Why these changes are happening

The government’s stated aim is to improve housing affordability and reduce tax settings that may encourage strong competition in the established housing market. 

In simple terms, government goals are:

• Less tax advantage for buying existing homes
• More support directed toward new housing supply
• A stronger focus on taxing “real” investment gains (after inflation adjustments)

What has changed?

The government is making two major changes to how property/investment is taxed:

1. How rental losses are used (negative gearing)
2. How profits from selling assets are taxed (capital gains)

Tax incentives will be more focused on supporting new housing supply and taxing investment gains based on their real value.

Negative gearing - now more focused on new builds

Old rules:

At the moment, investors can generally use rental losses to reduce their taxable income (including salary and wages). This has made negatively geared property a common strategy for investors.

New rules:

For new investment properties purchased after 7:30pm AEST 12 May 2026:

• Negative gearing is limited to new builds only
• For existing residential properties:
  
  • Rental losses can still be used, but only within property income
  • You can offset losses against:
    
    • rental income
    • future property profits (including capital gains)
  • You cannot offset them against salary or other income

Rental losses stay inside the property system, instead of reducing your overall tax bill.

Capital gains - moving from discounts to indexed gains

Old rules:

Investors receive a 50% discount on capital gains if they hold an asset for more than 12 months.

New rules:

The 50% discount is replaced with:

• Cost base indexation (CPI-based adjustment), meaning inflation is taken into account when calculating profit. You can use the ATO calculator to calculate your index-adjusted cost base
• A minimum 30% tax rate on capital gains

Kindly note that this change does not apply to property alone, but also to other assets such as shares. Instead of a flat 50% discount, the system now adjusts your cost base for inflation and applies a minimum tax rate to your real (inflation-adjusted) capital gain.

Who is affected?

The impact depends on when you purchased and sold your property.

Negative gearing

• Properties held on budget night (7:30pm AEST 12 May 2026) are protected. You can continue to negatively gear these properties under the current rules until they are sold.
• Properties purchased between 12 May 2026 and 30 June 2027 can be negatively geared during this transition period, but not from 1 July 2027 unless they qualify as an eligible new build.
• Properties purchased from 1 July 2027 can only access negative gearing benefits if they are eligible new builds.

Capital gains tax (CGT)

The CGT changes apply differently.

• If you own a property now and sell it before 1 July 2027, the current CGT rules continue to apply.
• If you own a property now and sell it after 1 July 2027, gains accrued before 1 July 2027 will continue to receive the current CGT treatment, while gains accrued after 1 July 2027 will be subject to the new rules.
• Properties and other assets purchased after 1 July 2027 will be fully subject to the new CGT regime.

Existing property owners are largely protected from the negative gearing changes, but if you continue to hold and later sell your property after 1 July 2027, part of the capital gain may be calculated under the new CGT rules.

Key exemption - new builds

New builds continue to receive more flexible tax treatment to support the construction of new homes. For eligible new builds, investors may:

• Continue to access negative gearing (i.e. offset rental losses against salary and other income)
• Choose between, when selling: the new indexed CGT system, or the existing 50% CGT discount

What is a new build?

A new build is a residential property that genuinely adds to housing supply, such as a newly constructed home on vacant land or a development that increases the number of dwellings (for example, replacing one house with a duplex).

Renovations, extensions, or rebuilds that do not increase housing supply generally do not qualify. The tax concessions are typically available only to the first owner of the new build.

How this works in practice

Example 1: You already own an investment property

You bought an investment property before budget night and sold it after 1 July 2027.

Negative gearing: No change. You can continue to use rental losses to reduce your salary and other taxable income.

CGT: Split treatment applies:

• Capital growth up to 1 July 2027 uses the current CGT rules - discount method
• Capital growth after 1 July 2027 uses the new CGT rules - indexed method

Example 2: You buy an eligible new build

You purchase a qualifying new build after 1 July 2027.

Negative gearing: You can still use rental losses to reduce your salary and other income.

CGT: When you sell, you can choose between: the existing 50% CGT discount, or the new indexation method

Example 3: You buy an established property

You purchase an established investment property after 1 July 2027.

Negative gearing: Rental losses can no longer reduce your salary income. Losses can be carried forward and used against future rental profits or capital gains.

CGT: The entire capital gain is subject to the new CGT rules - indexed method.

Our thoughts

The new changes reshape investor incentives, placing more emphasis on new builds, long-term ownership, and taxation based on real (inflation-adjusted) returns. For investors, the key is understanding how timing and property type may affect future tax outcomes. More detailed information can be found on this government website.

It’s also important to note that your main residence is not subject to income tax reporting and remains exempt from capital gains tax, so these changes generally do not apply to your home.

If you’re also running a business, check out our related article: How the 2026/27 Budget impacts small businesses.