2026 Federal Budget: What Does It Mean for Property Investors?
The 2026 Federal Budget included significant proposed changes to the taxation of residential property investment, particularly around negative gearing and capital gains tax (CGT).
For property investors, one of the most important aspects of the announcement is the distinction between properties acquired before and after 7:30pm on 12 May 2026, when the Budget was handed down.
The proposed changes are scheduled to take effect from 1 July 2027, subject to legislation passing through Parliament.
Here is what was announced and what it means for property investors.
Negative gearing
Under the current tax system, an investor can generally deduct eligible expenses associated with a negatively geared residential investment property against other taxable income, such as salary or business income.
The Government has proposed changing this treatment from 1 July 2027.
The existing treatment is proposed to be grandfathered for residential investment properties acquired before 7:30pm on 12 May 2026.
For properties acquired after that time, the proposed treatment will depend on whether the property is an established dwelling or an eligible new build.
Established properties
For an established residential property acquired after 7:30pm on 12 May 2026, rental losses would no longer be deductible against other income such as salary or business income from 1 July 2027.
Instead, the loss would generally be carried forward and used against future residential property income.
This is an important change for investors who rely on negative gearing to reduce their taxable income.
New builds
The Government has proposed that eligible new residential properties will retain access to negative gearing against other taxable income.
This means the proposed restriction is specifically targeted at established residential property, while new housing would continue to receive the existing negative-gearing treatment.
The stated purpose of the measure is to encourage investment towards the construction of new housing.
What does this mean for borrowing capacity?
The proposed change to negative gearing also has an immediate relevance to borrowing capacity.
Lenders use their own servicing calculators to assess whether a borrower can afford a proposed loan. The tax benefit associated with a negatively geared investment property can form part of that assessment.
Following the Budget announcement, lenders began updating their servicing calculations to reflect the proposed removal of the negative-gearing benefit for established properties acquired after 12 May 2026.
As a result, the proposed tax treatment can reduce the income position used in a lender's servicing assessment and, consequently, reduce borrowing capacity for some investors.
The actual impact varies between lenders and individual circumstances.
This means the Budget changes are relevant not only to the eventual tax position of an investment property, but also to how an investor may be assessed when applying for finance.
Capital gains tax
The Government has also proposed significant changes to the way capital gains on investment assets are taxed.
Currently, individuals who have held an eligible asset for at least 12 months can generally receive a 50% CGT discount.
From 1 July 2027, the Government proposes to replace this approach with an inflation-adjusted capital gains system.
Under the proposed system, the cost base of an investment would be adjusted for inflation before determining the taxable capital gain.
A minimum 30% tax rate on capital gains, after the inflation adjustment, has also been proposed.
Transitional arrangements
The Government has proposed transitional arrangements for assets acquired before 7:30pm on 12 May 2026.
The existing 50% CGT discount would continue to apply to capital gains accrued up to 30 June 2027.
For eligible new builds, investors would be able to choose between the existing 50% CGT discount and the proposed inflation-adjusted treatment.
The final operation of these provisions will depend on the legislation and detailed rules.
Discretionary trusts
The Budget also included a proposed change affecting discretionary trusts.
From 1 July 2028, the Government proposes introducing a 30% minimum tax rate on certain income distributed by discretionary trusts, subject to proposed exceptions.
This may be relevant to investors who hold property or other investments through discretionary trust structures.
Further detail was expected as the Government progressed the proposed legislation.
Key dates
DateWhat it means12 May 2026 – 7:30pmKey grandfathering date announced for existing residential investment properties1 July 2027Proposed commencement of the new negative-gearing and CGT arrangements1 July 2028Proposed commencement of the 30% minimum tax rate applying to certain discretionary trust distributions
What does the Budget mean for property investors?
The main changes announced in the 2026 Federal Budget are:
Negative gearing
Existing residential investment properties acquired before 7:30pm on 12 May 2026 are proposed to retain their existing treatment. For established properties acquired after that time, negative gearing against other income would be removed from 1 July 2027.
New builds
Eligible new residential properties would continue to receive negative-gearing treatment against other income under the proposed rules.
Borrowing capacity
The proposed changes to negative gearing have already flowed through to lender servicing calculations, with some investors potentially seeing lower borrowing capacity where the negative-gearing benefit is no longer included.
Capital gains tax
The Government has proposed replacing the existing 50% CGT discount with inflation-adjusted treatment from 1 July 2027, with transitional arrangements for existing investments.
Discretionary trusts
A 30% minimum tax rate on certain discretionary trust distributions is proposed from 1 July 2028.
These measures were proposed changes as at 25 May 2026 and remained subject to the legislative process. The final legislation will determine how the changes operate in practice.
This article is provided for general information only and does not constitute tax, financial or investment advice. Tax outcomes depend on individual circumstances. Investors should speak with their accountant or tax adviser regarding the specific implications of these proposed changes.
