Negative Gearing & CGT Reform 2026: What Property Investors Need to Know

For the first time in years, negative gearing and capital gains tax concessions are genuinely on the table in Canberra. Treasury is actively modelling a reduction to the 50% CGT discount ahead of the May 2026 Budget, a Greens-led Senate inquiry is due to report in March, and Prime Minister Albanese has pointedly refused to rule out changes — despite promising at two elections that these settings would not change. If you own investment property, now is the time to understand what's being proposed and what it could mean for you.

How the Current System Works

Australia's tax system offers two major concessions that make residential property investment particularly attractive:

Together, these two concessions have made leveraged property investment one of the most tax-effective strategies available to Australian investors. They've been largely unchanged since the CGT discount was introduced in 1999 under the Howard government.

What's Being Proposed?

Based on media reports, Senate submissions, and confirmed Treasury modelling, there are two main proposals under active consideration:

1. Reducing the CGT Discount

The most likely change is a reduction in the CGT discount from 50% to either 33% or 25%. Treasury has confirmed it is modelling both scenarios. The Grattan Institute has argued for 25%, calling the current 50% discount an over-compensation for inflation. The ACTU also supports a reduction to 25%.

Reports suggest the government's preferred approach would be prospective only — meaning existing properties would keep the 50% discount, and the new lower rate would only apply to assets purchased after a cut-off date. However, if applied retrospectively, the measure could raise around $5 billion per year.

2. Capping Negative Gearing

Negative gearing reform is also on the table, though it appears less imminent than CGT changes. The most discussed option is a cap — limiting negative gearing benefits to investors who own one or two investment properties, with those holding larger portfolios losing the ability to offset losses against other income.

The ACTU has called for negative gearing to be limited to a single investment property per investor, with the changes applying only to new purchases and phased in over five years to give existing investors time to adjust.

The Numbers Behind the Debate

The Parliamentary Budget Office estimates the CGT discount will cost the federal budget $247 billion over the next decade. The distribution of that benefit is highly skewed: Treasury data shows that in 2022–23, 89% of the CGT discount benefit went to the top 20% of income earners, with 86% flowing to the top 10%.

Only around 4% of the benefit flows to Australians under the age of 35 — the very cohort that housing affordability advocates say is being locked out of the market.

What This Means in Dollar Terms for Investors

The practical impact on a property sale is significant. Take a Sydney investor who bought a property in 2019 and is now selling with a $400,000 capital gain:

The Case For Reform

Housing affordability advocates, the Grattan Institute, and unions argue the current system is fundamentally broken — not just unfair, but counterproductive:

• It inflates prices: When investors can bid more aggressively thanks to tax subsidies, owner-occupiers and first home buyers are priced out. The IMF itself has called for the removal of such incentives, arguing they drive property prices up rather than helping housing affordability.
• The benefit is concentrated at the top: When 86% of a $247 billion tax break flows to the wealthiest 10% of earners, it's hard to argue the policy is serving the public interest.
• A modest price impact is possible: Independent economists estimate a CGT discount reduction could reduce property prices by 1.5–4% nationally — not a crash, but a meaningful easing at the margin, especially for entry-level properties.

The Case Against Reform

The property industry, real estate groups, and many economists warn the changes could backfire badly:

• Less investment means less supply: Australia already has a chronic housing shortage. If tax changes deter investors, fewer rental properties get built or maintained — pushing rents higher and hurting the very renters the reforms are meant to help.
• Investors won't sell, they'll hold: This is the "gridlock" argument put forward by real estate commentator Tom Panos. A bigger tax hit on sale means investors simply won't sell, choking off supply of existing properties and stamp duty revenue for governments simultaneously.
• The price impact is overstated: Property Council modelling suggests the price reduction effect is modest (1–4%) while the supply destruction effect is more severe and long-lasting.
• 35% of investors would exit: PIPA's 2025 Investor Sentiment Survey found that more than one in three investors would stop investing in property if the CGT discount were cut to 25%. That's a significant withdrawal of capital from the rental market.

The Rush to Buy — Before the Rules Change

One of the clearest immediate effects of the reform debate is already playing out in the market. Data from MacroBusiness shows investor loan applications accelerating in February 2026, with brokers reporting a marked uptick in investors asking how quickly they can settle before a potential Budget announcement.

The logic is straightforward: if the government grandfathers existing holdings under the current 50% discount, any property purchased before the cut-off date locks in the more favourable tax treatment permanently. That creates a powerful incentive to buy now rather than wait.

What Should Investors Do Now?

The honest answer is: don't panic, but don't ignore this either. Here's a practical framework:

• Talk to your accountant now: Model what a CGT discount reduction to 33% or 25% would mean for any properties you're considering selling in the next 2–3 years. The numbers may be significant.
• Review your loan structure: If you're negatively geared across multiple properties and a cap comes in, the tax dynamics change. Make sure your loans are structured to maximise deductibility on the properties most likely to remain eligible.
• If you're planning to buy soon, the timing argument is real: If grandfathering applies to the CGT discount, properties purchased before the Budget cut-off date will retain the 50% discount. This isn't a reason to rush into a bad deal — but it is a genuine consideration for investors who were already planning to buy in 2026.
• If you're considering selling, don't wait: If you're planning to sell an investment property in the next year or two, selling under the current 50% discount rules could save you tens of thousands compared to selling after any changes take effect.
• Don't assume changes will definitely happen: Labor dropped this exact policy before the 2019 and 2022 elections. The political headwinds are real. Plan for the possibility, but don't restructure your entire portfolio on a proposal that hasn't become law.

The Bottom Line

Negative gearing and CGT reform are more live than they've been at any point since 2019. Treasury is modelling changes, the Senate is inquiring, and the Prime Minister is no longer giving definitive denials. Whether or not reform actually passes will depend on political will, Senate crossbench support, and how the May Budget plays out.

What's clear is that the status quo — unlimited negative gearing and a 50% CGT discount available to all investors — is under genuine pressure for the first time in a generation. Property investors who understand what's proposed, what it costs them in dollar terms, and what their options are will be far better placed than those who wait and see.

Sources: Parliamentary Budget Office (CGT discount modelling, 2025); Australian Council of Trade Unions; Grattan Institute Senate submission; PIPA 2025 Investor Sentiment Survey; MacroBusiness (Feb 2026); The Conversation; Money Magazine; Accountants Daily