If you bought your investment property before 7:30 pm last night, nothing about negative gearing or the capital gains tax discount changes for you. Not now, not in 2027, not ever.
The 2026 Budget rewrites the rules for future investors and introduces long-discussed structural changes to how Australia taxes capital gains. The reforms have a 14-month runway before they begin, and a long tail of transitional arrangements, meaning even the people they do affect won’t see a dollar of impact until well into 2028.
Here is what is changing.
What is negative gearing?
Watching the discussion around negative gearing for the last couple of years, especially on social media, one thing is clear: most people don’t actually know what negative gearing is.
The common misconception is that mortgage payments are tax-deductible. Not quite how it works.
Negative gearing is when the costs of owning an asset — say, an investment property — exceed the income it generates — i.e., rent. For an investment property, which is what most people talk about when discussing negative gearing, that could include things like interest on the loan, maintenance costs, etc etc. These losses can then be used to reduce your taxable income.
Residential property is often negatively geared for the first few years until it reaches a point where the loan amount and subsequent interest drop to a point where they are less than the rental income. Then, the income is subject to income tax in the same way as other income streams.
The two changes you need to understand
From July 1st 2027, two things happen.
The first is that negative gearing will be limited to new builds only. If you buy an existing house and rent it out at a loss after that date, you can still claim those losses, but only against income from residential property. Unused losses carry forward to future years.
The second is that the 50% capital gains tax discount disappears for assets bought after July 1st 2027. In its place, Treasury is restoring cost-base indexation against the Consumer Price Index — the system Australia used between 1985 and 1999 — alongside a new minimum 30% tax rate on real capital gains. The indexation does the same job the 50% discount was meant to do: strip out inflation from the taxable gain. The minimum tax stops someone with a very large gain in a year of low other income from paying almost nothing on it.
There’s a related but separate change to discretionary trust distributions, which will be subject to their own 30% minimum tax from July 1st 2028. That one will mostly affect higher-income families who use trust structures to split income among family members.
What does it mean if you already own an investment property?
Almost nothing. The changes are being grandfathered. Any property held at 7:30 pm last night, including any where contracts have been exchanged but settlement hasn’t happened, keeps the existing negative gearing treatment for the rest of the time you own it.
The CGT side is slightly more nuanced but still favourable. If you sell the property in five years, you get the existing 50% discount applied to the growth between purchase and July 1st 2027, and indexation plus the new minimum tax applied to the growth after that date. Treasury’s own worked example — Michael, who sells two years after the changes — comes out paying about $2,200 more in tax on a property that gained $60,000 in those two years. Across the full holding period, the difference isn’t that significant.
What does it mean if you’re thinking about buying one?
This is where the policy has been designed to have the most effect. There are three pathways:
If you sign before July 1st 2027, on an existing home, you get negative gearing under the current rules through June 30th 2027, and then you switch to the new restricted regime where losses can only offset residential property income from that point forward. The CGT treatment is split across the two regimes.
If you buy after July 1st 2027, and choose an existing home, you can still deduct rental losses against other residential property income and carry them forward, but you can’t offset them against wages. The CGT change applies in full. Treasury’s modelled investor — Yoonseo, buying a $519,000 property and holding for ten years — pays an extra $186.00 in tax across the whole investment period compared to the old rules.
If you buy after July 1st 2027, and choose a new build, almost nothing changes. You keep negative gearing in full, and when you sell, you can choose between the old 50% CGT discount or the new indexation regime, whichever produces the lower tax bill. The Government wants to encourage investors to use their money to increase the overall housing stock.
“New build” has a specific definition. An off-the-plan apartment counts. A duplex built where one house used to stand counts. Construction on previously vacant land counts. A granny flat doesn’t count. A knock-down rebuild that replaces one house with one house doesn’t count. A renovation, regardless of size, doesn’t count. The test is whether the work adds dwellings to the housing stock.
What it means for first-home buyers
This is the cohort the policy is designed to help, and Treasury is explicit about why. Since 1999, when the 50% CGT discount was introduced, average house prices have risen more than twice as fast as average full-time earnings. The homeownership rate among Australians aged 25 to 34 fell by seven percentage points between 2001 and 2021. The reforms are framed as an attempt to flatten that curve.
Treasury’s modelling estimates 75,000 additional owner-occupiers over the next decade as a result of the changes, described in the Government’s own fact sheet as “equivalent to reversing around 10 years of declines in the home ownership rate.” That’s a national figure, and Perth is over-represented in the first-home buyer cohort relative to the east coast.
Whether it works depends almost entirely on what happens to investor demand on the ground. If investors retreat from the established market faster than first-home buyers can step into it, the result is softer prices and fewer transactions. If they retreat more slowly, prices keep rising, and the policy moves the needle very little.
Our prediction is that the policy changes have little to no effect on housing affordability. The changes don’t materially affect the long-term profitability of investing in residential real estate. This feels more like policy designed to attract headlines and encourage voter behaviour than it does to actually reform how taxation is applied.
How will it affect renters?
Treasury’s modelling estimates an increase of less than $2.00 a week at the median rent. This takes into account the expected downward pressure from the housing supply measures elsewhere in the Budget.
REIWA’s view is sharper. Investors supply more than 86% of WA’s rental properties, and chief executive Suzanne Brown has flagged that any policy that nudges investors out of the market will hit Perth renters harder than the national average suggests. Her concern is timing as much as anything else. Perth’s vacancy rate sat at 2.0% in March 2026, and REIWA’s forecast for the year has median house prices rising more than 10% and unit prices rising 15% to 20%. Supply is below the February 2021 peak, and the population has grown significantly since then.
The Government’s counter to that argument is the $6.3 billion total it now has earmarked for housing-enabling infrastructure, including a new $2 billion Local Infrastructure Fund, and the foreign-buyer ban on established homes, which has been extended to mid-2029.
What should investors do?
Probably nothing this week, or at all, to be honest.
