What the 2026–27 Federal Budget Means for Property Investors
If you own an investment property – or have ever thought about buying one – the 2026–27 Federal Budget just changed the rules in a fairly significant way. On the evening of 12 May 2026, Treasurer Jim Chalmers announced a sweeping overhaul of negative gearing and capital gains tax (CGT) for residential property investors. The changes are substantial, they are real, and for many of our clients here at TSP, they raise some important questions about how existing and future investments should be structured.
Before I go any further, I should be clear: these measures have been announced as part of the Budget, but they are not yet law. Legislation still needs to pass through Parliament. That said, the Government has introduced the relevant bills, and this is very much a case of watching the space closely and, importantly, seeking personalised advice before making any decisions.
| 📚 Want the full picture? Download our 2026–27 Federal Budget Whitepaper for a comprehensive overview of every change announced this Budget — from income tax cuts to trust restructuring. It’s free and written in plain English. → Download the TSP Federal Budget Whitepaper |
What Is Negative Gearing, and Why Does It Matter?
Negative gearing occurs when the costs of owning an investment property – things like interest on your loan, repairs, rates, and depreciation – exceed the rental income it generates. Under the current rules, that net loss can be deducted against your other income, including your salary, which reduces the amount of tax you pay. For many Australians, this has been a meaningful part of their property investment strategy for decades.
From the night of the Budget announcement, the rules began to change.
What Is Actually Changing?
Negative Gearing: Restricted to New Builds
From 1 July 2027, negative gearing for established residential properties will be restricted. If you purchased an existing residential property after 7:30pm AEST on 12 May 2026, any rental losses you make will no longer be deductible against your salary or other general income. Instead, those losses will be quarantined and can only be offset against residential rental income or capital gains from residential properties in the current or future years.
New builds, however, remain fully exempt. If you invest in a residential property that genuinely adds to Australia’s housing stock – a newly constructed dwelling, an off-the-plan purchase, or a brand-new apartment – you can continue to negatively gear it against all your income, exactly as before.
| 🏠 What Counts as a “New Build”? A new build must genuinely add to Australia’s housing supply. This generally includes: Newly constructed dwellings not previously sold (or sold only once by the builder, with no more than 12 months occupancy)Apartments or townhouses purchased off-the-plan from a developer. Properties created through subdivision that result in genuine new housing stock Not included: knock-down rebuilds or renovations that do not increase the net number of dwellings. |
Capital Gains Tax: Replacing the 50% Discount
The second major change affects how capital gains are taxed when you sell an asset you have held for more than 12 months. Currently, individuals, trusts, and partnerships receive a 50% discount on capital gains – a concession in place since 1999. The Government proposes to replace this discount with two alternative mechanisms, both applying to gains that arise after 1 July 2027:
1. Cost base indexation
Rather than discounting the gain by 50%, you will be able to adjust the cost base of your asset in line with inflation using the Consumer Price Index (CPI). This means only your real, inflation-adjusted gain is taxed. Interestingly, this is actually how CGT worked before 1999 when the Howard Government introduced the 50% discount.
2. A minimum 30% tax rate on capital gains
Where a capital gain is calculated, a minimum tax rate of 30% will apply to that gain. If your marginal tax rate is already above 30%, you may need to pay a top-up amount to meet the minimum.
For capital gains that accrued before 1 July 2027, the existing 50% discount will still apply. The reform is prospective — you will not be penalised for gains already built up in existing investments.
| 💡 TSP Tip: Understand the Split-Date Calculation If you sell an asset after 1 July 2027 that you have held for some time, you will likely need to determine the market value of that asset as at 1 July 2027. The ATO has indicated it will provide a formula for this, but in some cases a formal valuation may be required. Start thinking about this now for properties and other significant capital assets. |
Who Is Affected, and Who Is Not?
Properties Already Held: Grandfathered
If you owned an established investment property – or had a contract on one – as at 7:30pm AEST on 12 May 2026, your current negative gearing arrangements are grandfathered. You can continue to use those losses against your general income for as long as you hold the property. This is an important protection for investors who made decisions under the existing rules.
When you sell that grandfathered property, however, the CGT split-date rules apply: gains accrued up to 1 July 2027 retain the 50% discount, while gains accrued after that date fall under the new indexation and minimum tax arrangements.
Properties Purchased After Budget Night: A Transition Period
If you purchased an established property after 7:30pm on 12 May 2026, you can still negatively gear it until 30 June 2027 under the current rules. From 1 July 2027, however, the quarantine arrangement applies and rental losses can only offset residential property income.
Super Funds and SMSFs: Excluded
Superannuation funds, including self-managed superannuation funds (SMSFs), are excluded from both the negative gearing changes and the new CGT minimum tax. SMSFs already operate under their own concessional tax regime, and these Budget measures do not alter that. This is an important consideration for clients who hold residential property through their SMSF.
Widely Held Trusts: Also Excluded from Negative Gearing Changes
Widely held trusts such as managed investment trusts (MITs) are excluded from the negative gearing quarantine. However, it is worth noting that discretionary family trusts are not excluded from the negative gearing changes, and are separately subject to the proposed 30% minimum tax on trust distributions. If you hold investment property through a family trust, the interaction of these two measures could have a material impact on your overall tax position.
We covered the family trust minimum tax in detail in a separate article. If you missed it, I’d encourage you to read our family trust article here.
| ⚠️ These Measures Are Proposed, Not Yet Law The negative gearing and CGT reforms are proposals that have not yet been legislated. While the Government has introduced the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, the reforms remain subject to Parliamentary passage. TSP strongly recommends you do not make major financial or investment decisions based solely on proposed legislation. Please contact our office to discuss your specific situation. |
What Should Property Investors Be Doing Right Now?
It is entirely understandable if you read the above and felt a little uncertain about where you stand. These are complex changes, and the right response will look different for every investor. That said, there are some useful starting points.
If you hold property in a discretionary trust, this situation warrants a conversation sooner rather than later. The combination of the negative gearing quarantine and the proposed trust distribution minimum tax creates a layered picture that may affect how your structure performs in the years ahead. Rollover relief will be available for three years from 1 July 2027 for those who wish to restructure into a company or fixed trust, but that window is finite and the planning needs to begin now.
For those with grandfathered properties, the temptation may be to simply sit tight. That is often a sensible approach, but the split-date CGT rules mean that holding indefinitely is not automatically the optimal outcome. Understanding what your gain position looks like before and after 1 July 2027 is worth working through carefully.
And for anyone considering purchasing an investment property right now, the distinction between new builds and established properties has never been more relevant. The tax treatment of those two categories is about to diverge considerably.
| Key Dates to Keep in Mind 7:30pm AEST, 12 May 2026: Announcement date. Properties held or under contract at this time are grandfathered for negative gearing. 1 July 2027: Negative gearing quarantine rules take effect for established properties purchased after Budget night. 1 July 2027: CGT reform commences. Gains accruing after this date subject to indexation and 30% minimum tax. 1 July 2027 – 30 June 2030: Three-year rollover relief window for restructuring out of discretionary trusts.1 July 2028: Proposed 30% minimum tax on discretionary trust distributions commences (separate Budget measure). |
Commercial Property, Shares, and Other Asset Classes
It is worth noting that the negative gearing changes apply specifically to residential property. Commercial property investors are not affected by the quarantine rules, and negative gearing against general income will continue to be available for commercial real estate, shares, and other investment classes.
The CGT changes, however, are broader. The replacement of the 50% discount with indexation and a 30% minimum tax will apply to all CGT assets held by individuals, trusts, and partnerships – not just property. Shares, managed funds, and business assets are all in scope for gains accruing after 1 July 2027. Superannuation funds are excluded and will retain their own one-third CGT discount for assets held more than 12 months.
| 📖 Download Our Free Federal Budget Whitepaper Everything you need to know about the 2026–27 Budget — plain English, no jargon, no spin. → Download the TSP Federal Budget Whitepaper |
Frequently Asked Questions
I already own an investment property. Do the negative gearing changes affect me?
If you held or had a contract on your property at 7:30pm AEST on 12 May 2026, you are grandfathered under the existing rules and can continue to negatively gear that property against your general income for as long as you hold it. When you eventually sell, however, the split-date CGT rules will apply to gains accruing before and after 1 July 2027.
I bought an investment property after Budget night. What happens to my negative gearing?
You can still negatively gear the property against your general income until 30 June 2027. From 1 July 2027, rental losses will be quarantined and can only offset residential rental income or capital gains from residential properties. Those losses can be carried forward to future years.
Can I still get negative gearing benefits if I invest in property?
Yes, if you invest in a qualifying new build. New residential properties that genuinely add to Australia’s housing stock remain fully exempt from the negative gearing restrictions. Both the existing negative gearing rules and the 50% CGT discount remain available for new builds.
How will CGT work when I sell a property I have held for many years?
Gains that accrued before 1 July 2027 will retain the existing 50% discount treatment. Gains accruing after 1 July 2027 will be subject to inflation indexation and a minimum 30% tax rate. You will likely need to determine the value of your asset as at 1 July 2027 — through a formal valuation or an ATO-approved formula. Planning for this now is strongly advisable.
My SMSF holds residential property. Are we affected?
No. Superannuation funds, including SMSFs, are explicitly excluded from both the negative gearing quarantine and the CGT minimum tax. Your SMSF will continue under its existing concessional CGT framework. This is one reason why the relative attractiveness of holding property inside superannuation versus personally or through a trust may shift as a result of these changes.
I hold investment property through a family trust. What should I do?
Family (discretionary) trusts are not exempt from the negative gearing changes. They are also subject to the separate proposed 30% minimum tax on trust distributions from 1 July 2028. The interaction of these two measures can be complex, and we recommend a detailed review with your accountant. Three-year rollover relief is available from 1 July 2027 for those who need to restructure.
Do these changes affect shares and other investments, not just property?
The negative gearing restriction applies only to residential property. However, the replacement of the 50% CGT discount with indexation and a 30% minimum tax applies broadly to all CGT assets held by individuals, trusts, and partnerships — including shares and business assets. Superannuation funds are excluded.
When will these changes become law?
The Government has introduced the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 into Parliament. As of June 2026, the legislation has not yet passed. TSP will keep clients updated. We strongly recommend not making major financial decisions based on proposed legislation without professional advice first.
When not at work, Deidre enjoys spending time with her husband and two children, as well as indulging in audiobooks and coffee.
Areas of Expertise:
✅ Business structuring & compliance
✅ SMSF strategy & auditing
✅ Tax planning for individuals & businesses
📧 deidrem@tspaccountants.com.au