What the 2026 Federal Budget Means for Property Investors and Home Buyers
The May 2026 Federal Budget has delivered some of the biggest changes to property investment tax rules we’ve seen in a long time. If you own property, you’re planning to invest, or you’re trying to get into the market as a first home buyer, this Budget matters.
Here’s a plain-English breakdown of what’s changing, what’s protected, and what it means for you.
Negative Gearing Is Being Restricted — But Existing Investors Are Protected
From 1 July 2027, negative gearing on residential property will only be available for new builds.
Right now, if your investment property runs at a loss — meaning your expenses are higher than your rental income — you can use that loss to reduce your taxable income. The government says this has been fuelling demand for existing homes and giving investors an advantage over owner-occupiers.
Here’s how the changes break down:
- Property you already own (purchased before 7:30pm AEST on 12 May 2026) — you keep negative gearing for as long as you hold it
- Purchased between 12 May 2026 and 30 June 2027 — negative gearing applies now but stops on 1 July 2027
- Purchased from 1 July 2027 onwards — no negative gearing unless it’s a qualifying new build
- New builds that add to housing supply — negative gearing continues both before and after the cutoff
To qualify as a new build, the property needs to be built on vacant land, or involve demolishing an existing property and replacing it with more dwellings. Knock-down rebuilds or renovations that don’t add to supply won’t qualify.
The bottom line: if you already own investment property, you’re largely protected. But if you’re planning to buy in the future, new builds will have a clear tax advantage over established homes.
Capital Gains Tax Is Also Changing
The current 50% CGT discount — available to individuals and trusts who hold an asset for more than 12 months — will be replaced from 1 July 2027 with a system based on inflation indexation plus a 30% minimum tax on capital gains.
The key thing to understand is that only gains made after 1 July 2027 are affected. Gains you’ve built up before that date will still be calculated under the current rules.
If you sell a property you’ve held before and after the cutoff date, the gain will be split:
- Gains up to 1 July 2027 → current 50% discount applies
- Gains after 1 July 2027 → new indexation and minimum tax rules apply
You’ll be able to use an ATO-approved formula or a professional valuation to work out the split.
One positive: investors in eligible new builds get to choose between the old 50% discount or the new indexation system when they eventually sell — whichever gives a better result.
Treasury modelling suggests that under historical inflation patterns, the effective discount under the new system could range between 35% and 60% for assets held over five to ten years. So for long-term holders in a higher inflation environment, the new system may not be as bad as it first sounds.
What Does Treasury Expect to Happen to Prices and Rents?
According to the government’s own modelling:
- House prices are expected to grow around 2% less over several years compared to if the changes weren’t made
- Rents are expected to rise by less than $2 per week for the average household.
- Hint – I think they are wrong
- The reforms could support around 75,000 additional owner-occupiers over the next decade
The government argues that any reduction in investor demand for established homes will be offset by a major push to increase new housing supply.
$2 Billion for Housing Infrastructure
The Budget includes a new $2 billion Local Infrastructure Fund to help unlock land for housing by funding water, sewerage, roads, and power connections. The government says this could support up to 65,000 homes and brings total federal housing infrastructure spending to $6.3 billion.
Access to this funding will be tied to planning reform commitments from state and territory governments — including faster approvals and a simpler national building code.
Foreign Buyer Ban Extended
The ban on foreign investors buying established homes has been extended until mid-2029. The intention is to keep more existing housing stock available for Australian buyers.
What About Trusts and SMSFs?
From 1 July 2028, discretionary trusts will face a 30% minimum tax rate. This is designed to reduce income splitting strategies where trust distributions are used to lower overall tax.
However, some important exclusions apply:
- SMSFs are excluded from the discretionary trust changes
- Fixed trusts and widely held trusts are also excluded
- Three years of rollover relief will be available from 1 July 2027 to help investors restructure if needed
This is worth noting if you currently hold — or are considering holding — property inside a discretionary trust structure.
The Big Picture
These are genuinely significant changes. The direction is clear: the government wants to redirect property investment toward new housing construction and make it easier for owner-occupiers to compete in the market.
If you already own investment property, the grandfathering rules mean you’re mostly protected for now. But if you’re planning your next investment, the landscape from July 2027 looks quite different.
Whether you’re a first home buyer, an existing investor, or someone thinking about your next move, it’s worth understanding how these changes fit with your specific situation — your income, your borrowing capacity, and your long-term strategy.
Like to talk through how the Budget changes could affect your plans, we’re happy to help.