Federal Budget 2026–27 · Property & Tax
Purpose
If life, taxes and investing wasn’t complicated enough, well this is just about to get more complex. I hope to unpack the changes as a references guide for you.
There are two separate changes being discussed: negative gearing and capital gains tax. They interact, but they are not the same thing.
- Negative gearing deals with annual rental losses.
- CGT deals with the capital gain when you sell the asset.
Scenarios
Note, I have unpacked it into a summary for ease of reference because it can get complicated even before we begin.
| When property purchased | Treatment |
|---|---|
| Existing properties held before 12 May 2026 | No change. Negative gearing continues. |
| Properties purchased between 12 May and 30 June 2027 | Can negatively gear for this period which is 415 days. But from 1 July 2027 cannot negatively gear. From 1 July 2027, losses can no longer offset salary, wage or business income. |
| “Existing” property purchased after 1 July 2027 | Cannot negatively gear if you buy an “Established Residential” property. Rental losses are quarantined and carried forward to offset future residential property income or residential property capital gains. |
| “New build” property from 1 July 2027 | Can negatively gear. |
Scenario summary
| Scenario | Annual rental loss treatment | CGT treatment on sale | Simple takeaway |
|---|---|---|---|
| 1. Existing established property held before Budget announcement | Loss can still offset salary/wages/business income. | Gain up to 1 July 2027 uses old rules. Gain after 1 July 2027 uses indexation/minimum tax. | Negative gearing is grandfathered, but future CGT gain is partly under new rules. |
| 2. Established property bought after announcement and before 1 July 2027 | Can be negatively geared until 30 June 2027. From 1 July 2027, losses are quarantined. | Pre-1 July 2027 gain uses old rules. Post-1 July 2027 gain uses new rules. | Immediate tax benefit may stop from 1 July 2027. |
| 3. Established property bought from 1 July 2027 | Loss cannot offset salary/wages. Loss is carried forward. | Entire gain is under the new indexation/minimum tax method. | Tax benefit is deferred, not necessarily lost. |
| 4. New build that genuinely adds housing supply | Negative gearing remains available. | Investor may choose either the 50% CGT discount or indexation/minimum tax on sale. | Most favourable treatment under the proposal. |
Illustrative assumptions used in the tables
| Item | Assumption |
|---|---|
| Rental income | $30,000 p.a. |
| Deductible property costs including interest | $42,000 p.a. |
| Annual rental loss | $12,000 p.a. |
| Illustrative marginal tax rate | 39% including Medicare levy |
| Original purchase price/cost base | $700,000 |
| Value at 1 July 2027 | $760,000 |
| Sale price later | $900,000 |
| Indexed cost base for post-2027 period | $800,000 |
| Assumption for carried-forward losses | Two years of $12,000 losses = $24,000 |
Scenario 1 — Existing established property already owned before Budget announcement
This is the cleanest case. The property was already held before 7:30pm AEST on 12 May 2026. The annual rental loss can still offset salary, wages or business income. However, the CGT calculation can still be split if the asset is sold after 1 July 2027.
| Annual loss item | Amount | Tax impact |
|---|---|---|
| Rental income | $30,000 | Income assessable |
| Deductible costs | ($42,000) | Deductible |
| Net rental loss | ($12,000) | Offsets other income |
| Tax saving at 39% | $4,680 | Immediate annual cash-flow benefit |
| CGT item | Calculation | Taxable amount |
|---|---|---|
| Gain to 1 July 2027 | $760,000 less $700,000 = $60,000 | $30,000 after 50% discount |
| Gain after 1 July 2027 | $900,000 less indexed cost base $800,000 | $100,000 |
| Total taxable capital gain | $30,000 + $100,000 | $130,000 |
| Estimated tax at 39% | $130,000 x 39% | $50,700 |
Scenario 2 — Established property bought after announcement but before 1 July 2027
This property may be negatively geared during the transition period up to 30 June 2027. From 1 July 2027, annual rental losses are no longer deductible against salary or wages. They are carried forward and can be used against future residential property income, including residential property capital gains.
| Year | Rental result | Tax treatment | Running carried-forward loss |
|---|---|---|---|
| 2026-27 | ($12,000) | Can offset salary/wages during transition period | $0 |
| 2027-28 | ($12,000) | Quarantined; cannot offset salary/wages | $12,000 |
| 2028-29 | ($12,000) | Quarantined; cannot offset salary/wages | $24,000 |
| Sale year | Capital gain | Carried-forward loss may reduce residential property gain | Used on sale |
| CGT item | Calculation | Taxable amount |
|---|---|---|
| Gain to 1 July 2027 | $760,000 less $700,000 = $60,000 | $30,000 after 50% discount |
| Post-2027 indexed gain | $900,000 less $800,000 indexed cost base | $100,000 |
| Less carried-forward rental losses | Two years of $12,000 losses | ($24,000) |
| Net taxable capital gain | $30,000 + $100,000 - $24,000 | $106,000 |
| Estimated tax at 39% | $106,000 x 39% | $41,340 |
Scenario 3 — Established property bought from 1 July 2027
This is the full new-rules case. The property is established, not a qualifying new build. Annual losses are quarantined from day one, and the capital gain is calculated under the new indexation/minimum tax method.
| Item | Current-style negative gearing | Proposed treatment for this scenario |
|---|---|---|
| Annual rental loss | ($12,000) | ($12,000) |
| Can it reduce salary/wages? | Yes | No |
| Immediate tax saving at 39% | $4,680 | $0 |
| What happens to the loss? | Used immediately | Carried forward for residential property income/gains |
| CGT item | Calculation | Taxable amount |
|---|---|---|
| Indexed capital gain | $900,000 less indexed cost base $760,000 | $140,000 |
| Less carried-forward rental losses | Two years of $12,000 losses | ($24,000) |
| Net taxable capital gain | $140,000 - $24,000 | $116,000 |
| Estimated tax at 39% | $116,000 x 39% | $45,240 |
Scenario 4 — New build that genuinely adds to housing supply
This scenario receives the most favourable proposed treatment. The investor can continue to negatively gear the property, meaning the annual rental loss can reduce salary or wage income. On sale, the investor may choose either the existing 50% CGT discount or the new indexation/minimum tax method.
| Annual loss item | Amount | Tax impact |
|---|---|---|
| Rental income | $30,000 | Income assessable |
| Deductible costs | ($42,000) | Deductible |
| Net rental loss | ($12,000) | Offsets salary/wages/business income |
| Tax saving at 39% | $4,680 | Immediate annual cash-flow benefit |
| CGT option on sale | Calculation | Taxable amount | Tax at 39% |
|---|---|---|---|
| 50% CGT discount | ($900,000 - $700,000) x 50% | $100,000 | $39,000 |
| Indexation method | $900,000 - $760,000 indexed cost base | $140,000 | $54,600 |
| Better result in this example | Choose the 50% discount | $100,000 taxable | $39,000 |
The practical message for clients
The proposed rules are likely to reduce demand for established residential investment properties because the after-tax return becomes weaker. If investors can no longer use rental losses to reduce salary or wage income, the annual cash-flow cost of holding the property increases. Mathematically, when the after-tax return falls, investors need either lower prices, higher rents, lower interest rates or stronger growth expectations to justify the same purchase.
This does not mean property prices must crash, because housing supply remains tight and owner-occupier demand is still strong. However, it does suggest downward pressure on established investment-grade property, especially lower-yielding properties that rely heavily on negative gearing and future capital growth.
New builds are likely to be relatively better supported because they retain negative gearing and more favourable CGT treatment under the proposal.
For investors approaching retirement, these changes are also a reminder to review how an investment property fits within your broader superannuation and retirement planning before committing to buy, hold or sell.
Property price impacts
The proposed negative gearing and CGT changes are likely to affect property prices differently depending on the type of property.
The biggest pressure is likely to be on established residential investment properties, especially properties that are mainly bought by investors and rely heavily on negative gearing to make the cash flow work. If investors can no longer use rental losses to reduce salary or wage income, the after-tax cost of holding the property increases. Mathematically, that reduces the attractiveness of the asset unless the buyer can purchase at a lower price, receive higher rent, benefit from lower interest rates, or rely on stronger future capital growth.
This means low-yield apartments, townhouses and investor-heavy properties may face downward price pressure. These properties often rely on the investor accepting poor short-term cash flow in exchange for tax benefits and future capital growth. If the tax benefit is reduced or delayed, investors may demand a lower entry price.
By contrast, high-yield properties should be more resilient because they rely less on negative gearing. If the rental income already covers a larger portion of the holding costs, the loss of the tax benefit is less damaging.
Owner-occupier quality homes should also be more resilient because their price is driven more by lifestyle, location, schools, family needs and borrowing capacity, rather than pure after-tax investment returns.
New builds are likely to be relatively better supported because they retain more favourable tax treatment. Under the proposal, qualifying new builds can still be negatively geared, and investors may have more favourable CGT treatment compared with established residential property. This may shift some investor demand away from established properties and toward new housing supply and therefore increase in housing price in this segment.
Overall, I do not think this automatically causes a property crash. Housing supply remains tight, population growth is still supportive, and owner-occupier demand remains important. However, from a mathematical and investor-return perspective, the proposed rules are likely to create downward pressure on established investment-grade property, while providing upward pressure on new builds and better cash-flowing properties.
Sources and further reading
Federal Budget 2026-27 Tax Explainer: Negative Gearing and Capital Gains Tax Reform. budget.gov.au
Manny Tran GradDip (FinPlan), ABFP® , CRPC®
Director and Senior Financial Adviser
With 17+ years’ experience and over 1,000 retirement plans built for Australian families, Manny works with clients aged 50 to 65 across Bundoora, metropolitan Melbourne, and nationally via video consultation. His focus is helping pre-retirees replace uncertainty with a clear, evidence-based plan.
The Watermans Bundoora, Level 2, 1/3 Janefield Drive, Bundoora VIC 3083 · +61 433 564 003 · manny@planmywealth.com.au · Book a free consultation
