Budget 2026

Federal Budget 2026–27

Negative Gearing & CGT:
2026 Federal Budget Changes for Property Investors

The biggest changes to property tax in a generation. What changed, what did not, and what investors need to do now.

Published: June 2026
Author: Mark Kilroy MRICS CQS
Read time: 8 min

Gold Coast
Brisbane
Queensland
Sydney
Melbourne
Australia-wide

Important: Proposed legislation, not yet passed

The changes announced in the May 2026 Federal Budget are proposals subject to parliamentary legislation. They are not yet law. Investors should seek independent tax advice for their specific situation. This article reflects the government’s announced position as at June 2026.

The Big Picture

What Actually Changed on Budget Night

The 2026–27 Federal Budget announced two significant reforms that will reshape how residential property investment is taxed in Australia. Together they represent the most substantial change to property tax settings since the 50% CGT discount was introduced in 1999.

The two key changes are:

1. Negative gearing on established residential properties purchased after 7:30pm AEST on 12 May 2026 will be restricted from 1 July 2027.

2. The 50% CGT discount will be replaced by cost base indexation plus a 30% minimum tax on net capital gains from 1 July 2027.

What did not change: commercial property, tax depreciation deductions, and the main residence exemption are all unaffected.

Timeline

Key Dates Every Investor Needs to Know

12 May 2026 — 7:30pm AEST (Budget Night)

The Cut-Off Date

Properties under contract at or before this time are grandfathered. Existing owners and those who had already exchanged contracts retain full access to negative gearing and the 50% CGT discount under the old rules indefinitely.

1 July 2027

New Rules Take Effect

Negative gearing restrictions apply to established residential properties bought after Budget night. The new CGT indexation regime and 30% minimum tax replaces the 50% discount. The new CGT rules only apply to gains accruing from this date, not to historical gains.

Before 1 July 2027

Window to Realise Gains Under Old Rules

Investors with existing properties who are considering selling have a window to realise capital gains and be taxed under the current 50% discount regime. Pre-1985 assets remain CGT-exempt on gains up to this date.

Ongoing

Parliament Must Pass These Changes

These measures are not yet law. The legislation must pass both houses of parliament. Final rules, definitions, and transitional arrangements may differ from the announced position.

Change 1 of 2

Negative Gearing: What Is Changing and What Is Not

Before Budget Night

Current Rules (Grandfathered)

Rental losses from established properties can be offset against all other income, including salary and wages. This reduces your taxable income and produces a tax saving each year the property is negatively geared.

From 1 July 2027

New Rules (Established Properties Bought After Budget Night)

Rental losses can only be offset against rental income from other investment properties. Excess losses are quarantined and carried forward to future years or offset against capital gains when you sell.

What this means in practice

If you buy an established residential property from 13 May 2026, and that property makes a rental loss of $15,000 in a year, you cannot use that loss to reduce your salary income. The loss carries forward. You will only benefit from it when you have sufficient rental income or when you sell the property.

Who Is Exempt from the Negative Gearing Changes

Investor Type / Property	Status	Notes
Existing owners (pre-Budget night)	Fully Grandfathered	No change. Existing rules apply until property is sold.
New residential builds	Exempt	Full negative gearing access retained. Definition of “new build” critical.
Commercial property	Unaffected	Changes apply to residential only. Commercial investors retain all current deductions.
Established residential (post-Budget)	Restricted	Losses quarantined, carried forward. Cannot offset against salary.
Affordable housing programs	Potentially Exempt	Government programs may receive exemption. Detail to follow in legislation.
SMSF investors	Check Separately	Superannuation CGT discount arrangements not changed per current announcements.

Change 2 of 2

Capital Gains Tax: The 50% Discount Is Being Replaced

From 1 July 2027, the 50% CGT discount that has applied since 1999 will be replaced for established properties with a cost base indexation model and a 30% minimum tax floor on net capital gains.

Old Method (Pre-1 July 2027 Gains)

50% CGT Discount

Hold the asset for more than 12 months and pay tax on only half the nominal gain. Simple, but does not account for inflation. Gains accrued before 1 July 2027 still attract the 50% discount.

New Method (Post-1 July 2027 Gains)

CPI Indexation + 30% Minimum Tax

Your cost base is adjusted for inflation (CPI). Tax is paid only on the real gain above inflation. A 30% minimum tax applies on the indexed net gain. New builds can choose either method.

The transitional split — how gains before and after 1 July 2027 are treated

If you already own a property, the 50% CGT discount continues to apply to gains accrued up to 30 June 2027. The value of your property at 1 July 2027 effectively becomes a new cost base for gains accruing from that date, which will be subject to the new indexation and minimum tax rules. You will not be hit with the new rules retroactively on the growth you have already achieved.

Real-World Scenarios: How the Numbers Change

Scenario A — Existing Property, Sell Before 1 July 2027

Property bought in 2018 for $650,000. Value today: $1,100,000.

Nominal gain: $450,000. Under the current 50% discount, taxable gain is $225,000. At a 37% marginal rate, CGT payable is approximately $83,250.

Sell before 1 July 2027: 50% discount applies to full gain. Lower CGT bill under current rules.

Scenario B — Same Property, Hold and Sell After 1 July 2027

Property value at 1 July 2027: $1,100,000. Sell in 2032 for $1,400,000.

Gain up to 30 June 2027 ($450,000) retains the 50% discount. Gain from 1 July 2027 ($300,000) is subject to indexation and the 30% minimum tax. CPI indexation reduces the taxable portion of the post-2027 gain.

Post-2027 gain: CPI indexation reduces nominal gain. 30% minimum tax applies to indexed amount.

Scenario C — New Build Purchased After Budget Night

Investor buys a new apartment for $750,000 after 12 May 2026.

Retains full negative gearing access during ownership. At sale, can choose either the 50% CGT discount or the new indexation method, whichever produces the better tax outcome.

New builds: Full negative gearing plus choice of CGT method at sale. Most favourable position.

Tax Depreciation: More Important Than Ever

Tax depreciation deductions are unaffected by the budget changes. For investors with restricted negative gearing, a depreciation schedule helps maximise allowable deductions within the new quarantine system. For CGT purposes, your depreciation records directly affect your cost base calculation — which under the new indexation method becomes even more critical to get right.

Div 43

Building works deductions — 2.5% p.a. on construction cost

Div 40

Plant & equipment — fixtures, fittings, appliances at effective life rates

CGT

Depreciation claimed affects your cost base at sale — records must be accurate

Koste Chartered Quantity Surveyors prepares ATO-compliant tax depreciation schedules for residential and commercial properties across Australia. A schedule prepared before 30 June ensures your deductions are recorded in the correct income year.

Get a Free Depreciation Assessment →

Silver Lining

Commercial Property: An Increasingly Attractive Alternative

The budget changes apply only to established residential property. Commercial property retains all existing tax settings, including full negative gearing, the current CGT discount, and complete deductibility of outgoings and depreciation against all income sources.

Factor	Established Residential (Post-Budget)	Commercial Property
Negative Gearing	Restricted from 2027	Fully retained
CGT Discount	Replaced by indexation	Unaffected
Tax Depreciation	Unchanged	Unchanged, often higher
Outgoings	Landlord pays	Tenant pays (net lease)
Typical Yield	3–5%	5–8%+
Lease Length	6–12 months	3–10 years

Koste’s view

The budget changes make commercial property relatively more attractive on a tax-adjusted basis. Higher yields, tenant-paid outgoings, longer leases, and fully retained negative gearing create a compelling comparison. Depreciation deductions on commercial property are often significantly higher than residential, particularly for properties with substantial plant and equipment.

What To Do Now

Your Action Checklist as a Property Investor

Speak to your accountant and financial adviser before making any decisions

The scenarios below are general guidance only. Your specific situation will determine the right course of action. These changes are also not yet legislated.

Your Situation	Recommended Action	Priority
Own established residential property purchased before Budget night	No immediate action required. Grandfathered under current rules. Ensure depreciation schedule is current.	Low urgency
Considering selling an existing property	Model the CGT outcome of selling before 1 July 2027 versus holding. The 50% discount applies to all gains up to that date.	Review now
Planning to buy established residential	Assess cash flow impact of quarantined losses. The tax benefit of negative gearing is deferred, not eliminated, but cash flow is affected immediately.	Recalculate
Interested in new residential builds	New builds retain negative gearing and choice of CGT method. Confirm “new build” eligibility with your adviser.	Favourable
Commercial property investor	No changes to your tax arrangements. Ensure depreciation schedules are current for all properties.	No change
No depreciation schedule on existing properties	Commission a schedule now. Deductions cannot be backdated beyond the current assessment period.	Act now

FAQ

Frequently Asked Questions

Does negative gearing still exist after the budget changes?

Yes. Negative gearing is not eliminated. For established residential properties purchased after 7:30pm AEST on 12 May 2026, rental losses can no longer be offset against salary or other non-rental income. Instead, losses are quarantined and carried forward to offset against future rental income or capital gains from rental properties. For new builds, commercial property, and all grandfathered existing holdings, negative gearing operates exactly as before.

What is the new CGT rule replacing the 50% discount?

From 1 July 2027, instead of the flat 50% CGT discount, investors will have their cost base indexed to inflation using CPI. This means you pay tax only on the real gain above inflation, rather than on the nominal gain less 50%. A 30% minimum tax applies on the net indexed gain. Investors in new residential builds can choose between the new indexation method or the old 50% discount at the time of sale, whichever produces the better outcome.

I bought my investment property years ago. Am I affected?

If you owned or had exchanged contracts on your property before 7:30pm AEST on 12 May 2026, you are grandfathered. The current negative gearing rules continue to apply to that property until you sell it. For CGT, the 50% discount continues to apply to gains accrued up to 30 June 2027. Gains from 1 July 2027 will be subject to the new indexation and minimum tax rules, but this only affects the growth portion after that date.

Does tax depreciation still work under the new rules?

Yes. Tax depreciation deductions are completely unaffected by the budget changes. You continue to claim Division 40 (plant and equipment) and Division 43 (building works) deductions each year. For investors with quarantined negative gearing losses, a depreciation schedule is even more important as it maximises the deductions that can be carried forward. For CGT purposes, depreciation amounts claimed during ownership affect your adjusted cost base, which directly impacts your CGT calculation at sale.

Are these changes definitely going ahead?

Not yet. These are budget proposals. They must pass both houses of parliament before becoming law. The final shape of the legislation, including definitions, transitional arrangements, and exemptions, may change through the parliamentary process. Investors should plan with awareness of the announced position but take no irreversible action until the legislation is finalised.

What qualifies as a “new build” under the exemption?

The government has announced that new residential builds will be exempt from negative gearing restrictions and will have a choice of CGT method at sale. However, the precise definition of “new build” has not yet been legislated. The treatment of substantial renovations, subdivisions, and off-the-plan purchases is expected to be clarified in legislation. Confirm eligibility with your tax adviser before assuming a property qualifies.

Understand the Tax Position on Your Property

Koste Chartered Quantity Surveyors prepares ATO-compliant tax depreciation schedules for residential and commercial properties across Australia. A current schedule ensures your deductions are maximised and your records are accurate for CGT purposes under the new rules.

Get a Free Assessment →

Or call 1300 669 400 — Monday to Friday, 8:30am to 5:00pm AEST

Mark Kilroy MRICS CQS
CEO & Founder, Koste Chartered Quantity Surveyors

Mark is a Chartered Quantity Surveyor with over 30 years of experience and dual professional designations through RICS and AIQS. He founded Koste as Australia’s only firm focused exclusively on tax depreciation and sits on the AIQS Queensland Committee and the Gold Coast Central Chamber of Commerce Board.

Disclaimer: This article is general in nature and does not constitute financial, tax, or legal advice. The Federal Budget 2026–27 proposals discussed are subject to parliamentary legislation and may change. Investors should seek independent advice from a registered tax agent or financial adviser regarding their specific circumstances. Koste Chartered Quantity Surveyors ABN 27 168 494 942 is a Registered Tax Agent (24836767).

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