Changes announced in the 2026 Federal Budget will reshape how negative gearing and capital gains tax apply to many future property investments.

The reforms are expected to change how investors assess established and newly built properties, while encouraging more investment in new housing supply.

How Negative Gearing Is Changing

Negative gearing generally occurs when the deductible costs of an investment property, such as mortgage interest, repairs and rates, exceed the rental income it earns.

Under the new rules, established dwellings exchanged after 12 May 2026 will no longer qualify for negative gearing against salary or other unrelated income. Existing investment properties acquired before the cut-off will retain their current treatment, while qualifying newly built homes will remain eligible. The changes commence from July 2027.

Investors purchasing an established property can still deduct expenses against residential rental income. Any excess loss may be carried forward and used to offset future rental profits.

Changes to the CGT Discount

The existing rules generally allow eligible investors to reduce a capital gain by 50 per cent when an asset has been held for more than 12 months.

From July 2027, affected assets will instead be taxed on gains above inflation, with a minimum tax rate of 30 per cent applying to relevant capital gains. Transitional rules will apply to assets already held before 1 July 2027, while the main residence exemption will continue.

What the Reforms Could Mean

The changes may reduce investor demand for established homes and direct more investment towards new construction. This could make it easier for some first-home buyers and other owner-occupiers to compete for established homes. However, any impact is likely to be gradual, with housing affordability continuing to depend on factors including housing supply, interest rates and borrowing capacity.

Property investors may place greater emphasis on rental yield, cash flow, borrowing capacity and whether a property qualifies for the new-build concessions.

Preparing for the New Rules

Anyone considering purchasing an investment property should understand how the timing and type of purchase may affect its tax treatment.

Independent tax and financial advice may be appropriate before making decisions under the new arrangements.