The 2026 Federal Budget delivered some of the most significant tax changes to Australian investors in decades. Following the passage of the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, major reforms to both negative gearing and capital gains tax (CGT) are now legislated and will progressively take effect from 1 July 2027.
For property investors, share investors and anyone building wealth through growth assets, these changes may influence investment decisions, borrowing strategies and long-term tax planning. While existing investments generally receive transitional treatment, future investment decisions will require careful consideration.
Negative Gearing Changes: A New Era for Property Investors
One of the headline reforms is the restriction of negative gearing for established residential properties. From 1 July 2027, investors who acquire an established residential rental property after Budget Night (7:30pm AEST, 12 May 2026) will no longer be able to use rental losses to reduce other forms of taxable income such as salary, wages or investment income.
Instead, these losses will be quarantined and can only be used to offset:
- Rental income from other residential properties
- Future residential property profits
- Capital gains realised on residential property investments
Any unused losses can be carried forward indefinitely for future use against residential property income.
This represents a major shift from the traditional negative gearing model that has existed for decades.
What Properties Are Exempt?
Importantly, the reforms are not retrospective.
Properties acquired before Budget Night (12 May 2026) remain fully grandfathered and can continue to be negatively geared under existing rules. Contracts entered into before Budget Night are also protected.
Negative gearing remains available for:
- Newly built residential properties
- Commercial properties
- Residential construction on vacant land
- Certain developments that increase housing supply
- Properties held within superannuation funds, including SMSFs. The Government has deliberately designed the reforms to encourage investment into new housing supply while reducing tax incentives for established housing stock.
New Builds Become More Attractive
A key theme running through both the negative gearing and CGT reforms is the preferential treatment of new housing.
A property will generally qualify as a new build if it genuinely increases housing supply, including:
- Apartments purchased off-the-plan
- Dwellings constructed on vacant land
- Duplex developments replacing a single dwelling
- Newly built properties not occupied for more than 12 months before first sale.
By contrast, renovations, extensions and many knock-down rebuilds that do not increase housing supply will generally not qualify.
Capital Gains Tax Reform: The 50% Discount Changes
The second major reform affects capital gains taxation.
Currently, individuals who hold assets for more than 12 months may access a 50% CGT discount. From 1 July 2027, the 50% discount will effectively be replaced for future gains by an inflation-indexed cost base system.
Under the new rules:
- Capital gains accrued before 1 July 2027 continue under existing CGT rules.
- Capital gains accrued after 1 July 2027 will generally use an indexation method linked to CPI.
- The reforms apply broadly to property, shares, managed funds and many other investment assets.
Investors holding assets on 1 July 2027 will effectively have their gains split into two components:
- Growth accumulated before 1 July 2027 under current rules.
- Growth accumulated after 1 July 2027 under the new indexation system.
As a result, valuations around 1 July 2027 may become an important planning consideration for many investors.
Introduction of a 30% Minimum Tax on Capital Gains
Perhaps the most significant CGT reform is the introduction of a minimum 30% tax rate on capital gains accrued from 1 July 2027.
For many investors, this means post-2027 gains will be taxed at the higher of:
- Their normal marginal tax rate, or
- A minimum 30% tax rate.
This change particularly impacts individuals with lower taxable incomes who currently benefit from lower marginal tax rates.
However, gains accrued before 1 July 2027 continue to be taxed under existing rules and are not subject to the new minimum tax.
Important Exceptions Remain
Several important exemptions have been retained.
The following remain largely unchanged:
- Main residence exemption
- Small business CGT concessions
- Superannuation taxation arrangements
- Company taxation arrangements
Super funds continue to receive CGT concessions and are not subject to the new individual CGT regime. Companies also remain outside the new framework
Additionally, recipients of certain income support payments, including Age Pension and JobSeeker, may be exempt from the new 30% minimum CGT tax.
Opportunities for New Residential Property
Investors in eligible new residential dwellings and affordable housing receive special treatment.
Rather than being forced entirely into the new system, they can generally choose between:
- The traditional CGT discount approach, or
- The new CPI indexation method with the 30% minimum tax.
This flexibility means new residential housing continues to enjoy more favourable tax treatment than established properties and aligns with the Government’s objective of stimulating housing construction.
SMSF Borrowing Restrictions
The Federal Budget also introduced restrictions on SMSF property borrowing.
From 10 August 2026, SMSFs will generally be prohibited from using Limited Recourse Borrowing Arrangements (LRBAs) to acquire residential property. Existing arrangements and refinancing of existing arrangements are grandfathered. Commercial property acquisitions remain largely unaffected.
What Should Investors Be Considering?
These reforms do not mean property investing or wealth creation strategies are no longer viable. Rather, they shift the relative attractiveness of different investment structures and asset classes.
Areas investors may wish to review include:
- Whether future property purchases should focus on new housing stock.
- The role of shares, managed funds and ETFs within portfolios.
- Additional concessional superannuation contributions.
- The importance of obtaining valuations around 1 July 2027.
- Long-term capital gains planning before the new rules commence
Final Thoughts
The 2026 Federal Budget reforms represent a significant reshaping of Australia’s investment tax landscape. Existing investors retain substantial grandfathering protections, but future investment decisions will require a different framework for assessing after-tax returns.
Property remains a legitimate wealth creation tool, particularly in new residential developments. However, the removal of traditional negative gearing benefits for established properties and the introduction of a new CGT regime mean investors should carefully review their strategies and seek professional advice where appropriate.
For many Australians, the coming 12 months provide an important opportunity to understand the new rules and position their portfolios before these substantial reforms begin on 1 July 2027.
