Negative Gearing and CGT Changes: What the 2026 Budget Means for Property Investors

The biggest change to property tax in a generation passed Parliament on 25 June 2026 and takes effect on 1 July 2027. For investors in Frankston, the Mornington Peninsula and Melbourne's outer east it changes two things at once: whether a rental loss can reduce the tax on your wages, and how much of a capital gain is taxed when you sell. The rules depend heavily on when you bought, what you bought and how you hold it. Here is what has been legislated, what is still to come, and what to do before the start date.

The short version

• •Negative gearing is quarantined for established residential properties bought after 7:30pm AEST on 12 May 2026, starting 1 July 2027. Losses can no longer offset wages or business income; they offset other residential rental income, carry forward, or reduce the capital gain on sale
• •Properties bought before that date are grandfathered under the current rules for as long as you own them, including contracts exchanged before the announcement but settled later
• •New builds are exempt and keep full negative gearing
• •The 50% CGT discount ends on 1 July 2027 for individuals and trusts. It is replaced with inflation indexation of the cost base plus a minimum 30% tax rate on net capital gains
• •Gains accrued before 1 July 2027 keep the 50% discount, which means a valuation of every asset at the changeover date
• •Super funds, including SMSFs, are unaffected, and your own home remains exempt

Negative gearing: who is affected and who is not

Negative gearing itself is not abolished. What changes is what a rental loss can be used against. From 1 July 2027, for an affected property, a net rental loss can only be:

• •Offset against rental income from your other residential properties in the same year
• •Carried forward to offset residential rental income in future years
• •Applied against the capital gain when the property is eventually sold

It can no longer reduce tax on your salary, business or investment income. Whether your property is affected comes down to three questions.

When did you buy

If the contract was exchanged before 7:30pm AEST on 12 May 2026, the property stays under the current rules for as long as you own it. That includes off-the-plan and other contracts signed before the announcement but settling afterwards. Grandfathering attaches to your ownership of that property; it does not pass to a buyer if you sell.

If you bought an established residential property after that time, you can still negatively gear it for the 2026–27 year. From 1 July 2027 the loss is quarantined.

What did you buy

New residential dwellings are exempt. An investor who buys or builds a new home can continue to offset rental losses against other income. A knockdown-rebuild of an existing house does not qualify unless the land is subdivided into multiple new dwellings. Commercial property, land and other asset classes are outside the changes entirely.

How do you hold it

The quarantining applies to individuals and most trusts. Superannuation funds, including self-managed super funds, widely held trusts, build-to-rent developments and investors in eligible government housing programs are exempt.

Capital gains tax: the 50% discount is replaced from 1 July 2027

This part of the reform applies far more broadly than property. It covers capital gains made by Australian resident individuals and trusts on any CGT asset held for more than 12 months, including shares, managed funds, ETFs and cryptocurrency.

Indexation instead of a flat discount

From 1 July 2027 the 50% discount is removed. Instead, the cost base of an asset held for more than 12 months is indexed for inflation over the period you owned it, and only the gain above inflation is taxed. How this compares to the old rule depends on how long you hold and how fast the asset grows:

• •Long hold, modest growth: indexation can produce a result close to the old discount. A property bought for $800,000 and sold ten years later for $1.3 million, with inflation averaging 3%, has an indexed cost base of roughly $1.075 million and a taxable gain of about $225,000, compared with $250,000 under the 50% discount
• •Short hold, strong growth: indexation is much less generous. The same $500,000 gain made over three years has an indexed cost base of about $874,000 and a taxable gain of around $426,000, against $250,000 under the discount

A 30% minimum tax on capital gains

After indexation, net capital gains are taxed as ordinary income but at a minimum rate of 30%. Someone in the tax-free threshold or the 15% bracket still pays 30% on a capital gain. This directly affects a strategy many local investors have used for years: holding an investment property in the name of a lower-earning spouse so that the eventual gain is taxed at low marginal rates.

Gains before 1 July 2027 are protected

Gains that accrued up to 30 June 2027 keep the 50% discount. Gains after that date fall under the new rules, using the asset's value on 1 July 2027 as the starting point. The Government's own example: a property bought for $1 million, worth $1.5 million on 1 July 2027 and later sold for $2 million has the first $500,000 of gain taxed with the 50% discount and the next $500,000 taxed under indexation and the minimum rate. That makes a defensible valuation of every investment asset at 1 July 2027 essential.

What is exempt

• •Your main residence stays exempt from CGT. If you later rent it out, only the gain from that point is taxed under the new rules
• •Superannuation funds keep their existing CGT treatment, so an SMSF still receives its one-third discount in accumulation phase and pays no CGT on assets supporting a retirement pension
• •Investors in new residential dwellings can elect to keep the 50% discount rather than use the new regime
• •Certain income support recipients, including Age Pensioners, are excluded from the minimum tax

What is legislated and what is still coming

The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 passed both houses on 25 June 2026 and contains the first stage: the removal of the 50% discount and the quarantining of rental losses from 1 July 2027. A second bill (Tax Reform No. 3) containing further detail, including which additional asset classes may keep concessional treatment, is still in consultation. The framework above is law; some of the fine print will change, and we will update this article as it does.

What it means for investors in Frankston and Ringwood

Most of our investor clients across Frankston, Langwarrin, Seaford, Mount Eliza, Ringwood, Croydon and Heathmont hold one or two established houses or units bought years ago. For them:

• •Negative gearing is unchanged on those properties for as long as they own them
• •The CGT change still applies to gains made after 1 July 2027, so the value of the property at that date matters
• •Any additional established property bought from now on will lose negative gearing against wages from 2027–28, so the purchase has to stand up on rent and growth alone

For anyone considering a new investment, the arithmetic has shifted toward new builds, which keep both concessions. That does not make every new build a good investment; rental guarantees, build quality and land value still decide the outcome. Run any purchase through our investment property cash flow calculator with the tax refund set to zero before you commit.

Selling before 1 July 2027 to lock in the 50% discount on the whole gain is a question we are being asked weekly. Sometimes it is right, particularly for a property that has done its job and was going to be sold within a few years anyway. Often it is not: you bring forward a tax bill, pay selling costs, and give up future growth for a discount you would have kept on the pre-2027 gain anyway. Model it before you list.

Five things to do before 1 July 2027

• •Confirm the contract date of every investment property. Before or after 7:30pm on 12 May 2026 decides your negative gearing treatment
• •Re-run the cash flow on any established property bought after Budget night without the tax refund from 2027–28 onward. Check the loan still fits your budget under rising rates
• •Plan a valuation at 1 July 2027 for every investment property, share portfolio and other CGT asset. A registered valuer's report for property, and documented market values for other assets, will protect the discount on your pre-2027 gains
• •Review ownership structures. Holding property in a low-income spouse's name is less effective under a 30% minimum rate; an SMSF is unaffected; trusts are caught by the CGT change. Changing structure has its own tax and stamp duty costs, so this needs advice, not a quick fix
• •Time any planned sales deliberately. Use our capital gains tax calculator to compare selling in 2026–27 with holding

Accounting, advice and lending under one roof

These changes sit at the intersection of tax, investment strategy and borrowing, which is exactly where a firm with accountants, licensed financial advisers (AFSL 491754) and mortgage brokers in the same office earns its keep. Our accountants handle the tax planning and CGT modelling, our advisers can assess whether property still suits your goals, and our brokers structure investment property loans for the post-2027 environment. Book at our Frankston office (formerly Paganoni Accounting) on 03 9769 6431 or our Ringwood East office on 03 9870 1477.

Frequently asked questions

Does this affect the investment property I already own

Negative gearing on a property bought before 7:30pm on 12 May 2026 is unchanged for as long as you own it. The CGT change does apply to the gain that accrues after 1 July 2027, which is why a valuation at that date matters.

I signed a contract in early 2026 but settle in 2027. Am I grandfathered

Yes. Contracts exchanged before the announcement are treated under the current rules even if settlement happens after 1 July 2027.

Do the CGT changes affect shares and ETFs

Yes. The removal of the 50% discount applies to all CGT assets held by resident individuals and trusts, not just property. Assets inside superannuation are not affected.

Should I sell my investment property before 1 July 2027

Only if the numbers say so. Gains accrued to 30 June 2027 keep the 50% discount whether you sell now or later, so selling early is about the future gain, not the past one. We model both scenarios for clients before any decision.

Are new builds really exempt from the negative gearing changes

Yes. Eligible new residential dwellings keep full negative gearing and can elect to keep the 50% CGT discount. A knockdown-rebuild only qualifies if the land is subdivided into multiple dwellings.

This article reflects legislation passed on 25 June 2026 and Government announcements as at 24 September 2026. Further detail is expected in a second bill and may change the fine print. It is general information only and does not take into account your personal circumstances. Obtain advice on your own position before buying, selling or restructuring.