The 2026-27 federal Budget, delivered by Treasurer Jim Chalmers on 12 May 2026, contained the most significant property tax reforms Australia has seen in over two decades. The changes target two long-standing concessions - negative gearing and the 50% capital gains tax (CGT) discount - that the government argues have disproportionately benefited high-income investors over first-home buyers.
The policy intent stated in the Budget papers: roughly 83% of the benefit of the current CGT discount accrues to the top 10% of taxpayers by income, and 83% of new investor loans in 2025 were for existing properties rather than new housing. The reforms aim to shift tax support toward new supply.
The headline changes come in three parts: negative gearing, capital gains tax, and discretionary trusts. None take effect immediately - the major changes start on 1 July 2027, with discretionary trust changes from 1 July 2028. There's also extensive grandfathering for existing investors.
Summary: what's changing
And what's NOT changing
- Main residence CGT exemption - unchanged. If you're selling your own home, this doesn't affect you.
- Small business CGT concessions - fully retained.
- 60% CGT discount for affordable housing - retained.
- Superannuation funds (including SMSFs) - continue with the 1/3 discount.
- Pension and income support recipients - exempt from the 30% minimum tax.
- Pre-July 2027 gains - assets sold before this date use today's rules entirely.
- Commercial property - the negative gearing changes are residential only.
- Properties bought before Budget night - fully grandfathered for negative gearing.
Change 1: Negative gearing limited to new builds
What was announced
From 1 July 2027, negative gearing on residential investment property will be limited to new builds only. Established residential properties acquired after 7:30pm AEST on 12 May 2026 (Budget night) will be subject to the new restrictions.
The new rule: losses from established residential investment properties will only be deductible against rental income or capital gains from residential property - not against your wages or other income. Excess losses can be carried forward to future years.
Three groups of investors, three different outcomes
Fully grandfathered. Existing negative gearing continues until you sell.
Can negatively gear for 13 months only. From 1 July 2027, losses quarantined.
No negative gearing on established property. New builds remain eligible.
If you currently own an investment property and it was acquired before Budget night, your negative gearing position is protected. You don't need to do anything urgently.
Change 2: Capital gains tax overhaul
This is the bigger change in absolute revenue and behavioural impact.
What was announced
From 1 July 2027, the existing 50% CGT discount for assets held more than 12 months will be replaced by:
- Cost base indexation - your purchase price gets uplifted by CPI inflation over the holding period, so you're only taxed on the real (inflation-adjusted) gain.
- A minimum 30% tax - applied to the indexed gain. This is the effective floor rate.
This applies to all CGT assets, not just property - shares, managed funds, business assets (other than those covered by small business concessions), pre-1985 assets, and yes, investment property.
The transition mechanics
If you hold an asset before 1 July 2027 and sell it after, the gain is split into two parts:
- Gains accrued up to 1 July 2027: the existing 50% CGT discount applies
- Gains accrued from 1 July 2027 onwards: the new indexation + 30% minimum tax applies
How is the split calculated? You have two options:
Option A: Obtain a valuation as at 1 July 2027. A registered valuer establishes the asset's value at the transition date.
Option B: Use an ATO-provided apportionment formula. Based on the asset's growth rate over its holding period. Easier than getting a valuation, but may produce a less favourable outcome for assets that appreciated faster in earlier years.
Change 3: Pre-1985 assets now taxable
This is the change that surprised tax professionals the most.
Assets acquired on or before 19 September 1985 - historically fully exempt from CGT - will no longer be fully exempt from 1 July 2027. Gains accrued before that date remain exempt, but gains arising from 1 July 2027 onwards become taxable under the new indexation + 30% minimum tax regime.
To enable this, pre-CGT assets get a "deemed cost base equal to the asset's market value at 1 July 2027." This effectively quarantines any pre-2027 gain as exempt, while taxing any post-2027 appreciation.
Many Australian families hold long-term assets acquired before 1985 - typically inherited properties, family homes that became investment properties, family businesses. The assumption has always been that these would pass through estates or be sold without CGT. That assumption is now invalid for any sale or disposal after 1 July 2027.
Change 4: Discretionary trusts and the 30% minimum tax
A separate measure announced in the Budget: from 1 July 2028, trustees of discretionary trusts will pay a minimum tax of 30% on the taxable income of the trust. Beneficiaries (other than corporate beneficiaries) will receive non-refundable credits for the tax paid.
Excluded: fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates, charitable trusts, primary production income.
Three years of rollover relief is available from 1 July 2027 to allow restructuring.
Many property investors hold investment properties via discretionary (family) trusts to distribute income to lower-tax beneficiaries. From 1 July 2028, that strategy becomes substantially less effective.
What this means: four scenarios
Negative gearing: Fully grandfathered. You can keep negatively gearing this property until you sell it.
CGT on sale: If you sell before 1 July 2027, the current 50% discount applies to your entire gain. If you sell after, the gain is split.
Should you sell early? The maths depends on your appreciation, holding horizon, and marginal tax rate. This is precisely the calculation to take to a tax accountant - don't make this decision based on a generic article.
Before 1 July 2027: Established residential properties still attract full negative gearing during the 13-month transition window, but losses become quarantined to rental income from 1 July 2027.
From 1 July 2027: Negative gearing is only available for new builds. The case for buying established investment property changes materially - you lose both the immediate negative gearing benefit and a significant chunk of the CGT discount.
Almost nothing changes for you. The main residence CGT exemption is explicitly preserved. If the property you're selling has been your principal place of residence for the entire ownership period, the sale remains CGT-free. The Budget changes don't touch this.
You may still pay CGT if the property was an investment property at any point, you're a non-resident, or you're selling a second home.
For most owner-occupier sales, the 2026 Budget changes are not relevant. The cost-of-selling question (commission, marketing, conveyancing) matters far more.
You're affected by all three changes: negative gearing rules apply (unless widely held), CGT changes apply to gains, and from 1 July 2028 the trustee pays a 30% minimum tax.
The combined impact is the most significant of any scenario. Restructuring to a fixed trust, company, or holding in personal names becomes worth considering. The three-year rollover relief exists specifically to enable this.
This is unambiguous see-an-accountant territory.
What's still unclear
- The exact definition of a "qualifying new build" for the negative gearing carve-out
- Treatment of capital improvements made after 1 July 2027 to grandfathered properties
- How capital losses interact with the new regime
- How trusts and managed funds will distribute capital gains under the new rules
- Anti-avoidance provisions
- Technical SMSF treatment under the 30% minimum tax
- The transition formula the ATO will provide
Draft legislation is expected during the second half of 2026. Final legislation will likely emerge in 2027. The version that passes Parliament may differ materially from what was announced.
A note for sellers thinking about timing
A reasonable question from anyone holding an investment property right now: should I sell before the changes take effect?
The honest answer is: it depends on your situation, and probably you should talk to a tax accountant. The benefit of selling before 1 July 2027 is locking in the existing 50% CGT discount on the full gain. The cost is selling earlier than you might otherwise.
The maths is most favourable to sell early when you've held the property a long time, have a large unrealised gain, are on a high marginal tax rate, and were planning to sell within 3-5 years anyway. The maths is least favourable when you've recently acquired the property, expect significant future growth, and would otherwise hold for many years.
If you do decide to sell - whether for tax reasons or otherwise - the cost of selling itself matters more than ever. Agent commission on a $1.5M sale at 2.5% is $37,500. That's money on top of any CGT impact.
Where to get specific advice
These changes are complex, and most of the analysis above is general. For your situation, the right professionals are:
- Registered tax accountant or tax agent - for the CGT and negative gearing questions
- Financial adviser - for the broader question of whether to hold, sell, or restructure
- Estate planning lawyer - particularly if you hold pre-1985 assets
- SMSF accountant - if your property is held inside an SMSF
- Trust accountant - if you hold property in a discretionary trust
Avoid making decisions based on Budget-night news commentary (often incomplete), media coverage focused on political winners and losers, property industry promotional material (may push pre-July 2027 sales to generate commissions), or this article alone.
The honest summary
The 2026 Budget represents the biggest change to property investment tax in decades. The headline impact is real: negative gearing on established residential property ends from 1 July 2027 for new purchases, and the 50% CGT discount is replaced with a significantly less generous indexation + 30% minimum tax regime.
For existing investors, grandfathering provides significant protection - but the CGT change applies to gains accrued after 1 July 2027 regardless of when you bought. For future investors, the case for buying established residential property weakens materially.
For homeowners selling their own home, almost nothing changes - the main residence exemption is preserved.
The detail is still emerging. Final legislation may shift things. Anyone making a significant decision based on these changes should be talking to a registered tax accountant, not relying on early analysis.