Negative Gearing and CGT Reform in Australia 2026: What Every Property Buyer Needs to Know

At 7:30pm AEST on 12 May 2026, the Australian Government announced in the 2026-27 Federal Budget the most significant overhaul of property investment taxation since 1999. Two pillars of Australia's property investor framework — negative gearing and the 50% Capital Gains Tax (CGT) discount — will change fundamentally from 1 July 2027.

Whether you're an Australian owner-occupier, an investor, a recent PR, an international buyer navigating FIRB, or a parent helping a child enter the market — if you're planning to buy property in Australia in the coming years, particularly in Melbourne, this guide consolidates everything you need to know before making a major financial decision.

30-Second Summary: What's Changing

From 1 July 2027, the Australian Government will:

• Limit negative gearing to new builds only — established residential properties purchased after 12 May 2026 will not be eligible to deduct rental losses against salary income.
• Replace the 50% CGT discount for individuals, trusts and partnerships with cost base indexation (CPI-based) plus a 30% minimum tax rate on capital gains.
• Grandfather existing investments: every property held before 7:30pm AEST on 12 May 2026 keeps the current negative gearing rules until sold.
• Keep the main residence CGT exemption — owner-occupied homes are entirely unchanged.

Treasury modelling estimates the reforms will create around 75,000 additional owner-occupiers over the next decade — reversing roughly 10 years of decline in the home ownership rate.

Part 1: What Is Negative Gearing and How Does It Change?

What is negative gearing?

Negative gearing allows residential property investors to use a net rental loss (where interest, maintenance and depreciation exceed rental income) as a deduction against other taxable income, including salary and wages.

Real-world example (typical 2022–23 figures from Treasury):

• Property purchase: $1,000,000, 80% loan ($800,000) at 5.7% interest
• Annual interest: ~$45,600
• Annual rent at 3.1% yield: ~$31,000
• Net rental loss: approximately $14,810/year

For an investor earning $210,000, this loss is worth $6,961 in tax saved each year — the very advantage that has been criticised as tilting the playing field against owner-occupiers.

What changes from 1 July 2027

Key detail: if you purchase an established property after 1 July 2027, net rental losses can only be deducted against other residential property income (including capital gains), not against salary. Unused losses are carried forward to offset property income in future years.

What counts as a "new build"?

This matters enormously for investors — and especially for international buyers, who under FIRB rules are typically restricted to new builds anyway.

Eligible new builds (negative gearing retained):

• Newly constructed apartments bought off-the-plan
• A duplex constructed via knock-down rebuild replacing a single freestanding house (increases supply)
• Any residential construction on previously vacant land
• A newly built property occupied for less than 12 months before its first sale

Not eligible:

• An established property extended to add bedrooms
• A knock-down rebuild that replaces one freestanding house with another freestanding house (no supply increase)
• A granny flat built next to an established home
• A new build occupied for more than 12 months before being sold to a subsequent investor

Critical: subsequent purchasers of a new build do not inherit the negative gearing or 50% CGT discount benefits — those benefits only attach to the first investor purchaser.

Part 2: How Capital Gains Tax Is Changing

Background: the 50% CGT discount

Since 1999, Australians selling investment assets (property, shares) held for at least 12 months have paid tax on only half the nominal capital gain. The OECD has repeatedly criticised this concession as overly generous and as a driver of housing affordability problems.

Two big changes from 1 July 2027

Change 1: Cost base indexation (CPI) replaces the 50% discount

Instead of halving your nominal gain, the cost base is indexed for inflation using CPI — restoring the system that operated from 1985 to 1999. You are taxed only on the real gain, with the inflation component fully removed.

Change 2: 30% minimum tax on capital gains

A floor tax rate of 30% applies to real capital gains, even where your marginal rate is lower. Exceptions:

• Recipients of Age Pension, JobSeeker or other means-tested income support in the year of disposal — exempt from the 30% minimum.
• Anyone with a marginal rate of 30% or higher — already at or above the minimum, no impact.

Will you pay more or less tax under the new regime?

It depends entirely on your real return:

Treasury's worked examples

Assuming 2.5% inflation, a $500,000 asset purchased July 2027, held 10 years, with $100,000 other income:

• David — 5% p.a. return (typical residential): taxable gain $174,405 under indexation vs $157,224 under the old 50% discount. Pays $8,075 more in tax.
• Kate — 7.5% p.a. return: taxable gain $390,474 vs $265,258. Pays $58,851 more in tax — the highest-return investors are most impacted.
• Ben — 2.5% p.a. return (matches inflation): no taxable gain under indexation vs $70,021 under the old discount. Saves $24,858 in tax.

The reform effectively increases tax on high-return investors while reducing it on average or below-average investors — the explicit fairness logic the Government is pursuing.

Transitional rules — important

If you own property or shares before 1 July 2027 and sell afterwards:

• Gain before 1 July 2027: the existing 50% CGT discount still applies.
• Gain after 1 July 2027: the new rules (indexation + 30% minimum tax) apply.
• The asset's value at 1 July 2027 is determined when you sell — either through a valuation, or via an ATO-provided apportionment formula based on holding-period growth.

Pre-1985 (pre-CGT) assets retain their exemption for gains accrued before 1 July 2027 — unchanged.

Part 3: Who Is Unaffected? The Exemptions

Part 4: What This Means for You — by Buyer Type

The implications are very different depending on your situation — whether you're an Australian first home buyer, an existing investor, a new PR, or an international buyer. Below is a segmented view.

Group 1: First Home Buyers (owner-occupier)

Very good news for you. The reform is explicitly designed to ease investor pressure on the market in your favour:

• House price growth is projected to be ~2% lower over the next couple of years versus no policy change — a tailwind for first home buyers.
• Home ownership among 25-34-year-olds has fallen 7 percentage points from 2001 to 2021 — this reform targets that decline directly.
• Combined with existing first home buyer support programs in Victoria (First Home Guarantee, Help to Buy, FHOG, stamp duty exemption), this may be the best window in a decade to enter the market.

Recommendation: if financially ready, do not wait. The opportunity is concentrated in the 2027–2029 window.

Group 2: Existing investors (property held before 12 May 2026)

You are grandfathered. Your existing arrangements are preserved:

• Continue to negatively gear all properties currently held, including established ones.
• On sale: pre-1 July 2027 gains still get the 50% discount; only post-2027 gains use the new rules.

Recommendation: think carefully before selling. Premature disposal sacrifices grandfathering. Holding too long means post-2027 gains face the new (potentially harsher) treatment if returns are strong.

Group 3: Investors planning to buy after 12 May 2026

This group needs to rethink strategy the most.

• Buy an established property now: negative gearing applies until 30 June 2027 only, then ceases. Three years of advantage at most.
• Buy a new build: full retention of negative gearing + a choice between 50% CGT discount or indexation on sale. Tax-optimal.

Recommendation: new builds (off-the-plan apartments, vacant-land construction, knock-down rebuilds that increase the dwelling count) become the tax-optimal investor path. Reweight your search accordingly.

Group 4: International buyers (temporary visa holders, no PR)

An unexpected silver lining. Because FIRB already restricts foreign buyers to new builds in most cases, the negative gearing reform changes very little for you — you are already in the "preserved benefits" segment.

However, remember:

• Foreign buyer stamp duty surcharge of 8% in Victoria still applies — this remains your largest non-purchase cost, not negative gearing.
• The 30% minimum CGT will affect you if your taxable Australian income is low at the time of sale.

Recommendation: new builds in high-growth Melbourne suburbs remain the optimal strategy. If your PR is months away, consider delaying the purchase to avoid the 8% surcharge — savings exceed the CGT reform impact in most cases.

Group 5: Parents buying property for student children

If the property is in a child's name on a student visa, it's a foreign-buyer transaction — treat as Group 4. If the child is an Australian citizen or PR and the property is their main residence, it is fully CGT-exempt and the reform does not apply.

Part 5: Impact on Prices and Rents

House prices

Treasury modelling estimates house price growth will be approximately 2% lower over a couple of years following commencement compared with no policy change. Important nuances:

• This is slower growth, not falling prices.
• The impact is concentrated in established property in high-investor-density suburbs.
• New builds may experience the opposite — increased investor demand as the tax-favoured channel.

Rents

Treasury estimates median-rent households will pay less than $2 per week extra versus the status quo — effectively negligible. Existing investors retain ownership through grandfathering, so short-term supply does not contract. The Budget's supply-side measures and prior Commonwealth Rent Assistance increases (over $20/week for single recipients of the maximum rate) further dampen this effect.

Part 6: Common Mistakes to Avoid

1. Don't rush to sell existing property just because of the reform. You are grandfathered — selling sacrifices that benefit.
2. Don't rush to buy established property before 1 July 2027 just to "lock in negative gearing". You only get it until 30 June 2027 — typically not enough time to make it meaningful.
3. Don't assume grandfathering follows the buyer. The next purchaser of a grandfathered property does not inherit the benefits — they apply the new rules from day one.
4. Don't assume indexation is always better than the 50% discount. For high-return investors, indexation is worse. Model both scenarios before deciding.
5. Don't assume new builds will outperform. The tax advantage is real, but suburb, build quality and underlying demand still drive returns. A tax-advantaged asset that loses money is still a loss.

Part 7: A Decision Framework for 2026–2027

Part 8: Real Ad Property's View

Summary — 8 Things to Remember

1. Pivot dates: 12 May 2026 (announcement) and 1 July 2027 (effective).
2. Negative gearing: only on new builds for new purchasers from 1 July 2027.
3. 50% CGT discount: replaced by CPI indexation + 30% minimum tax.
4. Grandfathering: pre-12 May 2026 assets keep current rules until sold.
5. Main residence: still 100% CGT exempt.
6. First home buyers: clearest winners.
7. Foreign buyers: practically unaffected (already on new builds via FIRB).
8. New builds: the structural winner of this reform.

For a complete picture of the property tax landscape in Australia, see also:

• First Home Buyer in Australia: 5 Government Support Programs (Victoria 2026)
• How to Buy Property in Australia: Basic Process and Common Mistakes
• Buying Property in Australia: Common Misconceptions

This article is compiled from official Budget 2026-27 documents (budget.gov.au), ABC News (13 May 2026) and the ATO. It is informational only and does not constitute tax or legal advice. The legislation is subject to consultation and parliamentary process. Always confirm the latest position on ato.gov.au and consult a qualified tax adviser or solicitor before making investment decisions.