2027 Federal Budget

The Government has announced changes to negative gearing and capital gains tax (CGT) in the 2026–27 Budget

The 2026–27 Federal Budget announced one of the most significant proposed overhauls to property investment taxation in decades. If you own an investment property, hold shares, or are thinking about either, these changes will affect your tax position from 1 July 2027. Here's a breakdown of the proposed changes.

The Big Picture

From 1 July 2027, two major changes take effect:

Negative gearing will be restricted to new residential properties only. If you buy an existing investment property after 12 May 2026, you will no longer be able to offset rental losses against your salary or other income.

Capital gains tax will move away from the current 50% flat discount towards a CPI-based indexation model, with a new 30% minimum tax rate on capital gains.

Negative Gearing Changes

Under the current rules, if your rental property costs more to hold than it earns in rent, you can deduct that loss against your salary and wages, reducing your overall tax bill. This is negative gearing.

From 1 July 2027:

• Properties you already own (purchased before Budget Night at 7:30pm AEST on 12 May 2026): No change. You can continue to negatively gear these properties until you sell them.
• Established properties purchased between Budget night and 30 June 2027: You can negatively gear during this window, but not after 1 July 2027.
• Established properties purchased from 1 July 2027: Rental losses can only be offset against other residential property income, not your wages or salary.
• New builds (any time): Negative gearing remains fully available, before and after 1 July 2027.

What happens to losses you can't offset immediately?

They're not lost. You can carry them forward to offset future residential property income, including capital gains when you eventually sell. It's a deferral, not a permanent loss of the deduction.

Capital Gains Tax: What's Changing?

The current 50% CGT discount has been in place since 1999. It means that if you hold an asset for more than 12 months, you only pay tax on half the gain.

From 1 July 2027, the 50% discount is replaced with:

1. CPI indexation. Your cost base is adjusted for inflation, so you only pay tax on your real gain (the amount above inflation). This mirrors the system that operated between 1985 and 1999. The ATO will provide tools to assist with these calculations.

2. A 30% minimum tax rate. Even if your marginal tax rate is low (say, because you've retired or taken time off work), capital gains will be taxed at a minimum of 30%. This closes the strategy of deferring asset sales to low-income years.

People already paying 30% or more tax on their gains are unaffected by the minimum tax. Recipients of certain means-tested payments are exempt from the minimum tax in years they receive those payments.

What assets does this apply to?

All CGT assets held by individuals, partnerships, and trusts for at least 12 months — including property and shares. Your main residence remains CGT-exempt, and the four small business CGT concessions are unchanged.

What About Assets You Already Own?

For assets purchased before 1 July 2027 and sold after that date, a split calculation applies:

• Gains accrued up to 1 July 2027, taxed under the old rules (50% discount applies)
• Gains accrued after 1 July 2027, taxed under the new rules (indexation + 30% minimum)

You'll need to establish the market value of your assets as of 1 July 2027 to split the gain. You can either obtain a formal valuation or use an ATO apportionment formula based on the asset's growth rate over your entire holding period.

Assets purchased and sold before 1 July 2027 are unaffected entirely.

The New Build Exemption

The Government has deliberately preserved full tax benefits for investment in new residential construction. This is their way of keeping housing supply growing while reducing investor competition for existing stock.

A "new build" is defined as:

• Dwellings constructed on vacant land
• Properties where existing buildings are demolished and replaced with a greater number of dwellings (e.g. a duplex replacing a single house)

What doesn’t count as a “new build”. knock-down rebuilds that replace one house with one house, renovations, granny flats added to an existing investment property, or second-hand properties previously occupied for more than 12 months.

Investors in new builds can choose between the 50% CGT discount or the new indexation method when they sell, whichever is more favourable. They also retain full negative gearing against all income.

Note: the new build exemptions apply to the first purchaser from the developer or builder, provided the property hasn't been occupied for more than 12 months prior to sale. If you subsequently sell a new build to another investor, that buyer will not inherit the negative gearing or CGT discount benefits.

What Could This Mean for Your Tax Bill?

The answer depends heavily on your returns and how long you hold assets.

For low-growth assets (returns close to inflation), the new indexation rules could reduce your tax, because there's little real gain to tax once inflation is stripped out.

For high-growth assets (returns well above inflation), you'll generally pay more under indexation than you would have under the old 50% discount, as the discount no longer offsets the full gain.

For investors with low income in retirement, the 30% minimum tax will be the key change to watch, deferring asset sales to low-income years will become less advantageous.

Final thoughts

These measures are proposed and are not yet law. Investors should keep records, monitor the progress of the legislation and seek professional advice before making investment or disposal decisions. This article is general information only and does not take into account your personal objectives, financial situation or needs.