The Biggest Property Tax Reform in a Generation
On Budget night — 12 May 2026 — the Federal Government announced sweeping changes to negative gearing and capital gains tax (CGT) that will reshape the investment property landscape from 1 July 2027. Whether you hold one rental or a multi-property portfolio, understanding these reforms now gives you time to plan rather than scramble.
Let's break down what's changing, what's staying the same, and — most importantly — what you should do about it.
Negative Gearing: New Builds Only
From 1 July 2027, negative gearing for residential property will be restricted to new builds. That means if you purchase an established property after that date, any rental losses can only be deducted against other residential property income — not against your salary, wages, or other income as they can today.
The Transition Rules
- Properties held before 7:30 pm AEST on 12 May 2026 (Budget night): Fully grandfathered. You can continue to negatively gear these properties for as long as you own them — no changes at all.
- Established properties purchased between Budget night and 30 June 2027: You can negatively gear during this transition window, but from 1 July 2027, losses will only offset other residential property income.
- Established properties purchased from 1 July 2027 onwards: No negative gearing against non-property income. Losses can only reduce residential property income (including capital gains), with unused losses carried forward.
- New builds (purchased at any time): Full negative gearing continues — no restrictions.
Key point: "New builds" means dwellings that genuinely add to housing supply — including newly constructed homes, off-the-plan apartments, and knock-down rebuilds. Renovations of existing properties don't qualify.
Capital Gains Tax: From a Flat 50% Discount to Inflation-Based
The second major reform replaces the current 50% CGT discount with a system based on actual inflation, plus a minimum 30% tax rate on real capital gains.
How the New CGT System Works
Under the current system, if you hold a property for more than 12 months you simply halve the capital gain and add the remainder to your taxable income. From 1 July 2027:
- Your cost base will be indexed for inflation, so you only pay tax on the real gain — the amount above what inflation would have delivered anyway.
- A minimum 30% tax rate will apply to that real capital gain, regardless of your marginal tax rate.
- For assets held before 1 July 2027, the old 50% discount applies to gains accrued before that date. Only gains accruing after 1 July 2027 fall under the new rules.
What Does This Mean in Practice?
Consider a property purchased for $600,000 that you sell for $800,000 after several years:
| Scenario | Current System | New System (Post-July 2027) |
|---|---|---|
| Gross capital gain | $200,000 | $200,000 |
| Discount/indexation | 50% discount = $100,000 taxable | Inflation adjustment reduces real gain (varies by holding period) |
| Tax rate | Your marginal rate on $100,000 | Minimum 30% on the real gain |
For long-hold investors in periods of higher inflation, the indexation approach could actually deliver a better outcome than the flat 50% discount. But for shorter holds with low inflation, the minimum 30% rate may bite harder.
New build investors get to choose: If you invest in a new build, you can opt for either the existing 50% CGT discount or the new inflation-indexed system — whichever is more favourable when you sell.
Who's Exempt?
- Superannuation funds (including SMSFs): Excluded from the negative gearing changes.
- Widely held trusts and managed investment trusts: Also excluded.
- Testamentary trusts: Income from these trusts is exempt from the minimum 30% CGT rate.
- Your family home: The main residence CGT exemption is completely unchanged.
Three Steps Every Landlord Should Take Now
You have until 1 July 2027 before these changes take effect, but smart investors are acting now:
1. Audit Your Current Portfolio
Identify which of your properties were held before Budget night (12 May 2026) — these are fully grandfathered. Make sure your records clearly document purchase dates and settlement dates. If you're considering selling any properties, model the CGT implications under both the current and new systems.
2. Reconsider Your Next Purchase
If you're planning to buy before 1 July 2027, think carefully about whether a new build might now offer better long-term tax advantages than an established property. New builds retain full negative gearing and give you the choice of CGT method. Established properties purchased in this window will lose negative gearing benefits from 1 July 2027.
3. Get Your Records in Order
With two CGT systems potentially applying to the same property (pre- and post-July 2027 gains), accurate record-keeping becomes critical. Track your property income and expenses meticulously — tools like Reezy Tracker can help you maintain clear, organised records of rental income, expenses, and property performance so you're prepared when it's time to sell or lodge your tax return.
The Bigger Picture
These reforms are the government's attempt to redirect investment toward new housing supply. With national dwelling values stalling in May 2026 — and Sydney and Melbourne already recording price declines — the market is entering a different phase. The RBA's decision to hold rates at 4.35% in June (after three consecutive rises) adds to the uncertainty.
For landlords who already hold investment properties, the good news is that existing arrangements are largely preserved. But for those planning their next move, the rules of the game are changing. The sooner you understand the new landscape, the better positioned you'll be to make decisions that protect — and grow — your wealth.