Understanding Federal 2026 Budget Tax Reform

If you are hearing about negative gearing changes and updates to the Capital Gains Tax discount but feeling confused about how they would apply to you as a property investor, here are some important points to keep in mind: 

• First, changes are currently proposed, which means they are not set in stone and still have to be passed as legislation before they affect investors. 

Negative gearing 

• The Government put forward a change that would see new property purchases from 7:30pm on May 12 ineligible for negative gearing as it exists in its current form. This would come into effect in July 2027.
• Under the change, eligible newly built properties will still qualify for negative gearing under the existing system
• If implemented, negative gearing changes will not affect tax for existing investment property owners. 

Capital gains tax discount

• Australian investment owners currently receive a 50 per cent discount on capital gains. The Federal Government has proposed to scrap this from July 1, 2027, and replace it with a system of cost-based indexation and a 30 per cent minimum tax on capital gains.
• Under the proposed reforms, some investors may pay less tax when they sell their asset under the newly announced system than under the current 50 per cent CGT discount arrangement, while others will pay more.
• Eligible new-build housing may continue to access the existing 50 per cent CGT discount. 

The key takeaways from a property investing perspective: 

• Even if the reforms are approved, if you are an existing investor, your existing negative gearing arrangements won’t change and your property ownership expenses can still be applied to offset your taxable income.
• The impact of the recommended CGT discount reform will apply in different ways to different investors.
• Under the reforms, any capital gains you have already accrued by owning your investment property will be taxed according to the existing ‘legacy’ system when you sell in the future. 

The proposed changes are not an immediate cause for panic or a reason to put your investment property on the market in a hurry. A discussion with your tax accountant can help you update your profit forecasts, and your property manager can clarify your holding expenses so you understand how the reforms will directly affect you once they are finalised. 

Having personalised advice is important when it comes to investing, so you can understand the numbers that matter to you and your investment strategy. 

Have questions about CGT and negative gearing reform, and how they will affect your investments? Your accountant is a good place to start.