The 2026 Federal Budget, explained
The Treasurer's fifth Budget, handed down on 12 May 2026, introduced the most significant changes to property taxation in a generation. Here is what was announced, what it means for owners and investors, and — just as importantly — what has not changed.
For most homeowners and investors, the headlines from a Federal Budget come and go without much consequence. This year is different. The 2026–27 Budget reshapes the tax treatment of residential property investment in ways that will matter to anyone holding, buying, or selling property in the years ahead.
The two central reforms — to negative gearing and the capital gains tax discount — take effect from 1 July 2027, with carefully staged transitional arrangements designed to protect investors who have already made decisions under the existing rules. Below, we set out the detail as confirmed in the Government's own Budget papers, and then offer a measured view of what it means in practice.
Negative gearing, limited to new builds
Under the current rules, an investor who makes a loss on a rental property can deduct that loss against their other income, such as salary and wages. From 1 July 2027, that benefit will be limited to newly built residential properties.
For established residential properties purchased after 7:30pm AEST on 12 May 2026 (Budget night), rental losses will only be deductible against income from other residential property — not against wages or salary. The Government has indicated this will include capital gains on residential property, though the precise mechanics are to be set out in legislation. Where an investor has excess losses, those can be carried forward to offset residential property income in future years, preserving the ability to claim deductions for costs such as maintenance over time.
Critically, the change applies to individuals, partnerships, companies, and most trusts. Widely held trusts and superannuation funds — including self-managed super funds — are excluded from the negative gearing changes.
The end of the 50% CGT discount
Since 1999, Australian residents who held an asset for more than twelve months have generally been entitled to a 50 per cent discount on their capital gain — meaning only half the gain was added to taxable income.
From 1 July 2027, for individuals, trusts, and partnerships, that flat discount will be replaced by two mechanisms working together:
- Cost base indexation — gains will be adjusted for inflation using the Consumer Price Index, in a manner similar to the arrangements that applied between 1985 and 1999. This protects the inflation component of a gain from tax.
- A 30 per cent minimum tax rate on real (above-inflation) capital gains. This will not affect anyone whose gains are already taxed at 30 per cent or more.
These changes apply to CGT assets held for at least twelve months, including residential and other property. Recipients of means-tested income support payments, such as the Age Pension or JobSeeker, will be exempt from the minimum tax in any year they receive a payment.
The Australian Taxation Office has indicated it will provide guidance and tools to help taxpayers calculate the indexation adjustment.
"The impact of these changes on existing investments will be limited." — Australian Government Budget papers, May 2026
The transitional arrangements
The Budget's transitional rules are detailed, and they matter a great deal to existing owners. In short, what you already hold is largely protected.
Negative gearing — key dates
- Held before 12 May 2026: Properties held at the time of announcement (including where a contract was entered into but not yet settled) may continue to be negatively geared in future years, until sold.
- 12 May 2026 to 30 June 2027: Established properties purchased in this window may be negatively geared during the period, but not from 1 July 2027 onward.
- From 1 July 2027: Established properties purchased from this date cannot be negatively geared. New builds remain eligible.
For capital gains tax, the new arrangements apply only to gains that accrue after 1 July 2027. An asset acquired at any time before 1 July 2027 and sold afterward is treated under the current rules for the portion of the gain made up to 1 July 2027, and under the new rules for the gain made after. (Budget night, 12 May 2026, is the relevant date for the negative gearing changes above, but not for capital gains tax — the only date that matters here is 1 July 2027.) The ATO will provide tools to help establish an asset's value at the commencement date, either through valuation or a specified apportionment formula.
Legacy assets are also accommodated: gains on pre-1985 assets accrued before 1 July 2027 will continue to be exempt.
What has not changed
Amid significant reform, several long-standing protections are explicitly preserved. For most homeowners, the most important is the first on this list.
- The family home remains exempt. The main residence CGT exemption continues unchanged.
- Small business CGT concessions — all four — are unchanged.
- Commercial property remains subject to existing negative gearing arrangements. The negative gearing changes apply to residential property only.
- Investors in new builds may choose between the 50 per cent CGT discount and the new indexation-plus-minimum-tax arrangement when they sell, and retain access to negative gearing.
- Affordable housing retains its existing 60 per cent CGT discount, preserving the incentive to invest in those assets.
Beyond the tax reforms
The Budget framed these changes as part of a broader housing package aimed at supporting first home buyers and increasing supply. Alongside the tax measures, the Government announced:
- A new $2 billion Local Infrastructure Fund to help connect essential services — water, power, sewerage, and roads — to new housing, supporting up to 65,000 homes over the decade and bringing total housing-enabling infrastructure investment to $6.3 billion.
- An extension of the ban on foreign purchases of established dwellings until 30 June 2029, with limited exceptions for purchases that support housing supply.
- Continued work with the states and territories on stronger protections for renters under A Better Deal for Renters.
Treasury modelling suggests the reforms will increase the owner-occupier share of the housing market — estimated at around 75,000 additional owner-occupiers over the next decade — with a small and temporary easing in house price growth, and a modest projected effect on rents.
What this means for you
Policy of this scale invites strong reactions in either direction. Our role is not to predict the market, but to help you understand your own position clearly and act on it deliberately.
A few observations worth holding onto. First, if you own your home, the most consequential exemption — the main residence — is untouched. Second, if you already hold an investment property, your existing arrangements are largely grandfathered. The transitional design deliberately removes any incentive to rush a decision before a particular date. And third, the reforms genuinely change the calculus for future investment decisions — the relative appeal of new builds, the timing of a sale, and the structure through which property is held all warrant fresh consideration.
These reforms intersect with individual tax positions in ways that are rarely uniform. The Budget papers themselves illustrate this with worked examples in which different investors, holding similar assets, end up paying more, less, or about the same as under the previous rules — depending on their income, their returns, and the timing of their decisions.
This is precisely the kind of question where considered, property-specific advice earns its keep. If you are weighing a sale, a purchase, or a change to how you hold property, we are glad to talk it through with you.
Legislation giving effect to these measures is still to pass through Parliament, and detail may be refined as it does. We will update this page as the position becomes clearer.
Property, considered.
Every property decision sits within a wider picture. If the Budget changes have you reconsidering your position, we would welcome a conversation. Contact us at [email protected].
Sources
This article draws on official Australian Government information, including the Treasury factsheet Negative Gearing and Capital Gains Tax Reform and the underlying Budget Paper No. 1, Statement 4: Tax reform for workers, businesses and future generations, together with the Budget 2026–27 Cost of Living statement, the Prime Minister's media release of 12 May 2026, and the Australian Taxation Office guidance on foreign purchases of established dwellings.
This article is general information only and reflects the position announced in the 2026–27 Federal Budget as at May 2026. It is not tax, financial, or legal advice, and the measures described remain subject to the passage of legislation. Your circumstances are individual; please seek advice specific to your situation before making any decision.
