2026 Federal Budget: What Every Australian Landlord Needs to Know
On 12 May 2026, Treasurer Jim Chalmers delivered the most significant overhaul of property investment tax rules in decades — abolishing negative gearing on established homes and replacing the CGT discount. Here’s what it means for you.
Overview: What Changed and Why
The 2026-27 Federal Budget, handed down on 12 May 2026, introduced the most substantial changes to residential property investment tax policy since negative gearing was first introduced. The reforms have two main components: restricting negative gearing on established residential properties, and replacing the existing 50% Capital Gains Tax discount with a new indexation-based system.
The stated aim is to moderate property price growth, improve housing affordability, and encourage investment in new housing supply rather than established stock. Whether it will achieve these goals is a matter of significant debate among economists.
Negative Gearing — The New Rules Explained
Negative gearing has long been a cornerstone of Australian property investment strategy. When your property costs (interest payments, maintenance, rates, insurance) exceed the rental income it generates, that net loss could previously be deducted against your salary or other income — reducing your overall tax bill.
Under the new rules, this changes significantly for established properties purchased after 7:30pm on 12 May 2026.
From 1 July 2027: rental losses from affected established properties can no longer be offset against salary, wages or other personal income.
Ring-fencing applies: losses can only be deducted against residential rental income from other properties, or capital gains from the sale of rental properties.
Carry-forward allowed: if losses exceed eligible rental/capital gain income in a year, they can be carried forward to future years — they are not lost.
Grandfathering: properties owned (or under binding contract) before 7:30pm AEST 12 May 2026 continue under the old rules until sold.
New builds exempt: eligible newly constructed properties remain fully accessible for negative gearing under existing rules.
Who is most affected?
The impact of losing negative gearing is largest for investors with high marginal tax rates, high leverage, low rental yields, and high interest expenses — typically investors in the early years of ownership in high-value markets like Sydney or Melbourne. For landlords who are mortgage-free or have modest loans, the practical impact is smaller, as there may be little or no net rental loss to begin with.
Interest costs on borrowing to acquire property are the key driver of net rental losses. Many investors have historically opted for interest-only loans to maximise interest deductions — however this strategy may no longer be effective for purchases of existing residential premises.
— William Buck, Federal Budget Analysis 2026Capital Gains Tax — The 50% Discount Is Gone
The second major change affects what happens when you sell an investment property. Currently, if you have held the property for more than 12 months, only 50% of your capital gain is included in your taxable income — effectively halving your CGT liability. This is one of the main reasons property has been a preferred investment vehicle over shares and other assets.
From 1 July 2027, this 50% discount is replaced by a new system for assets acquired after the Budget night cut-off.
| Aspect | Current rules | New rules (from 1 Jul 2027) |
|---|---|---|
| CGT discount (held >12 months) | 50% discount | Abolished for new purchases |
| How gains are calculated | 50% of nominal gain taxed | Cost base indexed to inflation; 30% minimum tax on net gain |
| Main residence exemption | Unchanged | Unchanged |
| Superannuation funds | 15% CGT rate (concessional) | No change expected |
| New build properties | 50% discount applies | 50% discount retained OR indexation + 30% min tax |
| Age pension / income support recipients | Standard rules | Exempt from 30% minimum tax |
For investors who have held property for many years in a low-inflation environment, the indexation approach may produce a similar or better outcome than the old 50% discount. However, in a higher-inflation environment — which Australia is currently experiencing — the net effect depends heavily on the specific numbers. Speak with a registered tax agent before making any decisions.
New Builds: The Exemption You Need to Understand
The government has deliberately carved out a significant exemption for newly constructed properties. The policy intent is clear: encourage investment in new housing supply rather than trading of existing stock. For investors considering their next property, understanding what qualifies as a “new build” is now critical.
What qualifies as a new build?
| Property type | Qualifies as new build? |
|---|---|
| Newly constructed apartment bought off-the-plan | Yes |
| Duplex via knock-down rebuild replacing a single house (net increase in dwellings) | Yes |
| New residential construction on previously vacant land | Yes |
| Newly built property occupied less than 12 months before first sale | Yes |
| Established property with additional bedrooms added | No |
| Knock-down rebuild replacing old house with new single house (no net increase) | No |
| Granny flat added adjacent to established property (not eligible for negative gearing) | No |
| Newly built property occupied more than 12 months before investor purchase | No |
Note that properties in widely held trusts and superannuation funds are also exempt, as are build-to-rent developments and investments supporting Government housing programs.
How It Affects You: Three Common Scenarios
You already own an investment property
If your property was purchased (or under binding contract) before 7:30pm AEST on 12 May 2026, nothing changes for you while you hold it. Your negative gearing and CGT discount continue under existing rules until you sell.
You’re buying an established property now
If you signed a contract after 7:30pm on 12 May 2026, the new rules apply from 1 July 2027. Rental losses can only offset rental income or capital gains — not your salary. The 50% CGT discount is replaced by indexation and 30% minimum tax. Model the numbers carefully before proceeding.
You’re considering a new build investment
New builds remain fully exempt — you keep both negative gearing and the 50% CGT discount. This makes new builds relatively more attractive compared to established properties. The definition of “new build” matters — confirm with your accountant before signing contracts.
Will Rents Go Up?
This is the question most renters — and many landlords — are asking. The honest answer is: modestly and gradually, but probably not dramatically.
The Commonwealth Bank’s analysis, based on Treasury modelling, estimates that rents could rise by around $2 per week for a household paying the current median rent. That is a small number, and it is consistent with independent economic analysis that suggests the overall impact on rental supply will be limited — particularly given that the grandfathering provisions mean the existing rental stock is unaffected for now.
The more significant risk to rental supply comes over time, if fewer investors purchase established properties and the stock of rental housing gradually shifts. This effect would be most pronounced in inner-city markets with high proportions of investor-owned stock.
CBA’s updated housing price forecast now expects dwelling price growth of around 3% to December 2026, down from a prior estimate of 5% — a meaningful moderation, but not a crash.
The dominant effect is the removal of negative gearing. The CGT change reinforces the shift by reducing the tax advantage attached to strong nominal capital gains. The combined effect should lower established dwelling prices relative to the previous baseline, modestly increase rental pressure over time, reduce turnover, and provide some relative support for new construction.
— Commonwealth Bank, 2026 Budget Housing OutlookWhat To Do Now: Practical Steps
APOA’s View
APOA is a community of real landlords — not a lobby group for property developers, and not an advocacy arm for tenant groups. Our role is to help members understand what is happening, think clearly about the implications, and make informed decisions.
On the policy merits, reasonable people disagree. There is a genuine argument that the existing negative gearing and CGT discount combination contributed to price inflation in established markets, and that rebalancing incentives toward new supply makes sense. There is also a genuine argument that reducing investor returns on established properties will gradually shrink the private rental supply, putting upward pressure on rents for ordinary tenants over time — a concern shared by CPA Australia and other professional bodies.
What is clear is this: the changes are real, the cut-off date has already passed, and the rules will take effect from 1 July 2027. For existing property owners, the position is straightforward — you are grandfathered and nothing changes until you sell. For anyone considering a new purchase, careful modelling and professional advice are essential.
We will continue to track this legislation as it progresses through Parliament and update the community with any material changes to the detail.
Disclaimer: This article is prepared by the APOA Policy Team for general informational purposes only. It does not constitute legal, financial, or tax advice. Individual circumstances vary significantly — always consult a qualified and registered tax agent, accountant, or financial adviser before making investment decisions. Tax laws are subject to change; verify all information with official ATO or Treasury sources. APOA is not liable for any decisions made based on this content.
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