Property investors face new negative gearing and CGT limits

What changed and when

Treasurer Jim Chalmers kept it brief on Budget night. "We'll limit negative gearing for residential property to new builds from July next year. And we're replacing the 50 per cent capital gains tax discount with inflation-adjusted indexation, to restore the taxation of real gains," Chalmers said.verifiedVerified Source: ministers.treasury.gov.au^[2] The announcement ends two decades of debate over whether these settings were distorting the housing market.

Residential investment properties acquired after 7:30pm AEST on 12 May 2026 will have losses deductible only against other residential property income, including capital gains, with any excess carried forward to future income years.^[1] The changes take legal effect from 1 July 2027. Investors who bought established properties before that Budget moment keep the old rules for as long as they hold those assets.

Grandfathering: what it means if you already own or are under contract

Properties held, or under a binding contract, at 7:30pm AEST on 12 May 2026 are exempt from the negative gearing changes and may continue to be negatively geared until sold.verifiedVerified Source: budget.gov.au^[1] The cut-off is precise: it is the minute Chalmers rose to deliver the Budget speech, so contracts exchanged before that moment are protected regardless of when settlement occurs.

Investors with existing portfolios of established properties face no immediate disruption to their deduction arrangements. Grandfathering applies at the individual property level, so selling a protected asset ends that asset's exemption; any replacement purchase of an established property falls under the new restricted rules.

The new-build carve-out: why eligible new homes are treated differently

Eligible new-build residential properties sit entirely outside the negative gearing restrictions.^[1] An investor who buys a qualifying new build after Budget night can still deduct losses against wages, business income or any other assessable income in the year the loss arises, exactly as negative gearing has always worked.

The carve-out is deliberate. "In line with our goal of supporting new housing supply, investors who buy new builds will be able to choose either the 50 per cent CGT discount or indexation and the minimum tax when they sell the property," Chalmers said.verifiedVerified Source: ministers.treasury.gov.au^[3] Build-to-rent operators, widely held trusts, super funds (including SMSFs) and government-housing investors are excluded from the changes entirely.^[1]

CGT overhaul: how indexation and the 30% minimum tax replace the 50% discount

The 50% capital gains tax discount for individuals, trusts and partnerships is replaced from 1 July 2027 with cost-base indexation and a 30% minimum tax rate on real capital gains.^[1] Indexation adjusts the cost base of an asset for inflation, so only gains above the inflation-adjusted purchase price are taxed. The 30% minimum tax then applies to whatever real gain remains.

Assets purchased before 1 July 2027 and sold after that date are subject to a time-apportionment rule: gains accruing before 1 July 2027 are taxed under the old arrangements, and gains accruing after that date fall under the new indexation and minimum-tax regime.^[1] The split-period approach is intended to prevent a cliff-edge outcome for long-held assets.

New-build buyers who qualify for the carve-out are in a more favourable position at disposal. They may choose either the 50% CGT discount or the indexation-plus-minimum-tax method, whichever produces the lower tax liability at the time of sale.^[1] That optionality materially improves the after-tax return profile of new-build investment relative to the established market.

The 50% CGT discount has applied since 1999 and was designed to reduce the tax burden on assets held for more than 12 months. Because it does not adjust for inflation, it can both overcompensate investors in periods of high price growth and undercompensate them when inflation is low, creating distortions the government says the new rules will correct.^[1]

What the changes could mean for investors, renters and first-home buyers

Treasury modelling indicates the reforms could produce around 75,000 additional owner-occupiers over the next decade by shifting tax incentives toward new supply and away from competition for established homes.^[1] By removing the deduction advantage that made leveraged purchases of existing homes tax-efficient, the reforms reduce investor demand at the margin, which the modelling assumes eases price competition against owner-occupier buyers.

Negative gearing lets investors deduct rental-property losses against other income such as wages. Before Budget night it applied to all residential investment properties, established or new, which critics said pushed money into existing housing rather than new supply.^[1] Since 1999, Australian house prices have risen more than 400%, more than twice as fast as average incomes.^[1]

For existing landlords with grandfathered portfolios, the immediate practical effect is minimal. Anyone planning to buy established properties after Budget night to offset losses against their wages must now carry those losses forward until they have enough rental income or capital gains to absorb them, which can compress returns.

The legislation implementing the changes is the Treasury Laws Amendment (Tax Reform No. 1) Bill, with the second reading speech delivered by Chalmers during the 2026 sitting period.

This article is general news and information, not financial, tax or investment advice. Property values and tax outcomes depend on your circumstances; seek licensed advice before acting.