Budget 2026–27: Negative Gearing & CGT Changes Explained — AY Conveyancing | Fixed-Price Conveyancing Melbourne | Reliable

13 May 2026 Written by Lawrence Liang

Federal Budget 2026–27: Negative Gearing and CGT Changes for Property Investors Explained

On 12 May 2026, Treasurer Jim Chalmers handed down the 2026–27 Federal Budget, and it included some of the most significant changes to property investment tax settings in decades. For property investors, mortgage holders and anyone thinking about buying a property in Australia, the questions are coming thick and fast.

This guide answers the most common questions in plain language, grouped by topic, so you can understand exactly what has changed and what it means for your situation.

Important note: These changes were announced in the Federal Budget on 12 May 2026. They are not yet law. Legislation still needs to pass Parliament. The details may change during that process. Please speak with your tax adviser or accountant before making any financial decisions based on these announcements.

Negative Gearing

Capital Gains Tax

Grandfathering

Trusts and SMSFs

Is negative gearing being abolished? What exactly changed?

No, negative gearing has not been abolished. But how it works for established residential properties is changing significantly from 1 July 2027.

Under the current rules, if your investment property costs more to hold than the rent it earns, that net loss can be deducted against your other income, including your salary or wages. This reduces the tax you pay overall.

From 1 July 2027, the government will limit negative gearing to new builds. Investors who buy established residential housing after Budget night will still be able to deduct losses against residential property income, but not against other income like wages. Any unused losses can be carried forward and applied against residential property income or capital gains in future years.

Commercial property and other asset classes, such as shares, will remain subject to existing arrangements.

In short: if you buy an established residential property after 7:30pm AEST on 12 May 2026, you can still record rental losses, but those losses can only reduce your residential property income or gains, not your salary or wages.

Example: How the New Negative Gearing Rules Work in Practice

The following example illustrates how the changes to negative gearing will operate for investors who purchase established residential properties after Budget night.

Jason invests in an existing residential property after 1 July 2027. Because he purchased the property after Budget night, 12 May 2026, his property is subject to the new negative gearing rules. This means any losses from the property can only be offset against rental income or capital gains from residential property, not against his salary or wages. Unused losses are carried forward to future years.

2027–28: Jason incurs a net rental loss of $10,000 from his property. Under the new quarantining rules, the $10,000 loss cannot reduce his wages or other taxable income that year. Instead, it is carried forward.

2028–29: Jason earns $6,000 in net rental income from the same property. He applies $6,000 of his carried-forward loss against this income, paying no tax on the rental income. He now has $4,000 in carried-forward losses remaining, which he can apply against residential property income or capital gains in future years.

Compare this with the current rules, where the $10,000 loss in 2027–28 would have been deducted against Jason's salary in that same year, reducing his income tax bill immediately.

For investors relying on negative gearing to improve short-term cash flow, this timing difference is significant.

I already own an investment property. Am I grandfathered?‍

Yes. If you held an investment property before 7:30pm AEST on 12 May 2026, nothing changes for you while you continue to hold that property.

Existing arrangements will remain unchanged for all residential properties purchased before 7:30pm AEST on 12 May 2026, until they are sold. This means all Australians who currently negatively gear an investment property will not see any change to these arrangements. They will still be able to deduct rental losses against other taxable income, like a salary, to reduce their overall tax liability.

The grandfathering applies for as long as you hold the property. The moment you sell it, that property exits the grandfathered system. If you then purchase a replacement residential investment property, the new rules will apply.

My property is under contract but not yet settled. Do the new rules apply?

No. If you signed a contract before 7:30pm AEST on 12 May 2026, you are grandfathered regardless of when settlement occurs.

If an investment property was acquired prior to 7:30pm AEST on 12 May 2026, it remains subject to the current rules and is not affected by these changes until it is sold. This applies to contracts entered into to acquire a property prior to that date even if settlement has not yet occurred.

The key date is when the contract was signed, not when the property settles. If you exchanged contracts before Budget night and settlement is still weeks or months away, you are covered by the existing rules.

Properties purchased after 7:30pm (AEST) on 12 May 2026 and before 30 June 2027 may be able to be negatively geared during this period, but not in subsequent years.

Can I still negatively gear if I buy a new build after the budget?

Yes. New builds are exempt from the restrictions and you can still deduct rental losses from your other income, including your wages, in the same way as the current rules allow.

Eligible new builds will remain exempt, with investors still able to access both negative gearing and the 50% CGT discount. This applies to new build properties purchased after Budget night.

The government's stated aim is to redirect tax incentives toward increasing housing supply, rather than supporting investment in existing housing stock.

What counts as a "new build" for negative gearing purposes?

The full legislative definition is still being finalised, but the government has indicated that a new build must genuinely add to housing supply.

Based on what has been released, the following are expected to qualify:

A newly constructed apartment purchased off the plan
A duplex built through a knock-down rebuild that replaces a single freestanding house, where the result is a net increase in the number of dwellings on the land
Any residential construction on previously vacant land

A granny flat built adjacent to an established property that is not eligible for negative gearing, and a newly built property which is occupied for more than 12 months before being sold to a subsequent investor, are not expected to qualify as new builds.

The key test appears to be whether the construction genuinely adds a new dwelling to the housing supply. Further guidance is expected when the legislation is released.

Will rents go up because of this?

This is widely debated. Most economists expect some upward pressure on rents, but the scale is uncertain.

The concern is that fewer investors will choose to buy established rental properties, which could reduce rental supply in areas where investors are a significant part of the rental market. With less supply competing for tenants, landlords who do hold established rental properties may have more pricing power.

Treasury modelling estimates that house price growth will temper, increasing by an average of 4 per cent instead of 6 per cent for a couple of years due to the changes. However, some economists note that the impact on rents is harder to predict and that the effect will vary significantly depending on the suburb and property type.

If rental supply does tighten in certain markets, renters and prospective first home buyers in those areas could feel the pressure before any housing affordability benefits are realised.

The 50% CGT discount is being replaced. What replaces it?

From 1 July 2027, the 50% CGT discount will be replaced with two new measures: cost base indexation and a 30% minimum tax on capital gains.

The government will replace the 50 per cent capital gains tax discount with a discount based on inflation and introduce a minimum 30 per cent tax on gains from 1 July 2027. This reform means that investors will only pay tax on their real capital gain, restoring the original intent of the CGT arrangements.

This affects all CGT assets held by individuals, trusts and partnerships, including shares and investment properties. It is not limited to property.

What is indexation? Is it better or worse than the 50% discount?

It depends on how long you hold the asset and what inflation does in the meantime. For some investors, indexation will result in a lower tax bill. For others, particularly those who hold assets for a long time in a high-inflation environment, the outcome could be less favourable.

Under the indexation method, rather than automatically reducing your capital gain by 50%, your cost base is adjusted upward in line with inflation for the period you held the asset. You then pay tax only on the gain above the inflation-adjusted cost base.

The comparison shifts when gains are large relative to inflation. If an asset has grown strongly in value beyond the rate of inflation, the 50% discount historically produced a better result. Indexation performs better when gains are modest or inflation is high.

What is the 30% minimum CGT tax and how does it work?

The 30% minimum tax is a floor rate designed to ensure investors pay at least 30% tax on their real capital gains, even if their marginal tax rate would otherwise produce a lower outcome.

A minimum tax rate on capital gains will reduce the incentive to hold onto an asset to realise a gain when it is most tax advantageous, and ensure a fair amount of tax is paid on capital gains in line with lifetime incomes.

The minimum tax applies after indexation has been calculated. If your marginal rate on the indexed gain would already produce tax of 30% or more, the minimum tax has no additional effect. It is most relevant for investors who would otherwise pay less than 30% on a capital gain, for example by timing a sale to a low-income year.

Income support recipients, including Age Pension recipients, will be exempt from the minimum rate. ‍

Does the CGT change affect my family home?

No. The main residence CGT exemption is unchanged.

There is no change to the main residence CGT exemption. When you sell your primary place of residence, the same CGT-free treatment continues to apply as it does today. The new indexation and minimum tax rules apply only to investment assets.

If I buy a new build, can I choose which CGT method to use?

Yes. Investors who purchase eligible new build properties will have the option to choose between the existing 50% CGT discount and the new indexation method when they eventually sell.

The CGT reforms will only apply to gains arising after 1 July 2027. Investors in new builds will be able to choose the 50% CGT discount or the new arrangements.

This means that at the time of sale, you and your tax adviser can assess which method produces the better outcome for your circumstances. This flexibility is one of the key advantages of investing in new builds under the revised rules. ‍

I signed a contract last week. Am I grandfathered?

Yes, provided the contract was signed by all parties before 7:30pm AEST on 12 May 2026.

The relevant date is the contract date, not the settlement date. Keep your signed contract as evidence of the date. If there is any ambiguity about the timing, speak with your accountant to confirm your position.

If you signed after that time, the new rules will apply to that property from 1 July 2027.

Do the Negative Gearing rules ever expire for grandfathered investors?

No. The grandfathering is permanent for as long as you hold the property.

There is no sunset clause on the grandfathering. You will continue to operate under the current negative gearing rules for your existing property until you choose to sell it. Once you sell, that property exits the grandfathered treatment.

Should I buy an investment property before 1 July 2027?

This is a question that depends entirely on your personal financial circumstances, and you should speak with a mortgage broker, accountant and financial adviser before acting.

From a tax perspective, purchasing an established residential property after Budget night but before 1 July 2027 means you would be subject to the new negative gearing quarantining rules from 1 July 2027 onward. The new rules do not apply during the 2026–27 financial year, but will apply from the following year.

Purchasing a new build before or after 1 July 2027 gives you access to both full negative gearing and the choice between the 50% CGT discount and the new indexation method.

The decision should not be driven by tax alone. Property location, rental yield, borrowing capacity and your long-term investment strategy all matter. Speak with your team of advisers before making any decisions. ‍

I own my investment property through a family trust. How am I affected?

You are affected in two ways: the new CGT rules apply to discretionary trusts, and a new 30% minimum tax on taxable income of discretionary trust is being introduced from 1 July 2028.

The new CGT changes will apply broadly across all CGT assets, including those held by individuals, trusts and partnerships. This means the shift from the 50% CGT discount to indexation and the 30% minimum tax will also apply to assets held inside a family trust, subject to the same transitional rules.

On top of the CGT changes, the government will apply a minimum 30 per cent tax rate on discretionary trusts from 2028-29.

Should I move my investment property out of my family trust?

This is a complex decision that requires advice from your accountant and conveyancer before you take any action.

Transferring a property out of a trust is a dutiable transaction in most states, including Victoria and New South Wales. Depending on the circumstances, it may trigger stamp duty and a CGT event. These costs need to be weighed against the long-term tax savings of restructuring.

The three-year rollover relief window announced in the Budget provides time to assess your options without rushing. However, the relief has conditions attached, and not every restructure will qualify. Speak with your professional advisers to understand whether the move makes sense for your situation.

Will buying through a company become better than a trust now?

Possibly, for some investors. But the answer depends on your individual circumstances.

Companies are taxed at a flat rate of 30% (or 25% for small base rate entities), and the 30% minimum tax on trusts is designed to bring trust distributions in line with company tax rates. This may reduce one of the traditional advantages of trust structures.

However, companies carry their own drawbacks, including the inability to access the 50% CGT discount (companies use the indexation method, which will now apply more broadly) and the compliance obligations that come with running a company. The choice between a company and a trust structure involves many factors beyond the tax rate, including asset protection, estate planning and flexibility of distributions. Speak with your accountant before drawing any conclusions.

Does the CGT change affect my SMSF property?

No. The CGT discount for complying superannuation funds is not changing.

At this stage, there is also not expected to be any change to the CGT discount for superannuation funds. If your residential investment property is held inside a self-managed superannuation fund, the existing CGT treatment continues to apply, including the one-third CGT discount available to superannuation funds in the accumulation phase and the CGT exemption in the retirement phase.

This makes SMSF structures comparatively more attractive for property investment under the new rules, although the strict SMSF borrowing rules (limited recourse borrowing arrangements) and the sole purpose test continue to constrain what is possible.

What Should You Do Now?

The most important thing is to avoid making rushed decisions based on the Budget announcement alone. These changes are not yet law, the full legislative detail is not yet available, and your personal circumstances will determine how you are affected.

If you own investment property or are thinking about buying, the right next step is to speak with your accountant about your current tax position, a mortgage broker about your borrowing capacity and structure, and a conveyancer if you are considering purchasing property before signing the contract.