Major Property Tax Changes in the 2026 Budget

The 2026–27 Australian Federal Budget introduced some of the most significant proposed property tax reforms in decades, focusing heavily on capital gains tax (CGT) and negative gearing arrangements for investment properties.

The Government says the reforms are aimed at improving housing affordability and helping more Australians buy homes, particularly first-home buyers. Critics argue the changes may reduce investor activity, place pressure on rental supply, and alter long-term investment behaviour.

At the time of writing, these measures are proposed reforms and remain subject to legislation and political debate.

What Is Negative Gearing?

Negative gearing occurs when the costs of owning an investment property — such as loan interest, rates, insurance, maintenance and depreciation — exceed the rental income received.

Under the current system, investors can generally deduct those losses against their taxable income, including wages and salary income.

For many years, this has been one of the major tax incentives associated with property investing in Australia.

What Is Changing With Negative Gearing?

Under the 2026 Federal Budget reforms:

• Negative gearing for established residential properties would be restricted for properties purchased after budget night on 12 May 2026.
• From 1 July 2027, investors purchasing established residential properties would no longer be able to offset rental losses against their personal wage or salary income.
• Existing investment properties owned before budget night would generally be grandfathered under the current rules.
• Newly built homes would continue to qualify for negative gearing benefits.

The Government says the intention is to redirect investor demand toward new housing supply rather than existing homes. Treasury modelling suggests this could result in more homes being purchased by owner-occupiers over time.

How Capital Gains Tax Currently Works

Currently, when an individual sells an investment property held for more than 12 months, they generally receive a 50% CGT discount.

This means only half of the capital gain is added to their taxable income.

For example:

• If an investor makes a $200,000 capital gain,
• Only $100,000 is generally taxed under current rules.

This 50% discount has been a major part of long-term property investment strategies since it was introduced in 1999.

What Is Changing With Capital Gains Tax?

The 2026 Budget proposes major changes to the CGT system from 1 July 2027.

The proposed reforms include:

• Replacing the current flat 50% CGT discount with an inflation-based indexation model.
• Capital gains would instead be adjusted for inflation before tax is calculated.
• A new minimum 30% tax rate on capital gains would apply in many situations.

Under the proposed model:

• Investors would only receive a tax benefit on the “real gain” after inflation is taken into account.
• Large nominal gains created partly by inflation would no longer automatically receive the 50% discount.

The reforms would apply differently depending on when a property was purchased and how long it was held. Existing investments would generally retain the current rules for gains accrued before July 2027, with later gains transitioning into the new system.

Why the Government Says These Changes Are Needed

The Federal Government argues the reforms are designed to:

• Improve housing affordability
• Reduce speculative investment demand
• Help first-home buyers compete against investors
• Encourage construction of new homes
• Make the tax system more focused on income rather than asset growth

Treasury modelling referenced in budget reporting suggests:

• House price growth could slow modestly
• More owner-occupiers may enter the market
• Rental increases may be relatively limited overall

Concerns Raised by Critics

Opponents of the reforms, including sections of the property industry, economists, lenders and the Coalition, have raised concerns that the changes could:

• Reduce investor confidence
• Lower rental property supply
• Increase rents in tight rental markets
• Discourage private housing investment
• Impact retirement strategies for some Australians

Some lenders and industry groups have already begun adjusting policies in response to the reforms. Reports indicate certain banks are reviewing how negative gearing benefits are treated in borrowing assessments.

There are also differing economic opinions about how much impact the reforms would actually have on housing affordability and rents. Some economists argue the effect on rents may be modest, while others believe supply pressures could worsen.

What Happens Next?

The proposed reforms are expected to remain a major political issue.

The Coalition has publicly stated it would seek to repeal the changes if elected.

Because of this, the long-term future of the reforms may depend on:

• Future elections
• Senate negotiations
• Final legislation wording
• Market and economic conditions over coming years

The 2026 Federal Budget represents a major proposed shift in how property investment is taxed in Australia.

Supporters believe the reforms could improve affordability and rebalance the housing market toward owner-occupiers and new housing supply.

Critics argue the changes may reduce investor participation and place additional strain on rental availability.

Regardless of opinion, the reforms have already sparked significant discussion across the property, finance and taxation sectors, and investors, homeowners and buyers are likely to watch developments closely over the coming months.

Thinking About Your Investment Property Before July 2027?

With the proposed capital gains tax changes expected to place greater importance on property values around the transition period, accurate records may become increasingly important for investors planning to sell in the future.

To help our existing landlords prepare, All Around Realty is offering a complimentary market appraisal service prior to July 2027.

While a real estate appraisal is not a formal tax valuation, having independent market evidence and documented property assessments around key legislative dates may assist property owners when discussing future capital gains calculations with their accountant or financial adviser.

Our team can provide:

• A current market appraisal of your investment property,
• Comparable recent sales evidence,
• General market insights for your area,
• Supporting documentation you may wish to retain for your records.

As tax laws and valuation requirements can become complex, we always recommend investors seek independent accounting and taxation advice specific to their circumstances.