The 2026–27 budget, for property.

The headline measures from budget night affecting Australian residential property — negative gearing quarantining and CGT reform — laid out in plain English, with grandfathering rules, key dates and worked examples.

At a glance

As announced · last updated 24 May 2026

7:30pm AEST · 12 May 2026

Negative gearing cut-off. Properties under binding contract before this moment are grandfathered indefinitely. New rules apply to established-property purchases from this moment forward.

1 July 2027

CGT regime change. Gains accruing from this date use CPI-indexation with a 30% minimum effective tax floor. Gains accrued before this date keep the existing 50% discount.

Ongoing

New builds carved out. Newly constructed residential investment properties remain eligible for full negative gearing and can elect either CGT method.

Negative gearing — quarantining of losses

Negative gearing is the practice of borrowing to buy an income-producing asset where the deductible expenses (interest, rates, depreciation, management fees, maintenance) exceed the rental income. Under the rules in force until 12 May 2026, the resulting net rental loss could be deducted against any other taxable income — wages, business profits, capital gains — reducing the investor’s total tax bill in that year.

What changed

For properties acquired after 7:30pm AEST on 12 May 2026 (budget night), rental losses on established residential investment properties are quarantined. They can only be deducted against:

Rental income from the same property, or
Rental or other Australian property income from other holdings, or
The eventual capital gain on sale of the property.

Any unused loss carries forward indefinitelyuntil it can be absorbed by future property income. What it can no longer do is reduce salary, wage or business income in the year it’s incurred — the “tax refund from a loss-making rental” mechanism is removed for the affected cohort.

Who is affected

Grandfathered (no change): Anyone holding an established residential investment property under a binding contract executed before 7:30pm AEST 12 May 2026. Grandfathering travels with the asset for the life of that investment.
New rules apply: Investors purchasing an established residential property after that moment.
Carved out (no change): Investors purchasing a newly constructed residential property, regardless of purchase date. New builds keep full negative gearing under the new regime to encourage investor capital toward adding housing supply.

Worked example

An investor on a 37% marginal tax rate buys an established unit for $800,000 in July 2026, financed at 6% interest only. Annual rent $28,000; deductible expenses $42,000; net rental loss $14,000.

Old rules / grandfathered: $14,000 loss offsets salary income. Tax saving ≈ $5,180 in year one.
New rules: $14,000 loss is quarantined. Tax saving in year one is $0. The loss carries forward and reduces future rental income or the eventual capital gain on sale.

Model your own position with the negative gearing calculator

Capital gains tax — indexation and the 30% floor

Since 1999, Australian residents have been able to apply a flat 50% discount to the capital gain on an asset held for more than 12 months. The 2026–27 budget replaces that discount for the post-reform portion of any future gain with a return to CPI indexation of the cost base, capped by a new 30% minimum effective tax floor.

What changed

From 1 July 2027, capital gains on residential investment properties are calculated in two parts, split pro-rata over the holding period:

Pre-1 July 2027 portion: Calculated under the old rules. 50% discount applies for assets held more than 12 months.
Post-1 July 2027 portion: Cost base is indexed by CPI to produce a real capital gain. The resulting tax cannot fall below 30% of the nominal gain — the minimum tax floor binds for taxpayers below the top marginal bracket.

Investors purchasing new builds can elect either method for the post-reform portion, choosing whichever produces a lower tax result.

Why both methods coexist

CPI indexation rewards long holding periods because more of the nominal gain is reclassified as inflation rather than profit. The 50% discount rewards high marginal-rate taxpayers because it halves the taxable base irrespective of holding period. For short holdings or low-inflation periods, the old 50% discount usually wins; for long holdings in higher-inflation periods, indexation wins. The pro-rata split means most sales after 2027 will need both methods calculated.

Worked example

A property bought in July 2020 for $700,000 and sold in July 2032 for $1,100,000. Holding period 12 years. Nominal gain $400,000 (ignoring cost-base adjustments for simplicity). Investor on a 37% marginal rate.

Pre-1 July 2027 portion (7/12ths): $233,000 × 50% discount × 37% = ≈ $43,100 tax.
Post-1 July 2027 portion (5/12ths): $167,000 nominal. CPI indexation reduces it to (say) $130,000 real; 37% tax = $48,100. Effective rate on the nominal portion = 28.8% — below the 30% floor, so floor binds: $167,000 × 30% = $50,100 tax.
Total CGT payable: ≈ $43,100 + $50,100 = $93,200.

Run your own numbers with the CGT comparison calculator

What didn’t change

Federal budgets affect federal taxes only. State-level rules — stamp duty, land tax, first home owner grants — are unchanged by this budget.

Main residence CGT exemption — unchanged. Selling your own home remains free of CGT (subject to the standard absence and partial-exemption rules).
State stamp duty schedules — unchanged by federal budget. Each state revenue office sets its own duty and any concessions. See the stamp duty calculator for current state schedules.
First home buyer concessions — unchanged. State-level exemptions and concessions continue to apply on top of any federal first home buyer assistance.
Depreciation and Div 40/43 deductions — unchanged structurally. Plant & equipment and capital works deductions continue under existing rules, though they now feed into a quarantined loss for affected investors.
Interest deductibility — unchanged. Interest on borrowings used to acquire an income-producing residential property remains deductible; it just feeds into a quarantined loss for new established-property purchases.

Frequently asked questions

When do the new negative gearing rules start?

The new quarantining rule applies to investment properties acquired after 7:30pm AEST on 12 May 2026 (budget night). Properties under a binding contract before that moment are grandfathered and continue under the existing rules indefinitely.

Are existing investment properties grandfathered?

Yes. Any established residential investment property purchased before 7:30pm AEST on 12 May 2026 keeps the current negative gearing treatment for the life of that investment. There is no sunset on grandfathering — it travels with the asset, not the taxpayer.

Do the negative gearing changes apply to new builds?

No. New-build (newly constructed) residential investment properties remain eligible to deduct rental losses against all forms of taxable income under both the old and new regimes. The policy intent is to redirect investor capital toward adding to housing supply rather than bidding up existing stock.

What happens to a rental loss under the new rules?

Losses on a non-grandfathered established property are quarantined — they can only be deducted against rental or other Australian property income. Any unused loss carries forward indefinitely and offsets future rental income or the eventual capital gain on sale. It cannot reduce wage, salary or business income in the year it's incurred.

What is the 30% CGT minimum tax floor?

Under the new CGT regime, the effective tax rate on a discounted capital gain from a residential investment property cannot fall below 30%. For taxpayers on the top marginal rate the existing 50% discount remains effectively binding; for those on lower marginal rates the floor lifts the tax payable on the gain.

Can I still use the 50% CGT discount?

Yes, for the portion of a capital gain that accrued before 1 July 2027. The reform splits a gain pro-rata across the holding period: pre-1 July 2027 portion uses the existing 50% discount, post-1 July 2027 portion uses the new indexation + 30% floor regime. New-build investors can elect either method for the post-reform portion.

Does the budget change state stamp duty?

No. Stamp duty (transfer duty) is a state and territory tax — the federal budget cannot change it. Any stamp duty reform is announced by each state's revenue office and applies only within that jurisdiction. The PropCalcs stamp duty calculator continues to use the published state schedules.

Do these changes affect my principal home?

No. The CGT main residence exemption is unchanged. Negative gearing is only relevant for investment properties — your own home doesn't generate rental losses and doesn't attract CGT on sale (subject to the standard six-year absence rule and the partial-exemption rules).

Sources & disclaimer

This page summarises the housing-tax measures announced in the Australian Government’s 2026–27 federal budget, handed down on 12 May 2026. It is based on the budget papers, ministerial statements and Treasury fact sheets published on budget night. Implementation detail (regulations, ATO guidance) continues to be released — figures and rules on this page reflect the position as understood at the date shown above and should be confirmed against the ATO and budget.gov.au before you act on them.

This is general information only. It is not personal financial, tax or legal advice. Investment-property tax outcomes depend on individual circumstances. Speak with a registered tax agent or licensed financial adviser before making decisions that turn on these rules.