2026 Budget: Negative Gearing and CGT Overhauled — What It Means for Property Investors

In a budget Treasurer Jim Chalmers acknowledged carries "a lot of political risk," the Albanese government tonight overhauled two settings the government had committed at the 2025 election to maintain. Negative gearing will be restricted to newly built residential properties and government-backed affordable housing from 1 July 2027 — the changes apply to residential property only; shares, ETFs and commercial property are unaffected. The 50% capital gains tax discount will be replaced with inflation indexation and a minimum 30% tax on gains — applying not just to property, but to all CGT assets held by individuals, trusts and partnerships, including shares and ETFs held outside super. Both changes are triggered from 7:30pm AEST tonight and come with a one-year transition and full grandfathering for assets already held. Here's what it means for every type of investor.

What Was Actually Announced

Change 1 — Negative Gearing: New Builds and Affordable Housing Only from 1 July 2027

From 1 July 2027, negative gearing on residential property — offsetting rental losses against salary or other income — will be restricted to newly built properties and properties forming part of government-backed affordable housing programs. Shares, ETFs, commercial property and other non-residential assets are not affected — negative gearing on those continues under existing rules. The cut-off is 7:30pm AEST tonight. There are three groups of residential property investors:

The carry-forward restriction on Group B properties is a meaningful change to the cash flow profile of any existing investment property purchased in this window. Losses don't disappear — they accumulate and can offset future rental income — but they no longer reduce your annual tax bill in the way negative gearing has traditionally worked.

Change 2 — CGT: Indexation Replaces the 50% Discount from 1 July 2027

The 50% CGT discount — in place since the Howard government's 1999 reforms — is being replaced from 1 July 2027 with CPI indexation. Under the new model, your original purchase price is indexed to inflation over the holding period. Only the gain above that inflation-adjusted cost base is taxable at your full marginal rate, subject to a minimum 30% tax floor.

For transitional assets — purchased between tonight and 30 June 2027 — CGT is apportioned at sale. Gains attributable to the period before 1 July 2027 retain the 50% discount; gains from 1 July 2027 onwards fall under the new indexation rules. Two methods apply: an actual market valuation at 1 July 2027, or an ATO apportionment formula. This adds complexity — professional tax advice at the time of sale will be essential.

How Indexation Compares to the 50% Discount — In Dollar Terms

The indexation model is not simply more or less tax in all cases. It depends on how much the asset grew relative to inflation over your holding period.

In a high-growth, low-inflation environment (most of Australian property history): indexation produces a higher tax bill — your real gain is almost as large as your nominal gain.
In a high-inflation, lower-real-growth environment: indexation could produce a lower tax bill — CPI erodes more of your nominal gain.

If inflation had been 50% over the holding period, the indexed cost base rises to $900,000, leaving only $100,000 taxable. At 47%, that's $47,000 — far less than $94,000 under the old model. In very high-inflation scenarios, indexation is more favourable. New build investors who can choose between both models will always benefit from whichever is lower at the time of sale.

What This Means If You Already Own Investment Property

You are fully grandfathered. Tonight's changes do not apply to any property or other asset you held before 7:30pm AEST tonight:

No action is required on your existing properties. However, use tonight as a prompt to review your loan structure — in a 4.35% cash rate environment, having your debt working efficiently has a bigger day-to-day impact on returns than any of tonight's tax changes.

What This Means If You're Buying an Investment Property

Buying an existing property (tonight to 30 June 2027)

You can negatively gear against your full income until 30 June 2027. After that, losses carry forward against residential property income only — not your salary. The CGT on sale is apportioned: gains to 1 July 2027 retain the 50% discount; gains after that date fall under indexation. These are material changes that affect the economics of the investment and will require careful tax planning at sale.

Buying a new build

New builds are the standout winner from tonight. Negative gearing is unrestricted — no limit on the number of properties. You choose between the 50% CGT discount or indexation at the time of sale, whichever produces a lower bill. If you were already considering new construction as an investment, the tax case is now clearly stronger than for existing properties.

Investing via SMSF

No change. The budget explicitly exempts SMSFs from these reforms. Your existing accumulation-phase one-third discount and pension-phase zero-CGT treatment are unchanged.

Holding pre-CGT assets (acquired before 20 September 1985)

This group faces the most time-sensitive decision from tonight's budget. Assets acquired before 20 September 1985 have always been fully exempt from CGT. That exemption is ending — partially.

For many long-term investors — those who bought property or shares in the 1970s or early 1980s — this is the most significant change in the budget. If the asset has grown substantially in value, the decision of whether to sell before 1 July 2027 and lock in full exemption, or hold and accept CGT on future gains, requires careful modelling. Get a formal valuation and dedicated tax advice well before that date.

Investing via a discretionary trust

A separate measure — not part of the CGT or NG changes — proposes a 30% minimum tax on distributions from discretionary trusts from 1 July 2028 (a year after the CGT changes). Widely held managed investment trusts are excluded. If you hold investment assets through a family trust, this is a material change that warrants dedicated advice — the structure of distributions from 2028 may need to be reviewed with your accountant.

Holding shares or ETFs outside super

The negative gearing changes do not apply to shares or ETFs — if your portfolio runs at a loss, you can continue offsetting that against other income under existing rules. What does change is CGT: assets held before tonight are grandfathered at the 50% discount on sale. New purchases from 1 July 2027 will be subject to the indexation model and 30% minimum tax. If you hold a personal share portfolio, discuss the timing of any planned disposals with your accountant before that date.

What This Means for the Rental Market

Australia has 2.9 million renting households, 83% of whose homes are owned by private landlords. The industry's concern — raised loudly by Ray White, CPA Australia, and PIPA — was that restricting negative gearing without boosting supply would tighten the rental market. The Victoria data point remains the most relevant precedent: 24,000 rental properties were removed from the rental pool in a single year when that state changed land tax and compliance settings (REIV/PIPA data, 2023–24).

The government's response is the new build carve-out — attempting to redirect investor demand toward new construction where supply is actually created. Whether investors follow at 4.35% interest rates and current construction costs is the central question for rental supply over the next 12–24 months.

What Property Investors Should Do This Week

For the full history of the debate leading to tonight's decision, see our earlier articles: Negative Gearing & CGT Reform 2026 (February), Ray White and CPA Australia Sound the Alarm (March), and 2026 Federal Budget Preview (April).

Written by Amit Narang, Mortgage Broker | Credit Representative 558902 of Outsource Financial Pty Ltd (ACL 384324)

Sources: Australian Government, "Tax Reform — Budget 2026–27," budget.gov.au; Australian Government, "Negative Gearing and Capital Gains Tax Reform" factsheet, budget.gov.au; Baker McKenzie, "Budget Bites — CGT Discount and Negative Gearing"; Pitcher Partners, "Federal Budget 2026–27: Negative gearing"; Pitcher Partners, "A fundamental shift in CGT: Pre-CGT assets, indexation and minimum tax"; William Buck, "Federal Budget 2026: Capital Gains Tax"; Mortgage Professional Australia, "Property investors to get one-year reprieve on CGT, negative gearing reforms"; SBS News live blog, "Treasurer Jim Chalmers delivers the 2026 federal budget"; The Land / ACM, "CGT, trusts and negative gearing reforms revealed in bombshell federal budget"; Real Estate Business, "2026 Budget bombshell: Chalmers locks in CGT and NG overhaul"; AusTax.tools, "Federal Budget 2026 Summary"; REIV/PIPA data (2023–24), cited in Ray White Group research, March 2026.