On 12 May 2026, the Federal Government delivered a Budget that reshapes the tax treatment of residential property investment in Australia. The two headline measures, limiting negative gearing to new builds and replacing the 50 per cent capital gains tax (CGT) discount with indexation and a 30 per cent minimum tax rate, are the most significant changes to property tax settings in a generation.
For renovators, developers and investors, the details matter more than the headlines. This guide breaks down every change, the transitional arrangements, and what it all means for the way you analyse, hold and exit property.
Negative gearing: limited to new builds
From 1 July 2027, negative gearing for residential property will be limited to new builds that genuinely add to housing supply. Investors who acquire an established dwelling after 7:30pm AEST on 12 May 2026 will no longer be able to deduct net rental losses against salary, wages or other non-property income.
Instead, those losses will be quarantined and carried forward, and can only be used against future residential rental income or residential property capital gains.
What is grandfathered
Properties held before 7:30pm AEST on 12 May 2026 are fully grandfathered. If you owned an investment property before the announcement, your current negative gearing arrangements remain unchanged until you sell. This grandfathering also covers properties under a contract of purchase signed before the deadline, even if settlement occurs later.
What still qualifies
New builds remain fully eligible for negative gearing under the existing rules. A new build is a dwelling that genuinely adds to supply, including:
- A dwelling constructed on vacant land
- A knockdown rebuild that increases the number of dwellings on the site
A new build cannot have been previously sold, unless it was first owned by the builder and not occupied for more than 12 months. Substantial renovations that do not increase supply are not eligible.
Build-to-rent developments, widely held trusts, superannuation funds (including SMSFs) and private investors supporting government housing programs are also excluded from the restrictions. Commercial property and other asset classes such as shares are unaffected.
Capital gains tax: indexation replaces the 50 per cent discount
From 1 July 2027, the 50 per cent CGT discount for individuals, trusts and partnerships will be replaced with two measures:
- Cost base indexation. Your cost base will be adjusted for inflation using the Consumer Price Index (CPI), in a similar manner to the arrangements that applied between 1985 and 1999. You will only be taxed on the real, inflation-adjusted gain.
- A 30 per cent minimum tax rate on capital gains. Real capital gains will be subject to a minimum 30 per cent tax rate, regardless of your marginal rate. This prevents taxpayers from deferring gains to a low-income year to pay less tax.
Transitional arrangements
The new CGT rules only apply to gains accruing after 1 July 2027. For an asset you already own:
- Gains up to 1 July 2027 are calculated under the existing 50 per cent discount rules, using the asset's value at 1 July 2027 as the cost base.
- Gains after 1 July 2027 use indexation and the 30 per cent minimum tax.
You can determine the 1 July 2027 value by obtaining a valuation or using the apportionment formula and ATO tools that will be provided.
New build choice
Investors who buy new builds can choose, when they sell, between the existing 50 per cent CGT discount or the new indexation and minimum tax. This preserves a tax advantage for investment that adds to supply.
The main residence exemption and the four small business CGT concessions are unchanged. The 60 per cent CGT discount for qualifying affordable housing is fully retained.
Other housing measures in the Budget
Beyond the tax reforms, the Budget includes a package of supporting housing measures:
- $2 billion Local Infrastructure Fund to fund last-mile infrastructure for new housing.
- Foreign purchase ban extended. The ban on foreign purchases of established dwellings has been extended to 30 June 2029.
- Build-to-rent. Strengthened affordability requirements for build-to-rent tax concessions.
- Social and affordable housing. Additional funding, alongside ongoing Commonwealth Rent Assistance.
What it means for the market
The changes are designed to shift investor demand away from established housing stock and toward new supply. The major banks and economists expect a measurable but measured impact:
- House prices. CBA forecasts dwelling prices around 3 per cent lower than they otherwise would have been as a result of the changes. Dwelling price growth to December 2026 is now forecast at 3 per cent, down from 5 per cent, with 2027 unchanged at 3 per cent.
- Rents. A smaller impact is expected on rents, as the changes target investor demand rather than the supply of rental dwellings directly.
- Existing investors. Grandfathering reduces the risk of forced sales but creates a lock-in effect, giving existing investors a stronger incentive to hold rather than sell and reset under the new rules.
- New builds. The relative attractiveness of new builds and developments increases, since they retain access to negative gearing and a choice of CGT treatment.
In cash-flow terms, the removal of negative gearing for established dwellings is equivalent to roughly a 90 to 155 basis point increase in investor mortgage rates for the most affected investors (high marginal tax rates, high leverage, low rental yields). Some of the benefit is preserved through carried-forward losses, but it is delayed and less valuable in present-value terms.
What it means for you
If you hold existing investment property
Your current tax treatment is protected. The key decision is whether to hold or sell. Selling resets your position under the new rules, so the holding decision now carries a tax cost of change that did not exist before. Run the numbers on your real after-tax return before deciding.
If you are buying established property to renovate
Cosmetic renovation flips on established dwellings are still viable, but the holding cost profile changes. You can no longer offset rental losses against other income during the renovation or holding period. Feasibility needs to account for the loss of negative gearing, and your margin sensitivity should be tighter.
If you are developing or building new
The reforms work in your favour. New builds retain negative gearing and offer a choice of CGT treatment on sale. Subdivisions, knockdown rebuilds that increase dwelling numbers, and new build projects become relatively more attractive. Accurate feasibility modelling, cost tracking and reporting matter more than ever to prove supply-addition and qualify for the exemptions.
If you are a portfolio investor
The after-tax return profile of property changes. The CGT outcome now depends on the real capital gain, not just the nominal gain. Portfolio-level analysis should revisit assumptions about growth, inflation and holding periods, and weigh property against other asset classes on a like-for-like after-tax basis.
How PVA helps
The Budget makes rigorous feasibility and cost tracking more important, not less. PVA gives you the tools to respond:
- Deal Analyser. Model purchase price, costs, holding expenses and sale price to see projected profit, ROI and margin before you commit, with and without negative gearing.
- Dev Feasibility. Model subdivisions and new builds to confirm supply-addition and new build eligibility for the retained tax benefits.
- Budget and cost tracking. Log every cost in real time and export a BAS-ready, GST-split summary for your accountant.
- Investor and lender reports. Generate branded PDFs that show your position clearly, whether you are refinancing, reporting to JV partners or presenting to a private lender.
The fundamentals of a good property decision have not changed. Know your numbers, protect your margin, and let the tax treatment follow from a sound commercial decision rather than drive one.
This article is for general information only and does not constitute financial, tax or legal advice. The measures described are subject to the passage of legislation and ATO guidance. Speak to a licensed accountant or tax adviser about your individual circumstances.