Federal Budget 2026: What the New CGT & Negative Gearing Changes Mean for Property Investors

The Federal Budget could represent the biggest shake-up for Australian property investors in more than two decades.

The key takeaway is simple:

Property investing is not being abolished but the tax advantages attached to buying existing properties are being significantly reduced.

The Albanese Government has confirmed sweeping reforms to negative gearing and capital gains tax (CGT), with the goal of redirecting investor demand toward new housing construction and improving affordability for first-home buyers.

The Biggest Changes for Property Investors

1. Negative Gearing Will Be Restricted

From 1 July 2027:

• Investors purchasing existing properties will no longer be able to use negative gearing to reduce their personal income tax.

• Negative gearing concessions will remain available for:

  • New builds

  • Build-to-rent projects

  • Selected government-backed housing developments

Importantly, existing investors are expected to be grandfathered, meaning anyone who already owns an investment property should retain their current tax treatment.

What This Means Practically

For decades, investors have accepted short-term losses because they could offset them against PAYG income.

That strategy now becomes far less attractive for established properties.

As a result, investor demand may shift toward:

• Off-the-plan apartments

• House-and-land packages

• New townhouse developments

At the same time:

• Older investment stock may become less appealing

• Cash flow and rental yield will matter more than tax deductions

• Investors may become more selective about locations and asset quality

2. Capital Gains Tax (CGT) Is Changing

The current system which provides a 50% CGT discount after holding a property for more than 12 months will be replaced by:

• An inflation-indexed system

• A new 30% minimum tax rate on capital gains

This is a major shift because Australian property investing has historically relied heavily on long-term capital growth combined with concessional CGT treatment.

Why This Matters

The new rules could fundamentally change investor behaviour.

Investors may:

• Hold property longer

• Focus on stronger yielding assets

• Become more selective with acquisitions

• Diversify into shares or superannuation structures

High-growth speculative investing becomes less tax-effective under the proposed model.

3. Existing Investors Are Mostly Protected

One of the biggest questions leading into the Budget was:

“Will current investors lose their existing tax benefits?”

At this stage, the answer appears to be largely no.

Current proposals suggest:

• Existing properties will be protected under grandfathering rules

• Investors who already own negatively geared properties should retain existing benefits

• Transitional arrangements may apply for purchases completed before July 2027

This is politically significant because:

• Around 2.2 million Australians own investment properties

• Nearly 90% own only one or two properties

Most investors are everyday “mum and dad” Australians rather than large institutional landlords.

4. New Builds Could Boom

This Budget strongly favours:

• Developers

• New apartment projects

• Construction-led housing supply

The Government’s objective is clear: redirect investor capital toward creating additional homes instead of competing over existing stock.

Potential Winners

The changes could benefit:

• Developers

• Builders

• Project marketers

• Off-the-plan sales businesses

• Growth corridors with strong housing pipelines

This may create increased demand for:

• New apartments

• House-and-land estates

• Build-to-rent developments

5. Property Prices Could Soften Slightly

Treasury modelling suggests:

• House price growth may slow by around 2%

• Investor demand for established homes could weaken

• First-home buyers may gain improved access to the market

However, most economists are not forecasting a property crash.

The more likely outcome is:

• Slower price growth

• Softer investor demand

• A more segmented market between: New builds and Established homes

6. Rental Market Risks Remain

Critics argue the reforms may create unintended consequences.

Concerns include:

• Fewer investors entering the market

• Reduced rental supply

• Rising rents if landlords exit the sector

• Housing shortages worsening if construction cannot accelerate fast enough

Supporters argue:

• The reforms are relatively moderate

• Grandfathering reduces the risk of investor panic

• Incentives for new housing supply may offset rental pressures over time

Other Key Property Takeaways from the Budget

Additional announcements include:

• The foreign buyer ban on established homes has been extended to mid-2029

• A new 30% minimum tax on discretionary (family) trust income will apply from July 2028

• Inflation is forecast to hit 5% by mid-2026

• Higher inflation increases the likelihood of further interest rate rises and tighter borrowing capacity

This means investors may also face:

• Higher mortgage repayments

• Reduced serviceability

• Stricter lending conditions

• Increased holding costs

What Property Investors Should Be Thinking About Now

Existing Investors

For current property owners:

• Immediate impacts appear limited

• Grandfathering protections look strong

• Holding quality assets may still deliver long-term benefits

Future Investors

For new entrants to the market:

• New builds may become significantly more attractive

• Cash flow and rental yield will matter more than ever

• Tax strategy will need to evolve

• Borrowing capacity and interest rate management will become increasingly important