 are grandfathered.
That means existing property investors can continue to negatively gear those properties until they are sold.
This also applies where a contract had been entered into before the announcement time, even if settlement has not yet occurred.
This is important because it means the changes are not designed to immediately remove negative gearing benefits from existing investment properties.
However, existing investors may still be affected by the capital gains tax changes on gains accruing after 1 July 2027.
What happens if you buy an established investment property now?
The timing matters.
For established residential properties:
• Properties held before 7:30pm AEST on 12 May 2026 can continue to be negatively geared until sold.
• Properties purchased between the announcement and 30 June 2027 may be negatively geared during that period, but not from 1 July 2027.
• Properties purchased from 1 July 2027 will not be able to be negatively geared against salary or wage income.
This creates a clear distinction between existing investors, new investors buying established properties, and new investors buying new builds.
What counts as a new build?
The Government is trying to direct investor demand towards housing that genuinely adds to supply.
Eligible new builds may include:
• A newly constructed apartment bought off the plan.
• A new dwelling built on vacant land.
• A knock‑down rebuild where one dwelling is replaced with multiple dwellings.
However, not every new‑looking property will qualify. Examples that may not qualify include:
• An established property that has simply been extended.
• A knock‑down rebuild that replaces one house with one new house.
• A granny flat built next to an existing property.
• A newly built property that has already been occupied for more than 12 months before being sold.
The key issue is whether the property genuinely adds to housing supply.
What is capital gains tax?
Capital gains tax, or CGT, is the tax payable when an investment asset is sold for more than its cost base.
It can apply to investment properties, shares, managed funds, trust assets, business assets and other CGT assets.
Your main residence is generally exempt from CGT, provided it qualifies for the main residence exemption.
In simple terms: sale price minus cost base equals capital gain.
The cost base usually includes the original purchase price, plus certain costs such as stamp duty, legal fees, selling costs and some capital improvement costs.
Under the current rules, individuals and trusts generally receive a 50% CGT discount if they hold the asset for more than 12 months.
Example of how CGT currently works
Assume an investor buys an investment property for $800,000 and later sells it for $1,000,000.
The gross capital gain is $200,000.
If the property has been held for more than 12 months, the current 50% CGT discount may reduce the taxable capital gain to $100,000.
That $100,000 is then added to the investor’s taxable income and taxed at their marginal tax rate.
What is changing with capital gains tax?
The proposed changes would replace the current 50% CGT discount for individuals, trusts and partnerships with cost base indexation and a 30% minimum tax rate on real capital gains.
Cost base indexation means the asset’s cost base is adjusted for inflation.
Instead of simply halving the capital gain, the tax system would consider the gain adjusted for inflation.
This may produce a better or worse result depending on the investment return.
If an asset has a low return, indexation may be more favourable than the current 50% discount.
If an asset has a strong return, the investor may pay more tax than they would under the current system.
The 30% minimum tax is designed to ensure that capital gains are taxed at a minimum rate, reducing the ability to sell assets in low‑income years and pay very little tax.
The CGT changes are not just about property
This is one of the most important points for investors to understand.
The negative gearing changes are mainly focused on residential property. However, the changes to capital gains tax are broader.
They may affect investment properties, shares, managed funds, trusts and other CGT assets held by individuals, partnerships and trusts.
This means the reforms do not only affect landlords.
They may also affect retail share investors, trust beneficiaries and people who hold long‑term growth assets outside superannuation.
This is why the political impact could be significant. The Government is aiming to help more first home buyers into the housing market, but the reforms will affect a much larger group of Australians who invest in property, shares or trusts.
What will be the impact on existing property investors?
Existing property investors are partly protected.
If you owned an investment property before the announcement, you should generally be able to continue negatively gearing it until it is sold.
That gives existing investors an advantage over future investors buying established properties.
However, existing investors may still be affected by the CGT reforms to gains accruing after 1 July 2027.
This may influence future decisions, including whether to hold, sell, refinance or buy additional properties.
Some existing investors may choose to hold their properties longer because they retain grandfathered negative gearing benefits.
Others may reassess their position if the future CGT treatment makes the after‑tax return less attractive.
What will be the impact on new property investors?
New investors will face a much sharper choice between buying new and buying established.
Buying a new build may allow the investor to continue accessing negative gearing, potentially receive more favourable tax treatment, and benefit from policy settings designed to support new housing supply.
Buying an established property may mean:
• Rental losses cannot reduce salary or wage income after 1 July 2027.
• Losses need to be carried forward to offset future rental income or capital gains.
• Cash flow becomes more challenging.
• The investment needs to stand more firmly on its own fundamentals.
This may push some investors towards new apartments, new townhouses, house‑and‑land packages and newly created dwellings.
However, investors need to be careful. A tax benefit does not automatically make a property a good investment.
Some new properties may carry risks such as developer premiums, oversupply, high body corporate fees, poor land value, weak resale demand or less established infrastructure.
Will established investment properties become less attractive?
For some investors, yes.
Established investment properties may become less attractive where the investor is highly geared and relies on negative gearing deductions to support cash flow.
This could reduce investor competition for some established houses, townhouses and units.
That is partly the point of the policy. The Government wants to reduce investor competition for established homes and give first home buyers a better chance.
However, established properties will not necessarily become unattractive across the board.
High‑quality established properties in strong locations may still perform well over the long term.
Investors with stronger cash flow, lower debt or a longer‑term outlook will still see value in established property, particularly where the property has strong land value, scarcity and owner‑occupier appeal.
What is the Impact on shares and other investments?
The CGT changes may will also affect share investors.
Under the proposed system, the current 50% CGT discount would be replaced with indexation and a 30% minimum tax rate for many taxpayers.
For shares and other growth assets, the outcome will depend on the level of return and inflation.
Investors with low real returns may be better off under indexation.
Investors with strong real returns may pay more tax than they would under the current 50% discount.
This means the reforms may affect more than property investors. They may also affect Australians who invest through shares, managed funds and trusts.
What will be the Impact on renters?
The Government expects the impact on rents to be small, estimating an increase of less than $2 per week for a household paying median rent.
However, the practical impact may vary by location.
If fewer investors buy established properties, rental supply in some established suburbs could tighten over time.
At the same time, investor demand may shift towards new developments, which could increase rental supply in outer growth corridors, new apartment projects and newly built townhouse developments.
This could gradually change the type and location of rental properties available.
For renters, the risk is that there may be fewer investor‑owned established houses or units in some inner and middle‑ring suburbs, while more rental stock is created in newer development areas.
Landlords facing higher after‑tax holding costs may also try to increase rents where the market allows, although rents are ultimately limited by tenant affordability and local supply‑demand conditions.
Will property prices fall?
The reforms are not expected to cause a major fall in property prices.
Treasury’s estimate is that house prices may grow by around 2 percentage points less over a couple of years than they otherwise would have.
That means the Government is forecasting slower growth, not a major price correction.
The impact is also likely to vary between markets.
Established homes popular with first-home buyers may face less investor competition.
New builds may attract more investor interest due to the more favourable tax treatment.
In supply‑constrained markets, prices are likely to remain resilient.
Interest rates, wages, migration, construction costs, housing supply and population growth may still have a much larger impact on prices than tax changes alone.
Who is likely to benefit?
The likely beneficiaries include:
• First home buyers competing with investors for established homes.
• Developers of new housing.
The Government’s intention is to shift some demand away from investors buying established homes and towards owner‑occupiers and new housing supply.
Who may be worse off?
The people most likely to be worse off include:
• New investors buying established properties.
• Highly geared investors who rely on negative gearing.
• Investors with strong capital growth assets.
• Some share investors.
• Some trust beneficiaries.
• Renters in established areas if rental supply tightens.
• Younger investors who hoped to use property investment to build wealth.
Existing investors receive some protection, but future investment decisions will still be affected.
What does this mean for younger Australians?
The impact on younger Australians is mixed.
Younger first home buyers may benefit if investor competition falls in the established housing market.
However, the benefit may be modest if property prices simply grow more slowly rather than fall.
Younger renters may be worse off if rental supply tightens in established areas.
Younger investors may also find it harder to use property as a wealth‑building strategy, particularly if they are buying established properties and cannot use negative gearing to support early cash flow.
There is also a broader generational issue.
The reforms may help some younger Australians buy their first home sooner, but they may also reduce the ability of future younger investors to build wealth through property, shares or trusts.
That means the policy could help one group of younger Australians while making things harder for another.
Could the changes be reversed?
Yes. There is precedent for negative gearing changes being introduced and later reversed.
Negative gearing was restricted in the 1980s and later restored.
A future government could campaign to reverse or modify these reforms.
However, investors should be careful not to assume that will happen.
Once tax changes are legislated, investment decisions need to be made based on the rules as they stand, not on the hope that a future government may change them back.
Broken promises and trust in government
One of the broader issues is trust.
If voters believe the Government had previously ruled out changes to negative gearing or capital gains tax, these reforms may be viewed as a broken election promise.
That matters because property and investment decisions are long‑term decisions.
Investors often make decisions over 10, 20 or 30 years. If major tax settings can change, confidence can be affected.
The concern for some investors is not just these reforms, but what could come next.
Possible future areas of concern may include superannuation tax changes, trust taxation, further CGT changes, land tax changes, changes to deductions, inheritance‑style taxes, and further restrictions on property investment.
Even investors who support housing affordability reform may be concerned about policy uncertainty.
Practical implications for property investors
Investors should not make decisions based on tax alone.
Before buying, investors should consider:
• Whether the property is new or established.
• Whether it will be positively or negatively geared.
• Whether they can afford to hold it without relying on annual tax refunds.
• How the CGT changes affect the after‑tax return.
• Whether the property is still a good investment without the tax benefit.
For established property, investors may need to focus more heavily on cash flow, rental yield, scarcity, land value and long‑term growth fundamentals.
For a new property, investors need to be careful not to overpay or buy poor‑quality stock simply because the tax treatment is more favourable.
Final thoughts
The 2026 Federal Budget changes are significant.
For property investors, the biggest shift is that the tax system will favour new housing over established housing.
Existing investors are partly protected, but new investors will face very different incentives depending on whether they buy new or established property.
The capital gains tax changes are also broader than many people realise. They do not just affect investment properties. They also affect shares, trusts and other investment assets.
The reforms may help some first home buyers, but they are unlikely to dramatically reduce property prices. They may also create new challenges for renters, future investors and people relying on long‑term investment growth.
For investors, the key message is simple: do not buy purely for tax reasons. Focus on asset quality, cash flow, location, long‑term demand and after‑tax returns.
As always, investors should seek advice from their accountant, financial adviser or tax professional before making decisions based on these proposed changes.
FAQ
What do the negative gearing changes mean for me?
If you own an investment property before the announcement, you should generally be able to continue negatively gearing it until it is sold.
If you buy an established investment property after the relevant dates, you may no longer be able to use rental losses to reduce your salary or wage income after 1 July 2027.
If you buy an eligible new build, negative gearing should still be available.
The biggest change is that established and new properties will be treated very differently.
Should I still buy an investment property?
Possibly, but the decision needs to be based on the quality of the asset and your financial position, not just tax benefits.
Investment property may still make sense where the property has strong fundamentals, manageable cash flow, good rental demand and long‑term growth potential.
However, investors who rely heavily on negative gearing deductions may need to be more cautious, especially when buying established properties.
The key question is whether the property still works as an investment after tax, not just before tax.
Will established investment properties be less attractive?
For some investors, yes.
Established properties may become less attractive to highly geared investors because rental losses may no longer offset salary or wage income.
However, good established properties in strong locations may still remain attractive over the long term.
Established properties often have advantages such as better land value, scarcity, established infrastructure and stronger owner‑occupier appeal.
The tax treatment may be less favourable, but that does not automatically make every established property a poor investment.
Will property prices fall?
The Government is not forecasting a major fall in property prices.
Treasury expects prices to grow by around 2% less over a couple of years than they otherwise would have.
That suggests slower growth rather than a significant fall.
The impact will vary depending on the market, property type and level of investor demand.
In areas with strong population growth, limited supply and strong owner‑occupier demand, prices may remain resilient.
Will rents rise?
The Government expects the impact on rents to be small, estimating an increase of less than $2 per week for a household paying median rent.
However, the actual impact may vary from suburb to suburb.
If fewer investors buy established properties, rental supply in some established areas may tighten over time.
At the same time, more investors may be encouraged to buy new properties, which could increase rental supply in new development areas.
The risk is not just whether rents rise, but whether the location and type of rental stock changes.
Do the CGT changes affect shares?
Yes.
The capital gains tax changes are not limited to residential property.
They may also affect shares, managed funds, trusts and other CGT assets held by individuals, partnerships and trusts.
The impact will depend on the asset’s return, inflation and the investor’s tax position.
Low‑return assets may receive a better outcome under indexation, while high‑growth assets may face more tax than under the current 50% CGT discount.
Are existing investors grandfathered?
Existing investors are grandfathered for negative gearing on properties held before 7:30pm AEST on 12 May 2026.
That means they can continue to negatively gear those properties until they are sold.
However, they are not completely unaffected.
The capital gains tax changes may still apply to gains accruing after 1 July 2027.
So existing investors are protected from the negative gearing change on current properties, but may still need to consider the CGT impact when they eventually sell.
Will the 2026 Budget change the way investors structure property purchases?
Yes. The 2026 Budget is likely to make investors look more seriously at ownership structures other than buying in their own name.
For a long time, personal ownership has been popular because investors could:
1. Negatively gear rental losses against their personal income; and
2. Access the 50% CGT discount after holding the asset for at least 12 months.
The proposed changes wind back both of these advantages for established investment properties.
With these benefits reduced, companies, trusts and SMSFs may become more attractive – particularly for investors focused on asset protection, estate planning, income splitting or retirement planning.
SMSFs may be especially relevant, as property income and capital gains can be tax-free in pension phase (subject to the usual superannuation rules and caps).
Could the loss of negative gearing affect repairs and maintenance?
Possibly. If investors can no longer offset rental losses against their personal income, some landlords may have less flexibility in their cash flow.
In practice, this could make some investors more cautious about spending on repairs, maintenance or upgrades – especially where the property is already running at a loss.
Importantly, this does not change a landlord’s legal obligation to keep a rental property safe and reasonably maintained. However, some non-urgent improvements may be postponed, particularly by highly geared investors.
This may become another unintended consequence of the changes, and could be felt most in older, established rental properties that already need more upkeep.
Could the CGT changes lead to more market volatility or flipping?
Possibly. Under the current rules, investors generally receive a 50% CGT discount if they hold an asset for more than 12 months. This has encouraged longer-term ownership.
The Budget instead proposes replacing that discount with cost base indexation and a 30% minimum tax rate on capital gains. For some investors, particularly where assets enjoy strong real growth, this may reduce the tax appeal of holding for the long term.
As a result, some investors may be more inclined to sell, switch assets or take profits earlier.
In property, this could support more short-term trading or “flipping”, although stamp duty, selling fees and renovation costs remain significant barriers.
The impact may be more pronounced in share markets, where buying and selling is much faster and cheaper, potentially leading to more frequent trading and higher volatility.