Key takeaways
- Budget Night cut-off: properties owned or contracted by 7:30pm AEST on 12 May 2026 are grandfathered under the existing rules.
- From 1 July 2027, rental losses on established residential property can no longer offset salary and wages — only rental or residential capital gains, with excess losses carried forward.
- Eligible new builds are exempt and can still be negatively geared against other income.
- From 1 July 2027, the 50% CGT discount is replaced by cost base indexation (CPI-adjusted cost base).
- A new 30% minimum tax on net capital gains also applies, but income support recipients (including Age Pension) are exempt.
The 2026–27 Federal Budget delivers one of the most significant property and investment tax overhauls in years — major changes to negative gearing and capital gains tax (CGT).
The reforms phase in from 1 July 2027 and will reshape investment decisions for residential property, shares, trust-held assets and partnerships.
The intent is clear: reduce the tax advantages of buying existing residential property, and redirect investor capital into new builds that genuinely add housing supply.
1. Negative gearing reform: the core change
From 1 July 2027, losses on established residential properties can only offset:
- rental income, or
- capital gains from residential properties
Any excess losses cannot reduce salary or other ordinary income that year — but they can be carried forward to offset future residential property income.
For investors buying established residential property after the reform takes effect, the familiar pattern of using a rental loss to reduce salary and wages will no longer work.
2. The Budget Night cut-off
The most important date isn’t 1 July 2027 alone — it’s 7:30pm AEST on 12 May 2026.
If you held the property, or had a signed contract to purchase even if not yet settled, before that moment, the property is grandfathered.
Grandfathered properties continue to follow the existing negative gearing rules until disposal.
In summary:
- Held or contracted before 12 May 2026, 7:30pm AEST: existing rules continue.
- Acquired after 12 May 2026, 7:30pm AEST: falls under the new rules from 1 July 2027.
- Acquired after 1 July 2027: losses cannot offset salary or other ordinary income.
3. New builds keep negative gearing
Eligible new builds are exempt from the negative gearing restrictions.
If you buy an eligible new build, you can still apply rental losses against other taxable income, including salary and wages.
This reflects the policy intent: encourage investors to add new housing supply, not to bid up existing housing stock.
However, “renovated” or “refurbished” older homes generally do not qualify. To be an eligible new build, the project usually has to genuinely add new dwellings — for example, new homes built on vacant land, or knock-down-rebuild projects that increase the dwelling count.
4. Which investments are not affected by the negative gearing change?
The negative gearing reforms target residential property investments. The following are generally outside the scope:
- commercial property
- shares
- properties held in superannuation funds
- properties held by widely held trusts
- certain build-to-rent developments
- certain private investors supporting government housing programs
Commercial property and shares continue under the existing negative gearing rules. Keep in mind, though, that shares and commercial property are still affected by the CGT reform discussed below.
5. CGT reform: 50% discount replaced by cost base indexation
From 1 July 2027, the existing 50% CGT discount is replaced by cost base indexation.
This applies to individuals, trusts and partnerships holding assets for more than 12 months.
Currently, eligible assets held for over 12 months can include the capital gain at half its value in assessable income.
Under the new approach, the cost base is uplifted by CPI before calculating the gain.
In short:
- Now: sale price minus cost base; gain halved if eligible.
- After reform: cost base is CPI-indexed first, then subtracted from sale price.
6. 30% minimum tax on net capital gains
Alongside indexation, a 30% minimum tax on net capital gains is being introduced.
This means some taxpayers who would otherwise pay tax on capital gains at a lower marginal rate will pay at least 30% on the net gain.
Income support payment recipients, including Age Pension recipients, are exempt from the minimum tax.
7. Transitional rules for existing investments
The CGT transitional design matters a lot:
- Assets sold before 1 July 2027 continue under existing rules.
- Assets held before 1 July 2027 but sold after — gains accrued before 1 July 2027 follow the old rules; gains accrued after 1 July 2027 follow the new rules.
- Pre-CGT assets are also touched by the new rules, but gains accrued before 1 July 2027 remain CGT-exempt.
8. New residential property — CGT election
For new residential properties, investors can elect at sale to apply either:
- the 50% CGT discount, or
- cost base indexation plus 30% minimum tax
This preserves flexibility for new-build investors and reinforces the policy push toward new housing supply.
9. How should investors prepare?
If you’re thinking about buying or selling investment property, holding share portfolios, or holding assets via a trust, now is the time to revisit your tax position.
Items to think through:
- Was the property held — or contracted to purchase — before Budget Night?
- Will future purchases be new builds or established residential property?
- Can your rental losses still reduce salary in the years ahead?
- Will the new CGT calculation increase the tax on future disposals?
- Should certain assets be revalued near 1 July 2027?
- Is the long-term holding structure still optimal?
FAQs
Q: I already own an investment property — can I still negatively gear it after 1 July 2027?
A: Yes. If you held the property, or had a signed contract to buy it, before 12 May 2026 at 7:30pm AEST, the property is grandfathered and continues under the existing negative gearing rules until disposal.
Q: What qualifies as an “eligible new build”? Do renovations count?
A: Eligible new builds are projects that genuinely add new housing supply — new homes on vacant land, or knock-down-rebuild projects that add dwellings. Renovating or refurbishing an existing home generally does not qualify. The final definition will sit with legislation and supporting guidance.
Q: Does the 30% minimum tax mean all capital gains are taxed at 30%?
A: No. It’s a floor, not a flat rate. If your effective tax rate on the net gain under the regular calculation is already above 30%, you pay that. The rule mainly bites where someone’s marginal rate is well below 30%. Income support recipients, including Age Pension recipients, are exempt.
Q: Do share investments fall under the negative gearing changes?
A: No — shares are outside the residential negative gearing reform, so share-related deductions can still offset other income. But shares sold after 1 July 2027 are affected by the CGT reform (50% discount replaced by indexation, with the 30% minimum tax potentially applying).
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In summary
The negative gearing and CGT changes in the 2026–27 Federal Budget represent one of the more significant shifts in Australia’s tax framework in years.
The policy direction encourages investment in new housing supply, narrows the advantage on existing residential investment property, and brings capital gains tax closer to real economic gains.
For investors, the priority isn’t panic — it’s planning. Anyone holding investment property, shares, trust assets, or considering buying or selling in the coming years should talk to their accountant well before the changes take effect.
Disclaimer: This article is general information only and not personal tax advice. Final outcomes depend on legislation as enacted, ATO guidance and your individual circumstances.
