3 Big Budget Changes Every Property Investor Needs to Know Right Now

The Federal Budget 2026 has introduced significant changes that will impact property investors across Australia. If you own investment properties or are considering entering the market, understanding these changes is crucial. The government has adjusted rules around Capital Gains Tax (CGT), Negative Gearing, and the taxation of trusts, all of which could affect your investment returns and tax planning strategies.

This post breaks down these three key changes, explains what they mean for property investors, and offers practical insights to help you navigate the evolving landscape.

Changes to Capital Gains Tax for Property Investors

For more than 25 years, if you sold an investment property you'd held for at least 12 months, you only paid tax on half the gain. That 50% CGT discount has been one of the biggest tax advantages of property investing in Australia. From 1 July 2027, it's being replaced.

What's Changing?

Under the new rules, the 50% CGT discount for individuals, trusts and partnerships will be replaced by cost base indexation — meaning your purchase price gets adjusted for inflation, and you're only taxed on the real gain above that. On top of that, a 30% minimum tax rate will apply to capital gains.

What This Means for Property Investors

If you sell an investment property purchased after the budget changes, your taxable capital gain will effectively double compared to previous rules. For example, if you made a $100,000 gain, you would have previously only paid tax on $50,000 after the 50% discount. Now, you will pay tax on $75,000.

Key Date: These changes only apply to gains that accrue after 1 July 2027. The gain on your property up to that date will still be calculated under the old 50% discount rules. You'll need a valuation (or ATO-approved formula) to establish your property's value on that date.

Who's Affected?

Investors who own established residential properties, shares, or other CGT assets held through individual names, partnerships or trusts will all be impacted. Superannuation funds are not affected — they retain their existing one-third discount. Properties purchased before Budget night (7:30pm AEST, 12 May 2026) are grandfathered on the negative gearing side, but the CGT changes still apply to gains after 1 July 2027.

What This Means in Practice

If you're a high-income earner buying and holding established property for long-term capital growth, your after-tax return on sale will be lower than under the current system — particularly when the nominal gain is high relative to inflation. For lower-growth assets, indexation may actually produce a similar or better result than the old 50% discount. The outcome depends on holding period, inflation, and your marginal tax rate.

New builds are treated differently. If you buy a newly constructed property, you can choose between the new indexation method and the 50% discount — whichever gives you the better result. That's a meaningful carve-out that makes new construction considerably more attractive from a tax perspective.

Negative Gearing Rules Are Being Tightened

Negative gearing is one of the most talked-about topics in Australian property, and the government has now made its move. From 1 July 2027, the ability to offset rental losses against your other income (like your salary) will be limited to new builds only.

What Has Changed?

Right now, if your investment property costs more to hold than it earns in rent, you can claim that loss against your wages — reducing your taxable income immediately. Under the new rules, this only works for new residential properties. For established properties purchased after Budget night, rental losses will be "quarantined" — you can only offset them against other residential property income or capital gains. Any leftover losses can be carried forward to future years.

🏠 Grandfathered: If you already own an investment property (or are under contract before 12 May 2026), your existing negative gearing arrangements remain unchanged. The new rules only apply to established properties purchased after Budget night.

Who Is a "New Build"?

The government defines a new build as a residential property that genuinely adds to Australia's housing stock. This includes a newly constructed dwelling on vacant land, or existing dwellings demolished and replaced with a greater number of homes. Importantly, knock-down rebuilds that don't increase the number of dwellings, and substantial renovations, will not qualify. A new build also can't have been previously sold — unless the first owner was the builder and the property hasn't been occupied for more than 12 months.

What This Means in Practice

For investors who rely on negative gearing to offset high loan costs against a salary or business income, buying established property just became significantly less tax-effective. Commonwealth Bank's analysis suggests the change is equivalent to a 90 to 155 basis point increase in mortgage costs for highly leveraged investors — that's a material hit to cash flow.

The silver lining: your losses aren't gone, they're just deferred. They accumulate and can be used against future rental income or capital gains. But for investors who were using negative gearing as a short-term income tax strategy, this change reshapes the maths considerably.

Trusts Will Face New Taxation Rules

Many investors use discretionary (family) trusts to hold property and investments — a structure that's been popular for income splitting and wealth management. As of 1 July 2028, the tax advantage of distributing trust income to low-income beneficiaries will be significantly curtailed.

What Has Changed?

The government will introduce a 30% minimum tax rate on all distributions from discretionary trusts. Currently, trust income can be distributed to beneficiaries (such as adult children or non-working spouses) who pay tax at their own — often lower — marginal rates. This strategy, known as income splitting, is widely used to reduce a family's overall tax burden. The new 30% floor puts a stop to the benefit of splitting to anyone taxed below that rate.

💡 How Credits Work: Non-corporate beneficiaries will receive non-refundable tax credits for the minimum tax paid by the trustee. So if a beneficiary's own marginal rate is above 30%, the credit offsets against their personal tax — but if it's below 30%, they can't get a refund of the difference.

Who's Excluded?

Not all trusts are affected. The government has confirmed that widely held trusts (such as most managed investment trusts), superannuation funds including SMSFs, and discretionary testamentary trusts that existed at the time of the announcement will be excluded. So if your SMSF holds property, no changes there.

What This Means in Practice

If you currently use a family discretionary trust to hold investment properties and distribute income to lower-earning family members, your effective tax rate on that trust income is going up. PwC has estimated this measure will raise approximately $4.5 billion over five years — which gives you a sense of how widely it's expected to apply. Investors in this situation should be reviewing their trust structure with their accountant before July 2028.

So… What Should You Actually Do?

Here's the real talk: these changes don't mean property investing is dead. It means the strategy needs to evolve. The government has deliberately kept new builds attractive — with negative gearing intact and CGT method choice — because the stated goal is to incentivise new housing supply, not to shut down property investment altogether.

For investors, this creates a clear divide. Buying established property for negative gearing cash-flow benefits? The numbers are tighter after July 2027. Buying a new build for long-term growth? The tax treatment is still favourable. And for anyone holding existing properties bought before Budget night, you're grandfathered on negative gearing — but you'll still want a CGT valuation locked in for 1 July 2027.

The most important thing you can do right now is get proper advice — talk to your accountant about your trust structure, review your existing portfolio, and make sure any new property decisions are made with the post-July 2027 rules in mind. These changes are proposed, not yet legislation, and the exact implementation details are still being finalised — but the direction is clear.

And if you're thinking about financing a new build or reviewing how your investment loans sit in light of these changes, that's where we come in...

Not sure how this affects your situation?

Book a free, no-pressure chat with us. We'll look at your borrowing position, talk through your options, and help you figure out what makes sense — without the jargon.

Sources & Further Reading

Australian Federal Government – Budget 2026–27: Tax Reform. budget.gov.au

Australian Federal Government – Budget Factsheet: Negative Gearing and Capital Gains Tax Reform. budget.gov.au (PDF)

Duo Tax Quantity Surveyors – Federal Budget 2026: Tax Depreciation, CGT Valuations and What Property Investors Need to Know. duotax.com.au

Commonwealth Bank of Australia – 2026 Budget: Updated Housing Outlook. commbank.com.au

PwC Australia – Federal Budget Tax Analysis: Investment. pwc.com.au

Perpetual Wealth – Federal Budget 2026 Key Measures Analysis. perpetual.com.au

General Advice Disclaimer: This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. It does not constitute legal, tax or financial advice. You should always seek professional advice from a qualified accountant or financial adviser in relation to your individual circumstances before making any investment decisions. Credit Representative 546185 is authorised under Australian Credit Licence 389328.