What the CGT and Negative Gearing Changes Mean for Property Investors
The 2026 Federal Budget has delivered the most significant overhaul of Australia’s property tax settings in decades, reshaping both capital gains tax (CGT) and negative gearing in an effort to improve housing affordability and “rebalance a system where house prices have decoupled from incomes” (Chalmers, cited in Domain 2026). These reforms will have far‑reaching implications for investors, first‑home buyers and the broader housing market.
This article breaks down the key changes, timelines, and what they mean for you.
- Negative Gearing: Limited to New Builds Only
From 1 July 2027, negative gearing will be restricted to newly built residential properties. Investors purchasing existing homes after this date will no longer be able to offset rental losses against salary or other income (SBS 2026; 7NEWS 2026).
Key points
- Existing investment properties are grandfathered — if held before 7:30pm AEST, 12 May 2026, current negative‑gearing rules continue until the property is sold (SBS 2026; realestate.com.au 2026).
- New builds remain eligible for full negative‑gearing benefits to encourage construction and boost supply (7NEWS 2026).
- Investors buying existing properties after the cut‑off may still deduct losses, but only against residential property income, not wages (7NEWS 2026).
The government expects these changes to shift investor activity toward new housing and free up more established homes for owner‑occupiers, potentially helping 75,000 Australians into home ownership (Domain 2026).
- Capital Gains Tax (CGT): 50% Discount Replaced With Indexation
The long‑standing 50% CGT discount for individuals, trusts and partnerships will be abolished from 1 July 2027 and replaced with a system that taxes only real (inflation‑adjusted) gains, with a minimum tax rate of 30% (SBS 2026; 7NEWS 2026).
How the new CGT system works
- Real gains only: CGT will be calculated using cost‑base indexation, meaning only inflation‑adjusted profit is taxed (SBS 2026).
- Minimum 30% tax rate: A floor rate applies to ensure consistency across taxpayers (7NEWS 2026).
- Grandfathering applies:
- Gains accrued before 1 July 2027 still receive the 50% discount (SBS 2026).
- Assets acquired before Budget night may face a hybrid calculation, with gains apportioned between old and new rules (SmartCompany 2026).
Why the change?
The government argues the current 50% discount disproportionately benefits property investors and contributes to housing inequality (SmartCompany 2026). Treasury modelling also shows that under the old system, share‑market investors were under‑compensated for inflation, with 56% of asset price growth over 10 years attributable to inflation (ABC 2026).
- Transitional Rules and Investor Categories
The Budget introduces a one‑year transition period for assets purchased between Budget night 2026 and 30 June 2027 (SmartCompany 2026; JMD Mortgages 2026).
Three investor groups emerge
- Existing investors (pre‑7:30pm, 12 May 2026)
- Fully grandfathered for both CGT and negative gearing.
- Transitional investors (12 May 2026 – 30 June 2027)
- Negative gearing allowed until 30 June 2027, then losses carried forward against property income only.
- CGT gains apportioned between old and new systems (JMD Mortgages 2026).
- New investors (from 1 July 2027)
- Negative gearing only for new builds.
- CGT calculated using indexation + 30% minimum tax.
- Expected Market Impacts
Housing supply and prices
Treasury modelling suggests:
- Slower house price growth
- Reduced investor demand for established homes
- Upward pressure on rents in the short term
(realestate.com.au 2026; ABC 2026)
However, the government argues the reforms will ultimately improve affordability, rebalance incentives, and support construction of new housing stock (Domain 2026).
Investor behaviour
- Some investors may shift from property to shares, as the new CGT rules treat asset classes more evenly (ABC 2026).
- Others may prioritise new builds to retain tax advantages.
- What This Means for You
If you’re an existing investor
You retain your current tax settings — no immediate action required.
If you’re considering buying an investment property
The decision between new vs established becomes more important than ever. New builds will carry significant tax advantages from 2027 onward.
If you’re a first‑home buyer
The government expects these reforms to improve access to established housing stock and moderate price growth over time.
Conclusion
The 2026 Federal Budget marks a major shift in Australia’s property tax landscape. With negative gearing restricted to new builds and the CGT discount replaced by inflation indexation, investors will need to reassess their strategies — particularly around asset selection and long‑term planning.
For personalised guidance on how these changes affect your borrowing power, investment strategy or refinancing options, Chris Hutton Home Loans can help you navigate the new environment with clarity and confidence.