The 2026 Federal Budget made two big changes that affect anyone with investment property, shares, or other investment assets. One change replaces the 50% capital gains tax (CGT) discount with a new system. The other limits negative gearing to new builds.
The good news for most of our property clients: if you already own the property, you're protected. The change applies to property bought from 12 May 2026 onwards. Property already in your portfolio at Budget night keeps the rules you knew when you bought it, for as long as you own it.
Here's what changed, in plain English.
Change 1: Negative gearing is now limited to new builds
Negative gearing lets you deduct rental losses from your other income, including your salary. That's the rule that has applied for nearly 40 years, and it's one of the main reasons many Australians have invested in residential property.
From 1 July 2027, that changes — but only for property bought after Budget night (7:30pm AEST on 12 May 2026).
Here's the breakdown:
- Property you bought before Budget night — no change. You can keep negatively gearing it against any income (including your salary) until you sell it. Properties under contract before Budget night that hadn't yet settled are also protected.
- Property bought after Budget night but before 1 July 2027 — you can still negatively gear it normally until 1 July 2027. After that, the new rules apply.
- Property bought after Budget night, from 1 July 2027 onwards — you can only deduct rental losses against other residential property income (other rent or capital gains on residential property), not against your salary. Unused losses carry forward to future years.
- New builds — fully outside the restriction. A new build bought after Budget night can still be negatively geared against any income, including salary. The Government's stated reason is to channel investor capital toward additional housing supply rather than competition for existing stock.
Super funds (including SMSFs), widely held trusts, and build-to-rent vehicles are excluded from the restriction altogether. So are private investors supporting government-supported housing programs.
Change 2: The 50% CGT discount is being replaced
Since 1999, individuals, trusts and partnerships have received a 50% discount on capital gains for assets held more than 12 months. This is one of the most-used features of the Australian tax system — and one of the most criticised, depending on who you ask.
From 1 July 2027, that 50% discount is replaced by a new system based on indexation. Instead of halving the gain, the original cost of the asset will be adjusted for inflation, and only the real (inflation-adjusted) gain is taxed — with a minimum tax rate of 30% on that gain.
This applies to shares, investment property, business assets, units in trusts, and significantly to pre-CGT assets (those bought before 20 September 1985). Pre-CGT assets had been fully exempt from CGT for the 42 years since the regime began. Under the announcement, gains accruing on these assets from 1 July 2027 will fall within the new regime.
What's not affected:
- Your family home — the main residence exemption is unchanged.
- Superannuation funds — they keep the existing one-third discount, which makes investments held inside super more attractive on an after-tax basis than they were before Budget night.
- Recipients of means-tested income support (including the Age Pension) — exempt from the 30% minimum rate.
- Gains that built up before 1 July 2027 — these keep the old 50% discount, even if you sell after that date.
For assets you already hold on 1 July 2027, there will be two ways to work out which part of the gain falls under the old rules and which under the new: either by getting a valuation of the asset at 1 July 2027, or by using a formula set by the ATO. The choice can usually wait until you actually sell the asset. For listed shares, the valuation method will be the simpler path. For investment property, art, or business interests, the choice between an obtained valuation and the ATO formula may itself be a planning decision worth thinking about.
What this means for you
If you already own an investment property: Your tax position is unchanged. The grandfathering is genuine — there is no sunset on the protection, only on the asset itself when you sell. There is no benefit in restructuring out of something that is already protected.
If you're about to buy: The choice between an established property and a new build now matters more than it did before. A new build keeps full negative gearing and gives more flexibility at sale. An established property bought now will face restricted negative gearing from July 2027. The after-tax economics of the two options have changed materially, and it's worth modelling both before signing anything.
If you have significant unrealised gains on shares or business assets: The period before 1 July 2027 is worth using thoughtfully — not for rushed sales, but to plan how the transitional valuation will work when you do sell. For some assets it will be worth getting a formal valuation; for others the ATO formula will be sufficient. We can help you think through which approach suits your portfolio.
If your assets are held through a discretionary trust: The CGT change interacts with the new 30% minimum tax on discretionary trusts, which we cover in our companion article on testamentary trusts. The combined effect is more significant than either change on its own, and structures that made sense before the Budget may need to be revisited. The Government has also announced rollover relief — available for three years from 1 July 2027 — to allow restructuring out of discretionary trusts into companies or fixed trusts without triggering CGT. We'll write separately on the strategic options that opens up.
What we don't know yet
Neither change is law yet. The Government has said draft legislation will follow consultation. The key open questions are how "new build" will be defined for the negative gearing carve-out (the definition is expected to differ from the GST concept of new residential premises), how the CGT apportionment formula will work in practice, and how the rules will apply to start-up founders, venture capital structures, and tiered trust arrangements.
The Government has committed to consultation, particularly on early-stage and start-up businesses.
Where this leaves you
We don't recommend rushing. The most expensive tax planning mistakes are usually the ones made before the rules are clear. What we are doing is sitting down with clients who want to think through how the announcements affect their position, and putting a measured plan together for the period between now and 1 July 2027.
If you already own your investment property, you have nothing to do today. If you're about to buy, or if you have significant unrealised gains in your portfolio, the conversation is worth having now — while there's still time to plan deliberately rather than react.
If you'd like to do that, please get in touch.