For Australian property investors, the 2026 federal budget was a lot to take in. After all, negative gearing rules are shifting, and the government is replacing the capital gains tax (CGT) discount. A new minimum tax is also coming for discretionary trusts. That’s three major changes landing at once.
Australian Business Magazine (ABmag) covers the financial and business decisions that guide Australian investors and entrepreneurs. Based on everything we’ve seen from the 2026 budget legislation, these negative gearing changes rank among the most significant in a generation.
In this article, we walk you through:
- What negative gearing is and how the current rules work
- The federal budget changes for established residential properties and new builds
- How the capital gains tax shake-up affects your assets
- The new compliance burden property investors now carry
Read on to get the full picture.
What Is Negative Gearing and How Does It Work?
Consider this negative gearing explained in the simplest terms: it starts with a gap between what a rental property costs and what it earns.
That gap is called a net rental loss, and Australian tax law lets you deduct it against other assessable income (like your wages). The result is a lower tax bill for that financial year.
Here’s what that looks like in practice:
- Costs vs Rental Income: Interest on investment loans, maintenance, property management fees, insurance, and council rates are all common expenses. Once these outrun what your tenants pay, the property sits at a net rental loss position.
- The Taxable Income Impact: You deduct that loss from your total assessable income for the year, which cuts your income tax payable. For high-income earners, that annual saving has historically been quite significant.
- The Capital Gains Tax Side: Rental loss deductions apply while you hold the property. Meanwhile, capital gains tax comes in when you sell. Many investors have used both together, pairing ongoing deductions with the 50% CGT discount on disposal (though the two systems operate independently).
Positive gearing flips this around entirely. Your rental income exceeds your costs; your surplus goes toward taxable income, and no loss applies. But most Australian investors have historically chosen the negatively geared route for its tax advantages. That’s the setup the 2026 budget is now reworking.
What Did the 2026 Federal Budget Change About Negative Gearing?
The 2026 federal budget marked a clear shift in Australian property tax policy. For decades, investors could buy established residential properties, run them at a loss, and deduct that loss against their salary. The government is now winding that back, and the changes have many layers.
Take a look at the new negative gearing rules breakdown.
The Cut-Off Date and What It Means
The key date is 7:30 pm AEST on 12 May 2026. Any established residential property purchased after that point falls under the new rules from 1 July 2027.
That said, a transition window applies for buyers who came in after budget night but before July 2027. During that period, you can still fully deduct rental losses against your salary. After that, those losses get quarantined to residential property income only, and any unused amount carries forward to future years.
Worth Noting: The cut-off ties to the contract date rather than the settlement date, so signing before 7:30 pm on 12 May 2026 keeps you protected even if it hasn’t gone through yet.
New Builds Stay Exempt
Eligible new builds sit completely outside the new restrictions. Investors who buy these properties can still deduct rental losses against their full assessable income, and that stays the same after 1 July 2027.
The government designed this exemption deliberately to channel investment into new housing stock rather than existing homes. New build investors also get a genuine advantage at the sale time. They can choose between the existing 50% CGT discount or the new indexation method, whichever produces the better outcome.
That flexibility doesn’t extend to established property buyers, which makes new builds a noticeably different proposition under the updated rules.
What Counts as a New Build
A new build must genuinely add to Australia’s housing supply under the proposed budget settings. Based on current guidance, qualifying properties include:
- Off-the-plan apartments purchased directly from a developer
- Any residential construction on vacant land
- Knock-down rebuilds that produce a net increase in dwellings on a site
- Newly built properties not occupied for more than 12 months before their first sale
On the other hand, a standard knock-down rebuild replacing one house with another single house doesn’t qualify. Neither do granny flats added to existing properties nor bedroom extensions on established homes.
Keep in Mind: A property loses its new build status after its first sale. So if you’re buying from a second owner, negative gearing and CGT discount access don’t carry across.
Existing Investments Are Grandfathered
If you held a residential property at 7:30 pm on 12 May 2026, your existing arrangements stay completely intact. You can keep deducting rental losses against your salary for as long as you hold it. (not a bad position to be in, all things considered)
This protection extends to contracts you’d already signed before that time, even where settlement was still pending. And frankly, a lot of investors are now holding rather than selling. Because selling means stepping out of the current negative gearing rules entirely and into the new framework on any future purchase.
Now that the negative gearing picture is clear, the capital gains tax changes deserve equal attention.
How Is the CGT Discount Changing From 1 July 2027?
Most Australians have never had to think about cost-base indexation. But from 1 July 2027, it becomes the new standard for calculating tax on CGT assets held by individuals, trusts, and partnerships.
Before we get into the numbers, let’s break down what each change actually does.
What Is Cost Base Indexation?
Cost base indexation adjusts what you originally paid for an asset using the Consumer Price Index. Your purchase price rises in line with inflation over time, so you only pay tax on your real gain rather than the full nominal increase in value.
This approach isn’t new to Australia. It was actually the standard method between 1985 and 1999, before the 50% CGT discount replaced it. So in many ways, the 2026 budget is a return to an older system rather than something entirely fresh.
For assets you already hold, a transitional arrangement applies. The existing discount covers gains arising up to 1 July 2027, while indexation takes over for gains accruing from that date onward. From that point, the asset’s market value on 1 July 2027 becomes its new cost base.
The 30% Minimum Tax on Capital Gains
What happens when indexation still leaves you with a sizeable capital gain? In that case, a 30% floor applies to the net gain, and it covers all CGT assets held by individuals from 1 July 2027.
The intent is to stop investors from timing asset sales to years when their marginal rate drops low. That strategy has historically cut the tax bill on large gains considerably (and for long-term holders, that gap can be significant).
However, not everyone falls under this rule. Superannuation funds sit outside this change entirely and keep their existing one-third discount. Age pension recipients and other income support holders are also exempt. For everyone else, the 30% floor applies to net capital gains regardless of that year’s income level.
Negative gearing losses and capital gains don’t operate in isolation, though. The way these two sets of rules interact under the updated framework is where things get genuinely complex for active property investors.
What Happens to Discretionary Trusts?
There are over 840,000 discretionary trusts in Australia, and a large number of them will be directly hit by a separate budget measure from 1 July 2028. Here’s what the key changes look like up close.
How the 30% Minimum Trust Tax Works
From what we’ve seen across the 2026 budget legislation, this measure targets income-splitting strategies directly. These arrangements have long allowed high-income families to distribute trust income to lower-earning beneficiaries and cut their overall tax bill.
Under the new rules, the trustee pays the 30% minimum tax on the trust’s taxable income. Non-corporate beneficiaries then receive non-refundable credits for that tax, so the same income isn’t taxed twice.
Quick Note: The trust changes land a full year after the CGT and negative gearing reforms kick in, which gives some breathing room to review existing structures.
Which Trusts Are Affected and Which Are Exempt
Not every trust falls under the new rules. The changes target discretionary trusts specifically, while several other trust types sit completely outside the scope.
Both sides of that line are worth understanding clearly:
Trusts That Are Affected
As we already covered, discretionary trusts, including most family trusts, fall under the 30% minimum tax from 1 July 2028. This covers income distributions to non-corporate beneficiaries across the board.
Exempt trusts
Fixed trusts, widely held trusts, and complying superannuation funds remain outside the new rules entirely. Charitable trusts and special disability trusts are also exempt. On top of that, rollover relief is available for three years from 1 July 2027 for those restructuring out of a discretionary trust into a company or fixed trust.
Beyond property and trusts, the reforms carry a more mixed message for first-home buyers than the headlines suggest.
How Will First Home Buyers Be Affected?
Investment property demand has driven established home prices well out of reach for many Australians, and restricting negative gearing directly targets that pressure. If you’ve been saving for a deposit with high hopes, this reform at least moves things in a more favourable direction.
Of course, the full picture is more layered than the government’s messaging lets on (well, is it ever quite that simple, right?). That’s what the reforms actually deliver on the ground, though:
- Less Investor Competition: With negative gearing restricted on established properties, investor demand in the price brackets where most first home buyers shop should pull back. Treasury modelling forecasts house price growth slowing by around 2% over the next two years.
- More Stock on the Way: The government anticipates the combined tax changes will release roughly 75,000 additional homes onto the market, as some investors choose to sell under the updated settings. In reality, that number may take time to show up. Many sellers are weighing up whether selling now is worth losing their current tax position.
- The Rental Pressure Trade-Off: Rents could rise modestly as investor activity in established properties pulls back. CBA’s senior economists forecast dwelling prices running about 3% lower than they would have been. The rental impact is expected to be smaller, but it’s worth factoring in.
Remember, the opportunity for first home buyers is real, but measured. Your competition for established homes should ease, though not overnight, and rising rents in the interim are worth keeping an eye on.
Does This Affect Shares and Commercial Property?
A lot of investors are asking whether the 2026 negative gearing and CGT changes reach beyond residential property. The answer depends on which rule you’re looking at, because the two reforms don’t apply equally across all asset types.
The table below shows how the changes land across three common investment types:
| Asset Type | Negative Gearing | CGT From 1 July 2027 |
| Shares and ETFs | No change to current treatment | 50% discount replaced with cost base indexation; gains before 1 July 2027 still attract the existing discount |
| Commercial Property | No change; restrictions apply to residential property only | Cost base indexation and 30% minimum tax apply to gains from 1 July 2027 |
| Assets Inside Super | Fully outside the new restrictions | One-third CGT discount stays in place; no changes flagged for super funds |
The negative gearing changes are firmly focused on residential property, but the CGT shift runs broader. Shares, commercial assets, and other holdings outside superannuation all move to the updated framework on the capital gains side from 1 July 2027.
If you’re holding assets across multiple categories, knowing which rules apply to each one will directly shape how you time any disposals.
What New Compliance Burdens Do Investors Now Face?
Think about it this way: before May 2026, most property investors filed a relatively clean tax return. Now, the rules vary by asset type, purchase timing, and property classification. So there’s a lot more paperwork coming.
The dual system these reforms create means the administrative side of property investment has grown considerably, and for many, that’s where the real day-to-day impact lands.
After looking closely at the legislation introduced on 28 May 2026, we can say the compliance burden is significant, and it falls on each investor to track it correctly.
These are the three areas where that burden shows up most:
- Purchase Date Records: The cut-off date of 12 May 2026 splits every residential property portfolio into two categories with different tax treatments. Getting that acquisition date wrong, or not tracking it at all, means filing under the incorrect rules at tax time.
- Loss Quarantining and Carry-Forward: If your property falls under the new rules, affected rental losses can no longer reduce your salary. Each loss needs separate tracking, applied against residential rental income first, with any remainder carried forward to future years.
- Asset Valuation Requirements: Many CGT assets will need a formal market valuation ahead of the July 2027 commencement date. The ATO has flagged this as a priority step, and leaving it until the last minute puts accurate tax reporting at real risk.
Frankly, the 2026 reforms add a real administrative burden on top of the tax changes. And for most investors, a qualified adviser is the most practical first call.
Stay Ahead of the Curve Before July 2027
The 2026 budget has redrawn the rules for Australian property investors, and the changes affect far more than just your next purchase. Negative gearing and capital gains tax are now operating under a framework that rewards those who plan early and penalises those who wait.
That’s why, if you take one thing from this, the priority is understanding exactly where your portfolio sits under the new system. After all, grandfathered properties, new builds, trust structures, and CGT assets each sit under a different set of rules.
Miss the July 2027 deadline without a clear plan, and avoidable tax bills start stacking up. Proper advice ahead of time could prevent most of that.
And if you want to stay across what’s next as the legislation moves through Parliament, our guides cover the shifts that shape how Australian investors and business owners make their decisions. Head to Australian Business Magazine and keep it on your radar.
FAQs
These are some of the most common questions we hear about the 2026 negative gearing and CGT changes:
Does This Tax Reform Affect Small Business Owners Who Invest in Property?
Yes, if a small business owner holds property in their personal name, the new rules apply like any other individual investor. Rental losses from residential property investments can no longer offset personal income from the business. Getting structured advice before July 2027 is the practical first step.
Do the Negative Gearing Changes Apply to Positively Geared Properties Too?
No. The negative gearing changes only target rental losses, not profitable rental income. A positively geared property still generates income earned above expenses, and that net profit gets taxed at your marginal rate as usual. Positive gearing sits completely outside the quarantine rules.
Do Private Investors in Government Housing Programs Remain Exempt From These Rules?
Yes. The federal government specifically excluded private investors supporting government housing programs from the new restrictions. These investors keep full access to existing deductions and remain exempt from the quarantining rules. Build-to-rent developments fall under the same carve-out.
What Happens to Excess Rental Losses After Budget Night if You’ve Already Bought?
For established residential properties acquired after budget night, excess rental losses can’t reduce wages or other assessable income. They carry forward and apply against future residential property income or capital gains arising from a later sale. The losses don’t disappear; they just get deferred.
Are CGT Assets and Gearing, and Capital Gains Changes, Not Just a Housing Issue?
The key takeaway is that the 50% CGT discount replacement affects far more than property. Capital gains tax changes apply across CGT assets, including shares and managed funds. The new rules are built on a discount based on inflation rather than a flat rate cut, so investment decisions and tax obligations shift well beyond residential property.
