Federal Budget 2026: What the Proposed Property Tax Changes Mean for You

The 2026–27 Federal Budget, delivered on 12 May by Treasurer Jim Chalmers, marks a turning point in Australia’s property landscape and introduces some of the most significant proposed changes to property taxation in over 20 years.

At the center of these reforms are two critical areas that impact property owners, investors, and first home buyers alike:

• Capital Gains Tax (CGT)
• Negative gearing

The below specifically focuses on the changes impacting property, noting the tax treatment of 860,000 trusts will also be impacted, mainly hard-working small business owners taking another hit as well!

While these changes are not yet law and must still pass through Parliament, they signal a major shift in how property investment may be taxed in Australia.

At a Glance –  the proposed changes:

Existing Property Investor (Purchased before 7:30pm AEST 12 May 2026)

• CGT: A split system will apply
  • Gains before 1 July 2027 → taxed under current 50% discount
  • Gains accrued after 1 July 2027→ taxed via inflation-adjusted/ cost-base indexation method (minimum 30% tax)
• Negative gearing: No changes (fully grandfathered), meaning you can continue to claim rental losses against your salary and other income for as long as you own it.

Investor Buying an Established Property (Purchased After 7:30pm AEST 12 May 2026)

• CGT: No access to the 50% discount from 1 July 2027. From 1 July 2027, gains will be calculated using cost base indexation, and a 30 per cent minimum tax will apply to net capital gains.
• Negative gearing:
  • Allowed until 30 June 2027
  • From 1 July 2027, you will no longer be able to deduct rental losses against your wages or other non-property income; losses can only be used to offset income from other properties. Unused losses can be carried forward to future years.

Investor Buying a New Build (Purchased After 7:30pm AEST 12 May 2026)

• CGT: You can use either the existing 50% CGT discount or the new cost-base indexation method with the minimum 30% tax – whichever provides you with a better tax outcome.
• Negative gearing: No changes. Full negative gearing is retained. You can continue to fully deduct any rental losses against your salary and other income.

First Home Buyers (Owner-Occupiers)

• CGT: The main residence exemption is unchanged – there is no tax on your primary residence
•  Negative gearing: Not applicable when you live in the property yourself.
• Deposit Support:
  • 5% Deposit Scheme continues
  • No Lenders Mortgage Insurance (LMI) under scheme

Breakdown of what’s changed, what’s stayed the same, and what it means for you.

Capital Gains Tax: What’s Changing?

Since 1999, investors holding property for more than 12 months have benefited from a 50% discount on capital gains tax. So, if you made a $400,000 capital gain, you only paid tax on $200,000.

What’s Proposed?

From 1 July 2027, this system may be replaced with cost-base indexation:

• Your purchase price is adjusted for inflation (CPI)
• You’re only taxed on the “real” gain above inflation, so you will only be taxed on the portion of your profit that exceeds inflation, which is your “real” gain.
• A minimum 30% tax rate will apply to net capital gains

What This Means in Practice

The impact will vary depending on:

• Holding period
• Inflation levels
• Property growth

Example:

• High inflation + long-term hold → may benefit from indexation
• Short-term growth → may have been better under the 50% discount

Important distinctions

• Owner-occupiers: No change (main residence exemption remains)

• Existing investors: Gains split across old and new systems. Any capital growth that accrued up to 1 July 2027 will still be eligible for the existing 50 per cent CGT discount. Only gains accruing from 1 July 2027 onward will be taxed under the new cost base indexation system, with the 30 per cent minimum tax rate applying to those newer gains. In practice, this means the value of your property at 1 July 2027 becomes a reference point, and the two portions are treated under their respective rules.Pre-1985 assets that were previously exempt from CGT will also retain that exemption for gains arising before 1 July 2027.

• New investors:
  • If you invest in an established property: From 1 July 2027, the new system will apply. Gains accrued from this date will be calculated using the cost base indexation method, and you will not have the option to choose the old 50 per cent discount.
  • If you invest in a newly built property: A key carve-out has been made for new housing. Investors who purchase newly built residential properties will be able to choose whichever method gives them the better outcome: the existing 50 per cent CGT discount, or the new indexation method with the minimum tax. This is a deliberate incentive to direct investment toward new housing supply.

Negative Gearing: A Major Shift

Negative gearing is the practice of claiming a tax deduction when the costs of an investment property (mortgage interest, maintenance, management fees) exceed the rental income it produces. Until now, that loss could be deducted from your other income, including your salary, reducing your overall tax bill.

What’s Changing?

The proposed reforms introduce a clear divide between existing, established, and new properties.

Existing Investors (property acquired before 7:30pm AEST on 12 May 2026)

• No change
• Can continue full negative gearing indefinitely
• Includes properties with exchanged contracts prior to this date

For those investing in an established property (acquired after 12 May 2026):

From 1 July 2027 – negative gearing on established residential properties will be restricted.

• Rental losses can no longer offset salary or other non-property income
• Rental losses can only be deductible against other property income:
  • Rental income from other properties
  • Future capital gains
• Unused losses can be carried forward and used in future years against property income.

Transition period applies:

•  If you purchase an established property between the announcement date (12 May 2026) and 30 June 2027, you can still negatively gear it fully during that window. The new restrictions will then apply from 1 July 2027 onward.

For those investing in a newly built property:

• No changes
• Full negative gearing retained
• Applies to:
  • House & land packages
  • Off-the-plan purchases
  • New construction adding to housing supply – it doesn’t apply to knockdown-rebuilds that replace an older home on an existing block.

Why the Budget risks failing property investors

By limiting negative gearing to new builds and scrapping the 50% Capital Gains Tax (CGT) discount, the budget seeks to help first-home buyers but risks severely stifling rental supply and pushing investors out of the market entirely.

The budget fundamentally alters the wealth-generation economics of property, forcing investors to shoulder much higher risk and lower net returns.

• “Quarantined” Rental Losses: For established properties bought after budget night, investors can no longer deduct rental losses against their wage or salary income. Losses can only offset other residential property income, crushing weekly after-tax cash flows for average wage earners.
• Death of the 50% CGT Discount: Starting July 2027, the flat 50% CGT discount is replaced by an inflation-linked model paired with a 30% minimum tax rate on capital gains. This penalises investors on lower marginal tax brackets and sharply diminishes long-term capital growth profits.
• The New-Build “Trap”: While new builds retain tax perks, property experts warn that new house-and-land packages or off-the-plan apartments historically yield poor capital growth because the land component is less valuable. Furthermore, developers are expected to capitalize these tax benefits directly into higher purchase prices.
• Discretionary Trust Squeeze: Many mum-and-dad investors use family trusts to hold property. Starting July 2028, a new 30% minimum tax on trust income eliminates this popular structure’s tax-routing benefits.

Why the Budget risk failing the housing market

While the government aims to unlock 75,000 homes for owner-occupiers, the policy creates structural gridlocks that threaten to derail the broader housing market.

• Slashed Housing Supply: Treasury’s own modelling admits the tax changes will result in 35,000 fewer homes being built over the next decade as private investment capital flees the residential sector.
• Severe Rental Stress: Property investor activity represents a massive portion of the rental ecosystem. Deterring investors from buying established properties will cause rental stock to dry up rapidly, triggering a severe new wave of rental shortages and driving weekly rents higher.
• Construction Bottlenecks: The budget assumes investors will cleanly pivot their money into building new homes. However, the construction sector is severely constrained by crippling labor shortages, sky-high material costs, and planning delays, meaning new supply cannot be delivered fast enough to meet demand.
• Market Illiquidity (The Grandfathering Divide): Because existing properties owned before budget night are grandfathered into the old, generous tax rules, current owners have an immense incentive to hoard their properties forever. This will dry up market listings, creating a frozen, illiquid secondary housing market

What Should You Do Next?

These reforms are still proposed, and final details may change as they move through Parliament.

However, they already highlight several important considerations:

• The type of property (new vs established) will become more important than ever
• Long-term investment strategies may need to be reassessed
• Tax outcomes will become more complex and scenario-dependent

Practical Next Steps

• Review your current property portfolio
• Consider how future purchases may be structured
• Speak with a qualified mortgage broker, accountant or financial adviser before making decisions

Anthony Landahl | Managing Director Equilibria Finance

This is for general information purposes only and does not constitute advice. With all of these options there are a number of considerations outside the scope of what is covered in this article that you need to understand to ensure your personal circumstances are taken into consideration.

Equilibria Finance is a mortgage broking practice specialising in delivering residential and commercial mortgage and business and asset finance solutions to the clients of financial advice and accounting practices.