Budget 2026: The Big Tax Changes Property Investors Need to Understand
The Federal Government’s proposed changes to negative gearing and capital gains tax (CGT) are some of the biggest tax reforms property investors have seen in decades.
But despite some dramatic headlines, negative gearing hasn’t disappeared entirely. Neither has depreciation.
In fact, existing property owners and those buying eligible new builds and non-residential properties will still have access to these important tax benefits.
Here’s a breakdown of what’s changing, what’s staying the same, and how these changes might impact the market moving forward.
What changes has the Government proposed?
From 1 July 2027, the Government proposes to:
- Restrict negative gearing on property investments to qualifying new builds and non-residential properties
- Replace the current 50% CGT discount with a CPI-based indexation system
- Introduce a minimum 30% tax rate on capital gains for some taxpayers
The goal is to improve housing affordability and encourage investment into new housing supply rather than existing homes.
Is negative gearing being abolished?
No. Under the proposal existing investors are largely protected.
So if you already owned a property before the announcement on 12 May 2026, you will generally be grandfathered under the existing rules.
That means you can continue, or begin, to negatively gear that property in future years until it is sold.
New builds can still be negatively geared
Investors purchasing qualifying new residential properties will still be able to offset rental losses against their taxable income.
This includes:
- Newly constructed apartments
- New homes built on vacant land
- Developments that increase housing supply, such as a duplex project replacing a single dwelling
However, simple knock-down rebuilds that replace one house with another single house are not expected to qualify.
That’s because the Government is trying to push investors toward projects that increase housing supply.
What about established properties purchased after the announcement date?
Investors purchasing established (second-hand) residential properties after the 12 May 2026 announcement date can still negatively gear those properties until 30 June 2027.
But, from 1 July 2027, the new rules would kick in. This means you would no longer be able to offset rental losses against salary and wage income.
That includes expenses such as:
- interest
- land tax
- property management fees
- repairs and maintenance
- and depreciation deductions
Instead, those losses would generally be carried forward and used against:
- future rental profits, or
- capital gains when the property is eventually sold.
That’s a major change to investor cashflow — and one many people still don’t fully understand.
What does this mean for depreciation?
Importantly, depreciation doesn’t disappear. But the way investors use depreciation deductions could change significantly.
At the moment, depreciation can help investors reduce their taxable income and improve cashflow.
Under these proposed new rules for established residential properties purchased after the changes begin, depreciation deductions would still exist — but losses would be quarantined and carried forward for future use.
Investors would still need a depreciation schedule from day one to properly track and carry forward those losses — particularly given tax returns can generally only be amended for the previous two financial years.
That means depreciation schedules could become more important than ever by helping investors:
- reduce current and future rental profits
- reduce taxable capital gains when the property is sold
- improve long-term after-tax returns
- and keep the right records in place to support future claims with the ATO.
For eligible new builds and non-residential properties, investors would still be able to negatively gear and claim depreciation against their income.
And remember, if future investment properties are positively geared, depreciation can still help reduce the tax you’ll pay on rental profits.
The details many headlines missed
A lot of the media coverage focused on “the end of negative gearing”. But as always, the reality is far more nuanced.
Commercial property still qualifies
Commercial, industrial and retail property (in effect, all non-residential property assets) would still remain under the existing negative gearing rules.
That means investors could still offset losses — including depreciation deductions — against their taxable income.
SMSFs are largely unaffected
Self-managed super funds are also expected to remain exempt from the negative gearing restrictions.
That alone could influence how some investors choose to structure future property purchases.
Granny flats are one of the strange anomalies
One area likely to frustrate investors is granny flats.
Under the current proposal, building a brand-new granny flat beside an existing dwelling may not qualify for the new-build exemption.
This seems a bit strange if the goal is to increase housing supply.
First home buyers may still have opportunities
First home buyers may still be able to purchase an eligible new build, live in it for up to 12 months to access grants and concessions, then turn it into an investment property that still qualifies for negative gearing.
What’s happening to Capital Gains Tax?
The Government also proposes major changes to the current CGT system.
At the moment, investors who hold an asset for more than 12 months generally receive a 50% discount on the capital gain.
Under the proposed reforms:
- the 50% discount would be replaced with inflation indexation
- a minimum 30% tax rate may apply to some capital gains
Importantly, the changes would only apply to gains accrued after 1 July 2027.
So investors who already own assets would effectively operate under a split system:
- gains accumulated before 1 July 2027 would retain the current treatment
- gains after that date would fall under the new rules
This approach is designed to minimise market disruption and protect existing investment decisions.
So what could happen next?
If these changes become law, the property market could shift towards the following trends:
- more investors targeting new builds
- greater interest in commercial property
- buyer’s agents pivoting heavily toward new developments
- stronger competition in the new-build and commercial sectors may possibly compress yields in those markets
And because the CGT discount becomes less attractive under the proposed system, more investors may start looking at buying property through companies or SMSFs.
The bottom line
Despite all the noise, negative gearing is not disappearing altogether. But the proposed changes could create a very different landscape between:
- existing vs future investors
- new vs established properties
- residential vs commercial assets
For investors, understanding how depreciation, carry-forward losses and the transitional CGT rules interact will become increasingly important.
And for many buyers, the definition of a “new build” may soon matter more than ever.
Have your say before these changes become law.
Major tax reform should be carefully considered — especially where it may create unintended consequences for investors, renters and housing supply.
To read Washington Brown CEO Tyron Hyde’s alternative proposal, click here.
https://www.washingtonbrown.com.au/blog/how-to-fix-negative-gearing/
If you believe this is a more balanced way forward, consider sharing the article with your local Senator or MP and asking them to review the alternative plan.
Contact your local representative here:
https://www.aph.gov.au/Senators_and_Members/Contacting_Senators_and_Members
Disclaimer: This article contains general information only and should not be considered financial or tax advice. Investors should seek independent advice based on their individual circumstances.