At 7:30PM AEST on 12 May 2026, the rules of property investment in Australia changed. Treasurer Jim Chalmers handed down the 2026–27 Federal Budget with the most significant overhaul of property tax in more than 25 years. Negative gearing on established residential properties is being limited. The 50 per cent capital gains tax (CGT) discount is being replaced. And the timing of those changes matters more than almost anything else.
If you already own an investment property, signed a contract before Budget night, or are planning to buy in the next 12 months, the new rules will affect you differently. This guide breaks down what changed, when, and what property investors should actually do about it. All figures and dates are taken directly from the official Budget Paper No. 2 and the Government’s Tax Reform statement.
What actually changed for property investors in the 2026–27 Federal Budget?
The Federal Government announced two separate but linked changes that hit property investors at the same time: a restriction on negative gearing for established residential property, and a replacement of the long-standing 50 per cent CGT discount. The Government framed the package as a way to help first home buyers compete and to fund tax cuts for workers.
According to Budget Paper No. 1, Statement 4, the reforms are expected to support an additional 75,000 owner-occupiers into the housing market. The changes are estimated to raise $3.6 billion over five years from 2025–26 from the negative gearing and CGT changes combined.
When does the negative gearing change actually start?
The negative gearing rule change is timed in two parts, and the difference matters:
- Acquisition cutoff: 7:30PM AEST on 12 May 2026 — the exact moment the Budget was handed down. Any established residential property acquired after this time falls under the new rules.
- Effective date for the rule: 1 July 2027 — from this date, losses on caught properties can only be offset against rental income or capital gains from residential property.
Properties acquired before 7:30PM AEST on 12 May 2026 — including those where the contract was signed but not yet settled — are exempt from the change until they are sold. That grandfathering travels with the property: while you own it, the old rules apply.
Excess losses on caught properties don’t disappear. They’re carried forward and can be offset against residential property income (rent or capital gains) in future years. You just can’t use them to reduce your salary or business income tax anymore.
What is the new capital gains tax rule from 1 July 2027?
From 1 July 2027, the 50 per cent CGT discount on assets held for more than 12 months will be replaced with two new mechanics:
- Cost base indexation — the cost base of your asset is adjusted upward in line with inflation (CPI), so you only pay CGT on the real (above-inflation) gain. This was the system that applied before September 1999.
- 30 per cent minimum tax on net capital gains — a floor rate that prevents investors from timing asset sales for years when their other income is low, such as immediately after retirement.
These changes apply to all CGT assets including pre-1985 (pre-CGT) assets, held by individuals, trusts and partnerships. Companies and complying superannuation funds already have their own CGT regimes and are not directly affected by the discount replacement.
Transitional rules protect the gain that accrued up to 1 July 2027. If you bought a property in 2010 and sell it in 2030, the gain from 2010 to 1 July 2027 is taxed under the old rules (with the 50 per cent discount), and the gain from 1 July 2027 to 2030 is taxed under the new rules.
Am I grandfathered if I already own an investment property?
Partly. The two changes are grandfathered separately, which is the trap many investors are missing.
For negative gearing: yes — if you owned the property (or were under contract) before 7:30PM AEST on 12 May 2026, the negative gearing change does not apply to that property for as long as you hold it.
For CGT: no — the CGT change applies to all eligible assets from 1 July 2027, regardless of when you bought them. The transitional rule limits the damage by carving out the pre–1 July 2027 gain, but the post–1 July 2027 gain is taxed under the new regime even on properties you’ve held for years.
This means a long-held investment property keeps its negative gearing benefit for the lifetime of your ownership, but loses the future 50 per cent CGT discount on growth after 1 July 2027.
Do the new rules apply to commercial property or shares?
The negative gearing change is targeted specifically at established residential property. Commercial property, shares, managed funds, business interests and other non-residential assets can still be negatively geared against your other income under the existing rules.
The CGT change, however, is broader. The replacement of the 50 per cent discount with cost base indexation and the 30 per cent minimum tax applies to all CGT assets held by individuals, trusts and partnerships — including shares, business goodwill, and collectibles — not just residential property. Existing CGT exemptions (such as the main residence exemption and active small business CGT concessions) remain in place.
Should I sell my investment property before 1 July 2027?
For some investors, triggering a CGT event before 1 July 2027 to lock in the 50 per cent discount could be valuable. For others, the costs of selling (agent fees, stamp duty on the next purchase, lost rental income, mortgage break costs) will outweigh the tax saving. There is no general answer — it depends on your cost base, your expected holding period, your marginal tax rate, and whether you intend to reinvest.
A few situations where it’s worth a closer look:
- You’re planning to retire in the next few years and intended to sell in retirement when your taxable income drops. The new 30 per cent minimum CGT rate removes that strategy unless you qualify for the Age Pension exemption.
- You hold a pre-1985 asset that’s grown significantly. Pre-CGT exempt status only protects gains arising before 1 July 2027.
- You hold an established residential property at a large gain that you intended to negatively gear long-term. Selling triggers CGT now but resets your strategy under the new regime.
This is exactly the kind of decision worth running through with an accountant who can model the numbers against your full income picture. Our taxation service team can build out the comparison for you.
What does this mean for my next property purchase?
If you’re planning to buy after 12 May 2026, the calculus has shifted. An established residential property purchased now will not be negatively geared against your salary from 1 July 2027 onward, and any gain on sale after 1 July 2027 will be taxed under the new CGT regime.
In practical terms, established property investments will need to stack up more on rental yield and less on tax-deductible losses. New builds remain a tax-favoured option — they keep both negative gearing access and the choice of CGT treatment. Commercial property and shares retain their existing negative gearing treatment and may become relatively more attractive.
What should property investors do now?
Five practical steps:
- Document your acquisition date and contract status. If you were under contract before 7:30PM AEST on 12 May 2026, keep the contract and exchange documentation. This is your evidence of grandfathered status.
- Get a current valuation of every investment property. You’ll need a defensible market value as at 1 July 2027 to anchor the transitional CGT calculation.
- Review your loan structure. If a property no longer offers negative gearing against your salary, the case for interest-only loans or aggressive leverage weakens.
- Revisit your retirement plan. If your strategy assumed selling investments in low-income retirement years, the 30 per cent minimum CGT rate may force a rethink unless you qualify for the Age Pension exemption.
- Talk to your accountant before 30 June 2027. There’s a 12-month window to review structures, consider whether to crystallise gains, and plan around the new rules.
At RPS Accountants we work with property investors across Melbourne and Australia on exactly these decisions. Book a property tax planning session through our taxation service or our business advisory service.
