Australian Federal Budget 2026 - Changes to Property Investment

The Australian Government announced its Budget for 2026-2027 on Tuesday 12 May 2026. This particular Budget captured widespread attention due to changes to popular tax breaks that have been in place since the late 90s.

While the Budget covers a wide range of issues, this article focuses on key changes to current tax rules that may affect how property investment should be approached in the future.

Capital Gains Tax

When you sell an investment property, the profit (sale proceeds minus purchase cost) will be added to your taxable income, potentially putting you in a higher tax bracket.

You can reduce how much profit is added to your income. This is called CGT Discount and is the part for which changes are being proposed.

Under the existing rule, CGT Discount is 50% if you have held the property for over 12 months. So only half of any profit is added to your taxable income.

The new rule is proposing:

• Profits generated before 1 July 2027 can still be reduced by 50%.

• Profits after this date will be indexed against inflation (called indexation).

Let's look at a practical example:

• You first bought your investment property for $500,000 on 1 July 2021.

• You eventually sell this property for $1 million on 1 July 2031.

• Under the existing rule, your profit is $500,000 so you need to add $250,000 to your taxable income.

• Under the new rule, your CGT would be calculated as follows:

  • Total profit is still $500,000.

  • Let’s assume the property is determined to be $800,000 as of 1 July 2027, based on sales data around this date. This means profit before 2027 is $300,000 and you add $150,000 to your taxable income.

  • Let’s further assume inflation is 4% annually. $800,000 in 2027 would have inflated to $935,900 by 2031. Profit between 2027 and 2031 is thus $64,100 and is added in full to your taxable income.

  • Taxes for both amounts ($150,000 and $64,100) will be calculated at your marginal tax rate. However, tax rate for the $64,100 cannot be lower than 30%.

As you can see, Indexation may actually reduce your CGT. When inflation is high, the new CGT rule may be a better deal than the existing one. If inflation goes back to the target range of 2-3%, the new rule would indeed result in higher taxes.

30% is the same tax rate for incomes between $45,000 and $135,000. If your personal income is lower than $45k, this will increase your tax. Otherwise, it will have minimal impact.

One key exception is newly built properties. They are often called off-the-plan for apartments, and house-and-land packages for houses. For these, you can choose between the 50% discount or the indexation method. This is expected to encourage construction of new homes to help with increasing housing supply.

It is important to note that only investment properties are subject to CGT. When you sell your main residence home, none of these matters. If part of your home is rented or used for a business though, a partial CGT may apply.

Negative Gearing

When you have an investment property and its rent cannot cover its costs (mortgage interest, maintenance, body corporate fees, agent fees, etc.), you would have made a rental loss.

Under the existing rule, you can deduct this loss from your personal taxable income to reduce your tax bill.

The new rule is proposing that:

• For properties bought before 13 May 2026, the existing rule still applies.

• For properties bought after 13 May 2026, rental losses can no longer be deducted from personal income.

• If you buy multiple properties after 13 May 2026, one property’s loss can offset another property’s profit. If your property portfolio generates a profit overall, it is added to your taxable income. If it generates a loss, it is NOT deducted from your taxable income but can be carried forward to reduce future rental profit.

• Only established properties are affected. Newly built properties, which you buy directly from the developers (off-the-plan, house and land packages, and turn-key contracts) can still have their losses deducted from personal income.

Remember that Negative Gearing only applies to properties that are making losses. If your properties generate profits (positively geared), this does not matter anyway.

Negative gearing has been an incentive for many investors, especially when interest rate and inflation are high. Many will need to rethink their strategy after 13 May 2026.

New builds can still take advantage of negative gearing, so we can expect higher investor demand in this sector.

What do these mean for you?

First, if you do not have an investment property, none of this applies and there is no cause for concern.

For investors, it is also important to look at things rationally:

• CGT changes may or may not increase your tax bill, depending on inflation.

• Negative Gearing still applies to properties already bought, so the effect is not as dramatic as many have interpreted.

• Moving forward, already built properties will be less attractive. However, only loss-making properties benefited from Negative Gearing anyway. Profitable properties in high-demand areas will continue to be important for long-term wealth.

• The push toward building new homes may present lower priced opportunities in less urban areas, which tend to have better rental yield.

First home buyers may find it easier to buy existing homes due to lower investors’ demand. However, this will take time and the effect is also not immediately clear. The most productive actions are still building up your deposit and improving your income.

Until next time, stay sensible.