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

The 2026-27 Federal Budget, handed down on 12 May 2026, proposes the biggest shake-up to property taxation in a generation. From 1 July 2027, negative gearing will be limited to new builds, the 50% CGT discount will be replaced with cost base indexation, and a 30% minimum tax rate will apply to capital gains. Properties you already owned (or had under contract) before 7:30pm AEST on 12 May 2026 are grandfathered for negative gearing, and the CGT changes only apply to gains accruing after 1 July 2027. These measures are not yet law, but every property investor needs to understand them now.

If you own an investment property, are thinking about buying one, or are weighing up whether to sell, the 2026-27 Federal Budget directly affects you. In this guide, we break down exactly what was announced, who is affected, who is protected, and what you should be doing between now and 1 July 2027.

The two dates that matter

Everything in these reforms hangs off two dates:

1.    7:30pm AEST, 12 May 2026 (Budget night). This is the dividing line for negative gearing. Residential properties you owned, or had under contract, before this time are grandfathered you keep negative gearing under the existing rules for as long as you hold the property.

2.    1 July 2027. This is when the new rules actually start. It is also the valuation date that splits old-method and new-method capital gains for assets you already own.

What is changing with negative gearing?

Under the current rules, if your investment property runs at a loss that is, rent is less than your interest, rates, insurance, agent fees, repairs and depreciation that net rental loss reduces your other taxable income, including your salary. For many of our clients, this is a meaningful part of the annual tax outcome.

From 1 July 2027, for established residential properties purchased after 7:30pm AEST on 12 May 2026, rental losses will be quarantined. They can only be offset against other residential property income including residential property capital gains not against salary, business or other income. Unused losses are not lost; they carry forward to future years.

Worked example: how the quarantining works

Take a client on a $150,000 salary who buys an established unit after Budget night. The numbers look like this in 2027-28:

Item	Current rules	Proposed rules
Salary income	$150,000	$150,000
Rental income	$32,000	$32,000
Interest, rates, insurance, agent fees	-$40,000	-$40,000
Depreciation deductions	-$10,000	-$10,000
Net rental loss	-$18,000	-$18,000
Loss deductible against salary	$18,000	$0
Taxable income	$132,000	$150,000
Loss carried forward	$0	$18,000

The deductions themselves have not been abolished. What changes is the timing and what they can be applied against. The $18,000 loss carries forward and can be used against future rental profits or against the capital gain when the property (or another residential property) is eventually sold. For investors relying on negative gearing to support cash flow during the ownership period, that is a fundamental change to the economics of buying established property.

Who keeps negative gearing?

•       Existing investors. Properties owned or under contract before 7:30pm AEST on 12 May 2026 are fully grandfathered under the current rules until sold — no matter how many properties you hold.

•       New build investors. Eligible new builds retain full negative gearing against all income, and the definition of what qualifies as a new build will be critical. This is a deliberate policy lever to push investment into new housing supply.

•       Commercial property investors. The negative gearing changes target residential property. Commercial property is outside the quarantining rules, which may make it relatively more attractive for some investors.

What is changing with capital gains tax?

Currently, individuals, trusts and partnerships who hold a CGT asset for more than 12 months generally apply the 50% CGT discount, paying tax on only half the gain at their marginal rate.

From 1 July 2027, the Budget proposes two changes for individuals, trusts and partnerships:

1.    Cost base indexation replaces the 50% discount. Your cost base is uplifted for inflation each year, and you pay tax only on the gain above inflation the 'real' gain. This is similar to the indexation method that operated before 1999.

2.    A 30% minimum tax rate on capital gains. The taxable gain will be taxed at no less than 30%. This will not affect taxpayers whose gains are already taxed at 30% or more, but it removes the benefit of having gains taxed at low marginal rates for example, gains distributed to low-income family members or realised in low-income years.

Importantly, the 30% minimum applies to the taxable (inflation-adjusted) gain not the sale price, and not the gross gain.

Worked example: discount method vs indexation

Suppose an investor buys an asset for $800,000 on 1 July 2028 and sells it for $1,300,000 on 1 July 2036 a $500,000 nominal gain over eight years. Assume inflation runs at 2.5% per year:

Item	Old rules (50% discount)	New rules (indexation)
Purchase price	$800,000	$800,000
Sale price	$1,300,000	$1,300,000
Nominal gain	$500,000	$500,000
Indexed cost base (2.5% p.a. for 8 years)	n/a	$974,700
Taxable capital gain	$250,000	$325,300
Tax at 47% (top marginal rate + Medicare)	$117,500	$152,891
Effective tax rate on total gain	23.5%	30.6%

The pattern to understand: indexation only shields you from inflation, not from real growth. The faster an asset grows above inflation, and the longer you hold it, the more of the gain ends up taxable compared with the old 50% discount. For strongly performing assets, the new method will generally produce more tax. For assets that barely beat inflation, indexation can actually be more generous than the discount.

What happens to assets I already own?

The CGT changes apply to gains accruing after 1 July 2027 — including for assets bought years ago, and even pre-1985 assets under the transitional rules. For an asset owned before 1 July 2027 and sold afterwards, the gain is effectively split: the growth up to 1 July 2027 gets the old 50% discount treatment, and the growth after that date falls under indexation and the 30% minimum tax, using the asset's value at 1 July 2027 as the starting point.

That makes the value of your assets at 1 July 2027 enormously important. Taxpayers will be able to either obtain a market valuation at that date or use an ATO-supported apportionment formula. For property, shares in private companies, and other hard-to-value assets, contemporaneous valuation evidence obtained around the transition date will often produce a better and more defensible outcome than a formula applied years later.

What about super funds, companies and trusts?

•       Superannuation funds (including SMSFs) are not affected by these CGT changes — they keep the existing one-third discount on assets held over 12 months. With negative gearing quarantined and CGT treatment harsher for individuals, the relative attractiveness of holding growth assets in super improves, subject to contribution caps and borrowing restrictions.

•       Companies never had the CGT discount, so the indexation change does not directly affect them, and the 30% minimum tax broadly mirrors the corporate rate anyway.

•       Discretionary trusts face a separate Budget measure: from 1 July 2028, trustees will pay a 30% minimum tax on the trust's taxable income, with non-refundable credits flowing to non-corporate beneficiaries. Combined with the CGT changes, this significantly reduces the benefit of streaming capital gains to low-rate beneficiaries. If you operate a family trust, this measure deserves its own review — we will cover it in detail in a separate article.

The family home and other exemptions

Your main residence remains exempt from CGT — nothing in the Budget changes that. Investors in eligible government and affordable housing programs are also carved out of the negative gearing changes, and new build investors can choose between the old 50% discount and the new indexation method when they sell, whichever produces the better result.

What should property investors do now?

Remember: these measures are not yet law. Legislation has been introduced and the detail may shift as it moves through Parliament. But the key dates have already passed or are locked in by design, so waiting until 2027 to think about this is a mistake. Our recommendations:

1.    Document what you owned at Budget night. Grandfathering attaches to properties owned or under contract before 7:30pm AEST on 12 May 2026. Keep contracts, settlement statements and loan documents readily accessible — these are now permanently important records.

2.    Don't sell grandfathered properties without modelling the consequences. Once a grandfathered property is sold, the protection does not transfer to a replacement property. The hurdle for selling and re-buying established residential property is now much higher.

3.    Plan for a 1 July 2027 valuation. If you hold property, private company shares or other significant CGT assets, getting reliable market value evidence at the transition date can materially affect your future tax bill. Depreciation schedules also remain valuable — deductions still count, even where losses are quarantined.

4.    Reassess where you hold growth assets. The gap between personal/trust CGT treatment and super fund treatment widens under these rules. Structure decisions made now will play out over decades.

5.    If you're about to buy, understand the new-build distinction. The tax difference between an established property and an eligible new build is now substantial — negative gearing, plus a choice of CGT methods at sale.

Frequently asked questions

I already own an investment property. Do I lose negative gearing?

No. Properties owned or under contract before 7:30pm AEST on 12 May 2026 are grandfathered. You continue claiming rental losses against your salary and other income under the current rules until you sell.

Does the 30% minimum tax mean I pay 30% of my sale price?

No. It applies to the taxable capital gain after the cost base has been indexed for inflation not the sale price and not the gross gain. If your gain would already be taxed at 30% or more under your marginal rate, the minimum tax changes nothing for you.

Do the CGT changes apply to shares as well as property?

Yes. The replacement of the 50% discount with indexation and the 30% minimum tax applies to all CGT assets held by individuals, trusts and partnerships — shares, managed funds, crypto and property alike. Negative gearing quarantining, by contrast, is specific to established residential property.

What happens to my SMSF's property and shares?

Superannuation funds are excluded from these CGT changes and retain the existing one-third discount for assets held over 12 months. SMSF assets are unaffected by the negative gearing changes announced in this Budget.

I bought an established property in June 2026. Where do I stand?

If you exchanged contracts after 7:30pm AEST on 12 May 2026, you are caught by the new rules. You can still negatively gear in the ordinary way until 30 June 2027, but from 1 July 2027 your rental losses will be quarantined to residential property income and gains.

Is any of this actually law yet?

Not yet. The measures were announced in the 2026-27 Budget and legislation has been introduced, but it has not completed its passage through Parliament. Details could change. We are monitoring the legislation closely and will update our clients as it progresses.

Talk to us before 1 July 2027

These are the most significant changes to property and investment taxation since the GST. The right response is different for every investor it depends on what you own, when you bought it, how it's structured and what your plans are. Dolman Bateman has been advising Sydney property investors for over 40 years, and we're already running the numbers for clients on holding versus selling, structuring new purchases, and preparing for the 1 July 2027 transition.

Book a consultation with Gavin to review your property and investment position before the new rules start. Call (02) 9411 5422 or book online via our website.

Disclaimer

This article provides general information only, based on the 2026-27 Federal Budget announcements of 12 May 2026, which are not yet law and may change during passage through Parliament. It does not take into account your personal circumstances and should not be relied upon as tax, legal or financial advice. You should seek professional advice tailored to your situation before acting. Liability limited by a scheme approved under Professional Standards Legislation.