Overview of the Reforms
The Budget 2026-27 introduces sweeping changes to both negative gearing and capital gains tax (CGT):
- From 1 July 2027, negative gearing for residential property will be limited to new builds. Properties acquired after 7:30pm AEST on 12 May 2026 will be affected. Properties held before that are “grandfathered.” (aph.gov.au)
- The 50% CGT discount for individuals, trusts and partnerships will be replaced with a cost-base indexation method and a minimum 30% tax on real capital gains, for gains accruing from 1 July 2027. Investors in new builds will be able to choose either the old 50% discount or the new method. Existing gains accrued before that date stay under old rules. (budget.gov.au)
Case Study: The Wilsons’ Property Portfolio
| Property | Acquisition date | Type | Under old rules | Under new rules (if bought after 12 May 2026) |
|---|---|---|---|---|
| Property A | 2010 | Established house | Negative gearing allowed; CGT discount 50% applies | No change (grandfathered) |
| Property B | 2028 | New build | N/A | Negative gearing allowed; CGT discount or new indexation + 30% minimum tax |
| Property C | 2025 | Established but sold in 2028 | Negative gearing until 2027; 50% discount on gains accrued before 1 July 2027, then new rules apply for latter gains |
What this means financially
- Current investors with established properties bought before 12 May 2026 will continue using negative gearing deducting losses against all income, and use 50% CGT discount for gains accruing over threshold, but only for periods before 1 July 2027.
- New investors (new builds): can access negative gearing and either CGT treatment. Must plan timing: decide whether traditional discount is more beneficial or choose new method depending on expected holding period and profit.
- Investors in established property post-budget will be restricted: losses only deductible against rental income, not other income like wages; excess losses to be carried forward to offset future residential income. CGT for those properties will use new framework.
Strategic considerations
- Holding period matters: gains before 1 July 2027 will receive benefit of the old rules. Declaring sale just after that date could mix treatments—advice recommended.
- New builds supply incentives: developers or investors may be more likely to target new builds, or convert projects to qualify under “new build” definition to retain favourable treatment.
- Complex structures: Trusts, partnerships, super funds have carve-outs: widely held trusts, super funds, including SMSFs, will be excluded from negative gearing limits. Must verify how legal structure interacts. (budget.gov.au)
Recommendations for Property Investors
- Review your portfolio against the cutoff date (12 May 2026). Know which properties are grandfathered and which will be affected.
- Before entering new property investment contract, check whether it qualifies as a “new build” under the reforms.
- Consult advisors to model tax outcomes under both CGT frameworks for estimating gain, especially if holding period spans the change date.
- Consider tax impacts beyond income tax—such as cash flow, financing, valuation in new builds versus established properties.
- Stay informed if further details emerge—exposure drafts and consultations may change definitions and carve-outs.
Bottom line: the negative gearing & CGT changes coming July 2027 represent a paradigm shift. Investors need to assess timing, types of properties, and structuring to make informed decisions. Existing investments are largely preserved—but new acquisitions will be judged under a much tighter framework.