By James Gregors

If you own investment property in Australia or have been working on a plan to expand your portfolio, you’ve no doubt seen headlines about the 2026 Federal Budget and the proposed changes to negative gearing and capital gains tax (CGT).

Before you make any rushed decisions in response to the announcements, it’s important to be informed about exactly what may be on the horizon if reforms are passed.

At The Property Education Company, we work with property investors at every stage of their journey. Our role is to cut through the noise, explain what’s actually happening, and help you make borrowing decisions based on genuine information.

Here are key takeaways from the Federal Budget in relation to property:

2026 budget property tax changes, in short:

• The Government has proposed an update which would change the Capital Gains Tax discount that applies to assets including investment properties when they are sold.
• Under the proposed reforms, gains accrued before 1 July 2027 are expected to be treated under the current system, subject to the final legislation.
• The Government has also proposed that negative gearing be restricted for future purchases of established residential investment properties, with losses no longer able to offset salary or wages.
• Under the proposed transitional rules, existing investors are expected to retain their current negative gearing arrangements, subject to the final legislation.
• Under the proposed reforms, eligible newly built residential properties are expected to retain access to existing negative gearing arrangements and the current 50% CGT discount, if enacted.
• A mortgage broker can help you explore how proposed reform may relate to your borrowing considerations.

Note:  

At the time of writing this article (May 2026), details of proposed reforms remain subject to the legislative process.

This article is general information only and does not provide tax advice. For the tax treatment of your circumstances, speak with a registered tax agent or accountant.

Proposed Capital Gains Tax discounts and negative gearing reform: What would actually change?

The Albanese government proposed tax reforms in the 2026 Federal Budget which would potentially impact property investors.

However, if you’re hearing “CGT discounts are being abolished” or “no more negative gearing for investors”, that’s not the full picture.

1. 2026 proposed Capital Gains Tax discount changes in Australia

Under the system in place since 1999, investors who have held an investment property for more than 12 months generally only paid tax on 50% of their capital gain (profits) when the asset was sold.

This flat 50% CGT discount and reduced tax burden have been a major feature of Australian property investing for many years.

Under the proposed reforms from the 2026 Federal Budget, the Government has announced it would replace the current 50% discount with cost-based indexation, if enacted, from 1 July 2027.

If reforms are introduced, instead of automatically discounting half the gain, the asset’s original cost base would be adjusted to reflect inflation, with tax then applied to the remaining “real” gain above inflation.

The reforms also propose the introduction of a 30% minimum tax rate on real capital gains for some taxpayers, which would commence from July 1st 2027.

What about financial gains already accrued on existing investment properties?

This is the big question that investors are asking.

The proposed reforms include transitional arrangements for existing investments.

Under the proposed reforms:

• If an investment property has been owned for several years, a substantial portion of the accumulated capital gain would remain protected under the previous system.
• For assets already owned before 1 July 2027, gains accrued before that date would continue to be assessed under the current 50% CGT discount rules.
• Only future gains accrued after 1 July 2027 would move into the new indexed system.
  

If reforms are enacted, selling an existing property after 1 July 2027 would effectively see capital gains split into two periods:

• Pre-1 July 2027 gains taxed under the current rules; and
• Post-1 July 2027 gains assessed under the new indexed model.
  

One more thing to note: As reported by Chartered Accountants Australia & New Zealand, if reforms are introduced, people receiving means-tested government support payments, including the Age Pension and JobSeeker, are expected to be excluded from the proposed minimum CGT tax, provided they receive an eligible payment during the same financial year the capital gain is realised.

2. 2026 Proposed negative gearing changes in Australia

Negative gearing allows property investors to deduct rental losses, where the rent received does not fully cover loan repayments and other property expenses, against their other taxable income.

For decades, negative gearing has been a major part of Australian property investment strategy, helping manage the costs of owning a rental property while building long-term wealth.

The proposed changes to negative gearing are primarily aimed at future purchases of established residential properties. For existing investment properties, the proposed reforms are largely expected to protect current negative gearing arrangements.

Under the transitional rules proposed in the Budget, investment properties held before the announcement date (12 May 2026) would continue to retain access to existing negative gearing rules into the future.

If the proposed reforms are enacted, from 1 July 2027, investors who purchased established residential properties from 7.30pm on 12 May 2026 would lose the ability to offset rental losses against salary and wages or other non-property income on purchases. Instead, those losses would generally need to be carried forward and applied against future rental income or capital gains from residential property investments.

New build exemptions

The main exemption under the Federal Government’s proposal is for eligible new builds.

New builds are residential properties which genuinely add to supply. Under the Government’s proposal, exemptions would include:

• dwellings constructed on vacant land, or
• where existing properties are demolished and replaced with a greater number of dwellings.
  

Under the proposed rules, investors who purchase these types of homes would retain access to negative gearing benefits available prior to July 1st, 2027. They would also be able to choose either the 50 per cent CGT discount or indexation and the minimum tax when they sell the property.

You can find the Government’s full budget fact sheet here.

Other updates from the Federal Budget

Other proposals from the budget that may interest investors:

1. $2 billion would be committed to housing enabling infrastructure, a move the Government says would unlock 65,000 new homes over the decade.
2. The existing ban on foreign buyers purchasing established properties would be extended to mid 2029.

Property investors: What happens now?

The budget’s proposed reforms may affect your strategy as an existing or future investor if they are approved, but general budget commentary doesn’t account for your income, your loans, your portfolio size or your long-term plans.

Some steps to follow include:

1. Speak with your tax accountant and financial advisor: A financial professional can help you to gain a clearer understanding of potential tax on exit, and the possible impact of proposed changes to negative gearing.
2. Speak with your mortgage broker to understand how the proposed reforms may relate to your borrowing goals.

The Property Education Company clients include property investors as well as other home buyers. We are available to review your current loans, talk through your portfolio strategy and help you to avoid making decisions based on incomplete or inaccurate information.

Whether you already own investment property, are planning your next purchase, or want to understand how the proposed changes may relate to your borrowing considerations, we’re here to have that conversation.

There’s no obligation and no pressure, just a clear discussion about where you stand and what your options may be.

Call 0468 026 200 or connect with The Property Education Company here.

FAQs: The 2026 Federal Budget

and property investors

1. Would updated CGT discounts apply to investment properties I already own if Federal Budget proposals are approved?

Partially. Under the proposed reforms, capital gains accrued before 1 July 2027 are expected to remain under the current 50% CGT discount rules, while future gains accrued after that date may be assessed under the new inflation-indexed system.

2. How does the Government’s proposed new CGT model actually work?

Rather than applying a flat 50% discount to your capital gain, the proposed new model would assess tax only on the “real” gain, meaning the increase in value above inflation. Whether this results in a higher or lower tax bill than the current system depends on how strongly the property has grown relative to inflation over the ownership period.

3. What would happen to negative gearing if I buy another investment property under the changes proposed in the Federal Budget?

Under the proposed reforms, investors purchasing established residential properties after 1 July 2027 would no longer be able to use rental losses to reduce their taxable salary or wages. Instead, those losses would generally be carried forward and applied against future rental income or capital gains from residential property investments. If reforms are introduced, eligible newly built properties are expected to remain eligible for existing negative gearing arrangements.

4. How would CGT and negative gearing apply to new builds in Australia if Federal Budget proposals are approved?

The Federal Government put forward in its 2026 budget that eligible newly built residential properties would retain access to existing negative gearing benefits and investors who buy new builds would be able to choose either the 50 per cent CGT discount or indexation and the minimum tax when they sell the property.

Call 0468 026 200 today or connect with The Property Education Company here.

About the author:

As an MFAA-certified finance broker, James Gregors has been helping property investors and first home buyers build their property portfolios for many years. He is especially dedicated to helping clients navigate changing market conditions with clarity and confidence.

Disclaimer: This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.

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