Negative Gearing and CGT Changes: What the 2026 Budget Means for Property Investors

Introduction

For decades, negative gearing and the 50% capital gains tax discount sat at the centre of Australian property investment. The 2026-27 Federal Budget, handed down on 12 May 2026, changed both. After years of speculation, the Government did not cap the number of negatively geared properties and it did not simply trim the CGT discount to a lower percentage. Instead it redirected the concessions toward new housing supply and rebuilt the way capital gains are taxed.

Crucially, both measures are scheduled to commence on 1 July 2027, and existing investors are heavily protected through grandfathering. This article explains exactly what the Budget changed, how the transition works, and what it means in practical terms for people who already own investment property or are thinking about buying.

What the 2026 Budget actually changed

Two reforms matter most for property investors, and both start on 1 July 2027.

The design is deliberate. By keeping negative gearing and a CGT concession available for new builds, the Government is steering investor capital toward properties that add to housing supply, while grandfathering existing arrangements so current investors are not forced to restructure. The result is a two-speed system: the property you already own is largely untouched, but the tax treatment of a future purchase depends heavily on whether it is a new build and when your gains accrue.

Negative Gearing: New Builds Only From 2027

Negative gearing occurs when the deductible costs of holding an investment property (mortgage interest, council rates, body corporate fees, insurance, maintenance, and depreciation) exceed the rental income. Today, that net rental loss can be deducted against your other income, such as salary, reducing your overall tax bill.

From 1 July 2027, that ability to offset a rental loss against wage or salary income is limited to newly built properties. If you buy an established (existing) property after the Budget-night cutoff, a rental loss on it can no longer be used to reduce your salary income. You can still deduct expenses against that property’s own rental income, and losses can generally be carried forward against future investment income and gains, but the immediate salary offset is gone for established stock.

For a deeper look at how the change lands for different buyers, see what the 2027 changes mean for existing landlords and the negative gearing changes FAQ. For the foundations, our negative gearing guide explains how the strategy works.

What Grandfathering Means for Existing Investors

The single most important detail for current investors is grandfathering. Every investment property you owned at 7:30pm AEST on 12 May 2026 keeps the existing negative gearing treatment, indefinitely. You do not have to sell, restructure, or change how you claim, and there is no two-property cap on grandfathered holdings.

This is a very different outcome from the pre-Budget speculation, which had focused on a cap limiting investors to a set number of negatively geared properties. That cap did not happen. Instead, the line is drawn by timing and property type: existing holdings are protected, and future purchases are treated differently depending on whether they are new builds.

CGT: From a 50% Discount to Indexation Plus 30%

The capital gains tax change is the more structural of the two reforms. Today, an individual who holds an asset for at least 12 months gets a flat 50% discount on the capital gain. From 1 July 2027, that flat discount is replaced by a system of CPI indexation of the cost base plus a 30% minimum tax on the resulting gain.

The key protection is that the new regime only applies to the part of your gain that accrues after 1 July 2027. Growth up to 30 June 2027 continues to attract the 50% discount. In practice, a future sale is split into two components: a pre-2027 gain taxed under the old discount, and a post-2027 gain taxed under indexation with a 30% floor. The two amounts are calculated separately and added together.

Indexation means your cost base is lifted by inflation (CPI) for the post-2027 period, so you are not taxed on gains that are purely inflationary. The 30% minimum then sets a floor on the effective rate applied to the real, above-inflation gain. Whether you end up better or worse off than the old 50% discount depends on your asset’s growth rate and your marginal rate: lower-growth investors often pay less, while high-growth, high-income investors often pay more. Our comparison of CPI indexation versus the 50% CGT discount works through both outcomes, and the CGT reform FAQ answers the common questions.

The 1 July 2027 Cost Base Reset

Because gains are split at 1 July 2027, you need a value for your property on that date. The reform allows two paths: obtain a formal valuation as at 1 July 2027, or rely on the ATO apportionment formula, which pro-rates the total gain across your ownership period. A formal valuation can be worth the cost where most of your growth happened before 2027 (locking in more of the gain under the generous 50% discount), while the formula is simpler and cheaper where growth has been steady.

Either way, good records matter more than ever. Keep evidence of your acquisition date and price, incidental costs, and capital improvements, and consider whether a 1 July 2027 valuation is worthwhile for each property. Our guides on getting a valuation for the CGT reset and record-keeping for the reform walk through the mechanics, and our evergreen capital gains tax guide covers the cost-base fundamentals.

Worked Examples

The rules are easier to grasp with a few scenarios. These are illustrative only; your own numbers depend on your marginal rate, growth, and timing.

Scenario 1: An existing, grandfathered portfolio

Priya owns three established investment properties, all purchased before Budget night 2026, two of them negatively geared. Because every property was held at 7:30pm AEST on 12 May 2026, her negative gearing is grandfathered. Nothing about her salary offset changes, and there is no cap forcing her to drop a property. When she eventually sells, the CGT split applies: growth to 30 June 2027 keeps the 50% discount, and growth after that date uses indexation plus the 30% minimum.

Scenario 2: Buying an established property after 2027

Tom buys an established unit in 2028 that runs at a $9,000 annual rental loss. Under the new rules, he cannot use that $9,000 loss to reduce his salary income. He can still offset it against the property’s rental income and carry forward unused losses against future investment income and gains, but the immediate salary benefit that shaped the old strategy is gone. If Tom instead buys a qualifying new build, the salary offset remains available, and he also gets the CGT election. See off-the-plan and new-build negative gearing for how this plays out.

Scenario 3: A sale that straddles 1 July 2027

Mia bought in 2020 and sells in 2030. Her gain is split at 1 July 2027. The pre-2027 portion is taxed with the 50% discount; the post-2027 portion is taxed on an indexation-adjusted cost base with a 30% minimum. Whether a formal 1 July 2027 valuation beats the ATO apportionment formula depends on how much of her growth happened before 2027. Our worked examples of CPI indexation vs the 50% discount and the guide on selling before or after the 2027 CGT change run the full arithmetic.

What It Means for Investment Strategy

The reforms reward different behaviour than the old system did.

New builds become relatively more attractive

New builds keep the salary-side negative gearing benefit and gain the CGT election. For investors focused on the tax treatment of a future purchase, new stock now carries advantages that established properties bought after the cutoff do not.

Holding grandfathered stock has extra value

Because grandfathering is tied to ownership on Budget night, established properties you already hold carry a benefit that an equivalent property bought later will not. That makes the decision to sell a grandfathered holding more consequential than it looks.

Positive cash flow and total return matter more

With the salary offset unavailable on new established purchases, the case for positive cash flow properties strengthens for buyers outside the new-build market. Investors are increasingly weighing rental yield and total after-tax return rather than relying on a loss to subsidise holding costs. If you are new to this, start with property investment for beginners.

Valuation and record-keeping become part of the plan

The 1 July 2027 cost-base reset turns good records and a considered valuation decision into real money at sale time. Building that into your plan now is far easier than reconstructing it years later.

Key Dates and Timeline

• 12 May 2026, 7:30pm AEST: Budget delivered; grandfathering line drawn for existing holdings.
• Through 2026-27: legislation and ATO guidance developed; investors review holdings and plan for the reset.
• 30 June 2027: last day of gains taxed wholly under the 50% discount; the reference point for the cost-base split.
• 1 July 2027: new-build-only salary negative gearing and the indexation-plus-30% CGT regime commence.

The measures are Government policy announced in the Budget and are subject to the usual legislative process. Confirm the final detail with your adviser once the legislation is enacted.

How to Prepare

Whether you hold one property or several, a few steps will put you in a stronger position.

• Map your holdings against Budget night. Confirm which properties were owned at 7:30pm AEST on 12 May 2026 and are therefore grandfathered.
• Think carefully before selling grandfathered stock. The negative gearing treatment does not transfer to a replacement purchase of established property.
• Model new build versus established for future purchases. Factor in the salary offset and the CGT election that new builds retain.
• Get your records in order for the 1 July 2027 reset. Acquisition details, improvements, and a view on whether a formal valuation is worthwhile.
• Test your position under the new CGT regime using our comparison of indexation versus the 50% discount before timing any sale.

Additional Resources

• 2026-27 Budget: Complete Guide to Negative Gearing and CGT Changes
• New-Build Negative Gearing: The 2027 Rules
• Grandfathered Properties: What Stays the Same
• CPI Indexation vs the 50% CGT Discount (with worked examples)
• Negative Gearing Guide and Capital Gains Tax Guide