2026 Federal Budget – Changes to CGT and Negative Gearing
Labor’s 2026 Federal Budget introduced changes to Capital Gains Tax (CGT) on properties and negative gearing. These changes will have a significant impact on first-home buyers and property investors alike. The goal of this article is to provide you with the facts in a simple and straightforward way.
Capital Gains Tax (CGT) Reforms
CGT is a tax paid on the profit made from selling assets, in this case investment properties. It is typically included in your annual income tax.
Prior to this new budget, Australian residents and trusts could receive a 50% CGT discount on assets held for over 12 months. However, the budget has changed this to an inflation-based discount. The taxable gain will be calculated by adjusting the property’s cost base for inflation using the Consumer Price Index (CPI), in a similar way to how it was done before the Howard government introduced the 50% discount in 1999.
Labor states that changing to cost-base indexation will help reflect the changing market. Having a fixed 50% discount often led to investors being overcompensated or undercompensated. This way, only the ‘real’ gains on a property will be taxed.
Negative Gearing
Negative gearing is when the income generated by an investment property (eg. rent) is less than the expenses incurred through interest, rates, maintenance and other costs. This lowers the taxable income in the short term and can also lead to a capital gain when the asset rises in value over time. In short, it is a strategy that accepts short-term losses in exchange for anticipated long-term capital growth.
The Federal Budget has restricted negative gearing to newly constructed properties only. Investors buying established homes can no longer use rental losses to reduce their other taxable income. Instead, those losses can only be carried forward to offset future capital gains on the property.
Who This Will Affect
The goal of these changes is to help first-time home buyers by rebalancing a system that Chalmers said is “more generous to assets than it is to labour”. Since investing in properties will become less tax-advantaged, more homes may become available to first home buyers. It is also said to be able to rebalance the tax system by taxing property investors on their income, taking pressure off wage earners and first-time home buyers.
The changes have generated significant debate among property investors and industry groups. It is important to note that the changes will not come into effect until 1 July 2027, so investors have time to prepare. Additionally, newly constructed properties will still be eligible for negative gearing. Properties purchased or under contract before 7:30 PM AEST on 12 May 2026 are exempt and retain existing tax benefits.
The new changes can be confusing, and a lot of exceptions exist. If you are a property investor or a first-time home buyer and want clarification about how these changes will affect you, please do not hesitate to contact us. We are here to help.
DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.