Negative Gearing and Capital Gains Tax Changes: What Australian Investors Need to Know

The 2026 Federal Budget announced significant changes to negative gearing and capital gains tax. If you own an investment property, are thinking about buying one, or have built a portfolio over the years, the negative gearing changes (and the related CGT reform) are big enough to warrant a proper look.

The short version: most of the changes take effect from 1 July 2027, existing investors are largely grandfathered, and the rules for new investment property differ from those for what you already own. The longer version is more nuanced, with some genuine winners, some genuine losers, and many people who fall somewhere in between depending on their circumstances.

This article walks through what was announced, who’s affected, what’s exempt, and what it might mean for your situation. If you’d rather skip the read and talk through what it means for you, you can talk to one of our advisers any time.

What changed in the 2026 Federal Budget at a glance

Treasurer Jim Chalmers handed down the 2026-27 Federal Budget on 12 May 2026. Two announcements stand out for property investors and anyone holding longer-term capital assets:

• Negative gearing will be limited to new builds for established residential properties purchased after 7:30 pm AEST on 12 May 2026, from 1 July 2027.
• The 50% capital gains tax (CGT) discount will be replaced with an inflation-indexed cost base plus a 30% minimum tax on net capital gains, also from 1 July 2027.

Both changes were announced together, both apply broadly across individuals, partnerships and trusts, and both have transitional rules that protect investments people already own or have under contract.

Negative gearing changes: the new rules

Negative gearing happens when the costs of owning an investment property (interest, maintenance, rates, depreciation) are higher than the rental income it produces. Under the current rules, you can deduct that loss against your other taxable income, including your salary. Under the new rules, that ability is being restricted.

Here’s how the new rules break down from 1 July 2027:

In practice, this means an investor who buys an established rental property today (after budget night) can still claim losses against salary income until 30 June 2027. After that, the new restriction kicks in.

The new rules on capital gains tax

The CGT changes have a wider reach than the negative gearing changes because they apply to all CGT assets, not just property. From 1 July 2027, the old rules give way to a new regime:

The full picture:

• The 50% CGT discount is replaced with a cost base indexed to inflation. In practical terms, you are taxed on the “real” gain (the gain above inflation), not the nominal gain.
• A 30% minimum tax applies to net capital gains. If your marginal tax rate is below 30%, the minimum still applies. If you are above 30%, you pay your normal marginal rate.
• The change applies to gains arising on or after 1 July 2027. Gains accrued before that date keep their existing treatment.
• The main residence exemption is unchanged. Your home is still CGT-free when you sell it.
• Super funds keep the existing CGT discount. The change does not apply to assets held inside a complying superannuation fund.
• Income support recipients (including Age Pensioners) are exempt from the 30% minimum tax.

There is also a separate change for discretionary (family) trusts: a 30% minimum tax on trust income from 1 July 2028. Beneficiaries (other than corporate beneficiaries) receive non-refundable credits for the tax paid by the trustee. The change does not apply to fixed and widely held trusts, complying super funds, special disability trusts, deceased estates, or charitable trusts.

What does this mean if you already own an investment property

If you bought your investment property before 7:30 pm on 12 May 2026, the headline news is reassuring: you are grandfathered. That means:

• You can keep negative gearing the property under the current rules for as long as you hold it.
• The 50% CGT discount applies to gains that have already accrued up to 30 June 2027.
• From 1 July 2027 onwards, future gains on the property will be taxed under the new indexed-cost-base regime with the 30% minimum.

For most existing investors, the day-to-day experience does not change in the short term. The longer-term consideration is the CGT change, because eventually you will sell, and the rules at that point will affect your net return.

A few questions worth thinking through:

• Is your property still doing what you bought it to do? Some investors hold property primarily for the tax shelter, others for capital growth, and others for retirement income. The CGT change shifts the maths on all three.
• How does the property sit alongside the rest of your portfolio? A heavy property weighting was easier to justify when the tax treatment was generous. Under the new rules, an asset mix between property and shares may be worth revisiting.
• Are you planning to add to the portfolio? Buying another established property after budget night brings you under the new rules, even though your existing properties stay grandfathered.

What this means if you’re thinking about investing

The investment-property maths has changed, but property is not the only way to build wealth. A few options worth considering alongside (or instead of) buying another established rental:

• New builds. Newly constructed residential property remains tax-advantaged. Both negative gearing and the 50% CGT discount continue to apply. This is the government’s deliberate policy lever: redirect investor capital towards new supply rather than towards competing for existing stock.
• Commercial property. Not affected by the negative gearing change. The CGT change still applies, but the negative gearing tax shelter remains in place.
• Shares and managed funds. Subject to the new CGT rules, but no negative gearing change. The new cost base indexation will reduce the tax bill on long-held growth assets, which can suit a long-term investment approach.
• Superannuation. Inside super, the CGT discount is unchanged. Growth assets held in super continue to benefit from the existing concessional environment, which makes super contributions and salary sacrificing relatively more attractive than they were before.

None of these is automatically “better” than the others. The right answer depends on your income, your goals, your existing assets, your timeframe, and your appetite for risk. A financial adviser’s job is to look at the full picture and recommend the mix that suits you, not the one that was tax-efficient three years ago.

Why “complex” is the right word, and what to do about it

The reason this announcement matters more than most budget changes is the layering. There are at least five moving parts:

1. The negative gearing rule itself – established versus new build, before versus after 12 May 2026.
2. The CGT rule itself – 50% discount versus indexed cost base, plus the 30% minimum.
3. The grandfathering – which gains stay under old rules, which switch over on 1 July 2027.
4. The trust changes – the separate 30% minimum tax on discretionary trust income from 1 July 2028.
5. The political uncertainty – Senate passage is not guaranteed.

That is a lot to hold in your head, and the right answer for your situation depends on which of those layers actually apply to you.

A few examples of how the answer shifts:

• A couple in their 40s with one negatively-geared property and a long investment horizon faces different questions than a near-retiree with three properties and a plan to sell down for retirement income.
• A self-employed business owner with assets held in a discretionary trust has the trust changes to think about, as well as the property and CGT changes.
• An SMSF holding investment property is governed by different rules again, because superannuation is not affected by the CGT change.

The sensible move is the same one most major tax changes call for: pause, get advice tailored to your circumstances, and review your plan against the new rules before making any irreversible decisions.

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