The Albanese Government’s 2026 Federal Budget has introduced some of the biggest changes to Australia’s property investment tax system in decades. The reforms focus on two major areas investors have relied on for years: negative gearing and the capital gains tax (CGT) discount.
For property investors, these changes could influence borrowing decisions, cash flow and the types of properties that make the most sense to buy in the years ahead.
A quick refresher on negative gearing
But before we get into the changes, let’s look at how this popular strategy works.
Negative gearing happens when the costs of owning an investment property are higher than the rental income it generates and investors can claim those losses as a tax deduction against their income, reducing the amount of tax they pay each year. For many investors, that tax benefit helped offset short-term losses while they waited for the property to grow in value over time.
What has changed?
Under the new policy, negative gearing will only apply to newly built residential properties from 1 July 2027. Existing properties purchased after Budget night on 12 May 2026 will no longer qualify for the current tax treatment.
At the same time, the government plans to replace the current 50 per cent CGT discount with an inflation-indexed system from July 2027, along with a minimum 30 per cent tax rate on capital gains.
The government says the reforms are designed to improve housing affordability, encourage more housing construction and make it easier for first-home buyers to compete in the market.
What investors need to know
The changes are not retrospective. If you already owned an investment property before Budget night on 12 May 2026, or had signed a contract before that date, your current negative gearing arrangements stay in place until you sell the property.
If you buy an established property before 30 June 2027, you can still negatively gear your losses against your wages until that date, after which full negative gearing applies only to new builds.
Implications for the property market
Established properties may lose appeal, and new builds see increased demand
One of the biggest likely outcomes is softer investor demand for existing homes. Without the ability to offset rental losses against personal income, holding costs become harder to justify, especially for highly leveraged investors. This may push investors to focus more on rental yield and cash flow rather than relying mainly on future capital growth.
Because tax benefits remain for newly constructed properties, developers are expected to market heavily to investors over the next few years. That could lead to more investment flowing into apartment projects, housing estates and build-to-rent developments.
However, investors still need to be careful. Some new-build markets can struggle with oversupply, slower capital growth, high strata fees or construction quality concerns.
Capital growth strategies could change
The CGT reforms are another major shift for investors. Currently, investors who hold an asset for more than 12 months receive a 50 per cent discount on capital gains tax.
From July 2027, gains will instead be indexed for inflation, and a minimum 30 per cent tax rate will apply. For investors who rely heavily on long-term capital growth, especially in Sydney and Melbourne, this could reduce overall after-tax returns.
First-home buyers may benefit
Treasury estimates suggest the reforms could shift around 75,000 homes from investors to owner-occupiers over the next decade. If investor competition eases, first-home buyers may find it slightly easier to enter the market. According to Treasury modelling, property price growth could slow by around 2 per cent annually in the near term, while some economists predict falls of up to 5 per cent.i
However, some critics argue that discouraging investors could reduce rental supply and eventually push rents higher. Certain modelling suggests rents could rise by around 2.4 per cent over several years.ii
Getting help in changing times
These reforms represent a major shift in the Australian property market.
While existing investors are largely protected, future buyers will likely place a greater focus on cash flow, rental yield and new-build opportunities.
With lending strategies and investment structures becoming more important than ever, we can help investors understand their borrowing capacity, compare loan options and structure their finance in a way that supports their long-term goals under the new rules.
Our team are here to help you with your next steps. Contact us here.
Source: budget.gov.au
