What the 2026 Budget's Negative Gearing and CGT Changes Actually Mean for Property Investors

The 2026 Federal Budget delivered the biggest change to residential property taxation in decades. Both negative gearing and the 50% CGT discount are being narrowed, although the changes are more targeted than the proposals Labor took to past elections. Existing investors are mostly protected. New builds keep the old treatment. Anyone buying established stock from Budget night onwards faces a worse tax outcome.

This post walks through what's changing, when, and what the numbers look like in practice.

Change 1: Negative gearing gets quarantined

Today, a property investor with a $5,000 rental loss can offset that loss against their salary, reducing their taxable income and refunding tax at their marginal rate. That's how negative gearing has worked in Australia since the late 1980s.

From 1 July 2027, for established residential property purchased after 7:30pm on 12 May 2026, the offset against salary disappears. Net rental losses become ring-fenced. You can only deduct them against:

• Rental income from other residential properties you own.
• Capital gains when you eventually sell a residential property.

Excess losses don't disappear. They carry forward indefinitely until you have rental income or a sale to absorb them. The change is that the immediate cash-flow benefit at tax time is over for new buyers of existing stock.

Worked example: $700k property, $150k salary, year 1 under each regime

A typical single-property investor on a $150,000 salary makes the gap easy to see.

The numbers are identical on both sides. The only difference is whether the $22,460 loss can offset the investor's salary. Under the new rules it can't, so the year-one cash gap at tax time is about $8,800. Over a five-year hold the difference is roughly $44,000 in tax that's deferred rather than refunded. The losses still accumulate as a carry-forward balance of about $112,000 by year five, but you can only use that balance against future rental income or against the capital gain when you eventually sell.

The gap widens for a higher-rate taxpayer on $190k+ (47% marginal rate including Medicare) and narrows for a lower-rate taxpayer on $80k. Either way, the deduction is no longer cash in the next tax return. It becomes an IOU you can only redeem when you have rental profits or a sale.

What's exempt from the quarantine:

• Properties owned or under contract before Budget night, which are fully grandfathered.
• New builds, for any investor.
• Build-to-rent developments, widely-held trusts, super funds, and government housing programs.

The policy intent is to redirect investor capital toward construction that adds supply, away from bidding contests over the existing stock.

Change 2: The 50% CGT discount is replaced

Since 1999, individuals selling an asset held longer than 12 months have only paid tax on half the gain. From 1 July 2027 that's replaced by two changes that apply together:

1. Cost base indexation. Your purchase price gets uplifted by inflation over your hold period before the gain is calculated.
2. A 30% minimum tax rate on the resulting indexed gain, regardless of your marginal rate.

The minimum-rate floor only matters if your marginal rate falls below 30%. For most investors on a 37% or 47% marginal rate, the binding change is the loss of the 50% discount. Indexation rarely catches up to a 50% haircut over typical hold periods.

Worked example: $500k to $1m, 10-year hold

The same property sold under the new rules attracts a tax bill roughly 37% higher. Indexation gives back some of what the lost discount took, but in a low-inflation environment it doesn't come close to closing the gap.

(Source: worked example from Duotax Quantity Surveyors, using 2.78% assumed inflation.)

What's preserved

• Pre-1 July 2027 gains keep the 50% discount. Apportionment applies to assets that straddle the date. You can either get a formal valuation as at 1 July 2027 or use an ATO apportionment formula.
• Main residence exemption is unchanged.
• Super funds are unchanged.
• Income support recipients are exempt from the 30% floor.
• New builds let investors elect the better of the two regimes at sale, so the old 50% discount remains available for new construction.

Who's grandfathered

If you owned or had a contract on a residential investment property before 7:30pm on 12 May 2026, both the negative gearing rules and the 50% CGT discount continue to apply to you on that property. The grandfathering is property-by-property rather than investor-by-investor. Buying a new established property after Budget night brings you fully into the new regime, even if your existing portfolio is grandfathered.

A practical step worth taking now is to get a 1 July 2027 valuation done for any non-grandfathered property you'll hold across the transition. That valuation establishes the baseline cost for the indexation calculation when you eventually sell.

What it's likely to do to the market

CommBank's economics team has published the most concrete forecast we've seen so far. Their headline numbers:

• House prices around 3% lower than they otherwise would have been by 2029.
• Peak drag of about 1 percentage point on annual price growth.
• 2026 growth revised down from 5% to 3%, with 2027 also at 3%.
• Rents up by roughly $2 per week at the median, on Treasury's estimate.
• Construction impact described as neutral to slightly positive. The new-build carve-out should redirect investor demand toward new supply, but elevated build costs blunt that effect.

A second-order effect that's getting less attention is the lock-in problem. Grandfathered investors have a strong reason not to sell, because selling means buying their next property under the worse rules. That should compress listing volumes for established investment stock, particularly through 2027 and 2028 as the changes bite.

What investors should be thinking about now

A few things that are worth getting your head around before settling on a strategy:

• Modelling matters more than rules of thumb. A property that looks negative-gearable today might be a poor investment under quarantined losses, because the deduction is deferred (sometimes by years) instead of refunded at the next tax return.
• The old approach of buying any negatively-geared property and letting capital growth do the work is no longer reliable for established stock bought from Budget night onwards. The math now requires either positive cash flow or genuine conviction in capital growth that isn't propped up by tax shelter.
• The new-build carve-out is the main policy lever. Off-the-plan apartments, knock-down rebuilds, and house-and-land in growth corridors all keep the old treatment. Expect developer marketing to lean on this hard.
• Grandfathered properties have quietly become more valuable. If you're sitting on an established investment property bought before Budget night, your tax position is now better than any new buyer's, which has portfolio implications.

Taken together, yield, depreciation, and capital growth fundamentals matter more under the new regime than they did under the old one. The tax system is no longer doing as much of the heavy lifting for established-property investors.

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This post is for general information only and isn't tax advice. Talk to a qualified tax adviser before making investment decisions based on the new rules.