Federal Budget 2026: What the changes mean for home buyers and property investors

The 2026–27 Federal Budget, handed down on Tuesday 12 May by Treasurer Jim Chalmers, includes the most significant changes to property taxation in over two decades. The reforms centre on two areas that affect almost everyone with an interest in the housing market: how capital gains are taxed when a property is sold, and who can claim tax deductions on investment property losses.

Key Takeaways

Here is a summary of how the proposed 2026-2027 Federal Budget changes may affect you, depending on your circumstances.

Note: These changes are proposed and will need to pass the Senate. The final detail may shift during the legislative process.

• I already own an investment property (acquired before 7:30pm AEST on 12 May 2026):
• Capital Gains Tax (CGT): A split system will apply when you sell. Any capital growth up to 1 July 2027 is eligible for the existing 50% CGT discount. Gains accrued from 1 July 2027 onwards will be calculated using the new cost-base indexation method, with a 30 per cent minimum tax on those newer gains.
• Negative Gearing: No change. Your property is "grandfathered," meaning you can continue to claim rental losses against your salary and other income for as long as you own it.
• I'm an investor planning to buy an established (existing) home (after 12 May 2026):
• Capital Gains Tax (CGT): The 50 per cent CGT discount will no longer apply. From 1 July 2027, gains will be calculated using cost base indexation, and a 30 per cent minimum tax will apply to net capital gains.
• Negative Gearing: You can still claim rental losses against all your income for the period up to 30 June 2027. From 1 July 2027, you will no longer be able to deduct rental losses against your wages or other non-property income; losses can only be used to offset income from other properties. Unused losses can be carried forward to future years.
• I'm an investor planning to buy a new build (after 12 May 2026):
• Capital Gains Tax (CGT): You have the power to choose. You can use either the existing 50% CGT discount or the new cost-base indexation method with the minimum 30% tax - whichever provides you with a better tax outcome.
• Negative Gearing: No change. Full negative gearing is retained. You can continue to fully deduct any rental losses against your salary and other income.
• I'm a first home buyer planning to live in my home (Owner-Occupiers):
• No Capital Gains Tax: The main residence exemption is unchanged. You will not pay any capital gains tax when you sell your own home.
• Negative gearing: Not applicable when you live in the property yourself.
• Deposit Help: The expanded 5% Deposit Scheme continues to be available, helping you purchase a home with a smaller deposit and without paying lenders mortgage insurance. The $2 billion Local Infrastructure Fund is designed to help bring new communities to market faster.
• Potential indirect benefit: Restrictions on investor tax breaks for established homes may reduce some competition from investors at the point of purchase. Treasury modelling suggests house price growth could moderate by around 2 percentage points for a couple of years.
• Tax relief: A permanent $250 Working Australians Tax Offset will apply from the second half of 2027, and a new $1,000 instant tax deduction for work-related expenses takes effect from 2026–27.

Whether you are saving for your first home, already own a property, or considering an investment, here is a plain-language breakdown of what has changed, what has stayed the same, and what it could mean for you.

Changes to the Capital Gains Tax (CGT) discount

Under the system that has been in place since 1999, if you held an investment property for more than 12 months before selling it, you could reduce the taxable portion of your profit by 50 per cent. So, if you made a $200,000 capital gain, you only paid tax on $100,000.

From 1 July 2027, that 50 per cent discount will be replaced by a system called cost-base indexation. Instead of halving the gain, the purchase price of the property will be adjusted for inflation (using the Consumer Price Index) before the gain is calculated. You will only be taxed on the portion of your profit that exceeds inflation, which is your “real” gain.

There will also be a new minimum tax rate of 30 per cent on net capital gains. This is designed to ensure that investors cannot defer selling an asset to a year when their income (and therefore their tax rate) is unusually low.

What this means in practice

Depending on how long you hold the property and how much prices rise relative to inflation, some investors will pay more under the new system and some will pay less. For long-held assets in a high-inflation environment, indexation can be more generous. For shorter holds with strong capital growth, the old 50 per cent discount may have been better.

Here is how the changes apply to different property owners:

• If you own your own home (main residence): Your own home is not affected. The main residence exemption remains unchanged. If you sell your own home and it has been your primary place of residence, you will continue to pay no capital gains tax.
• If you are an existing property investor: If you already own a property, the gains will be split at the changeover date. Any capital growth that accrued up to 1 July 2027 will still be eligible for the existing 50 per cent CGT discount. Only gains accruing from 1 July 2027 onward will be taxed under the new cost base indexation system, with the 30 per cent minimum tax rate applying to those newer gains. In practice, this means the value of your property at 1 July 2027 becomes a reference point, and the two portions are treated under their respective rules.
  
  Pre-1985 assets that were previously exempt from CGT will also retain that exemption for gains arising before 1 July 2027.

For those purchasing an investment property from now on, the rules will differ depending on the property type:

• If you invest in an established property: From 1 July 2027, the new system will apply. Gains accrued from this date will be calculated using the cost base indexation method, and you will not have the option to choose the old 50 per cent discount.
• If you invest in a newly built property: A key carve-out has been made for new housing. Investors who purchase newly built residential properties will be able to choose whichever method gives them the better outcome: the existing 50 per cent CGT discount, or the new indexation method with the minimum tax. This is a deliberate incentive to direct investment toward new housing supply.

Given the different outcomes, your accountant or financial advisor will be able to do the calculations for your specific situation and provide you with firm advice.

Changes to negative gearing

Negative gearing is the practice of claiming a tax deduction when the costs of an investment property (mortgage interest, maintenance, management fees) exceed the rental income it produces. Until now, that loss could be deducted from your other income, including your salary, reducing your overall tax bill.

Here is a breakdown of how the proposed changes will affect different investors.

• For existing investors (property acquired before 7:30pm AEST on 12 May 2026):
  Your property is exempt from the new rules. If you already owned an investment property, or had exchanged contracts before this time, you can continue to negatively gear it against your salary and other income for as long as you hold it. This is often referred to as "grandfathering."
• For those investing in an established property (acquired after 12 May 2026):
  From 1 July 2027, negative gearing on established residential properties will be restricted. Rental losses from these homes will only be deductible against other property income, such as rental income from another property or capital gains from residential property. You will no longer be able to deduct those losses against your wages or other non-property income. Any unused losses can be carried forward and used in future years against property income.
• A transition period applies: If you purchase an established property between the announcement date (12 May 2026) and 30 June 2027, you can still negatively gear it fully during that window. The new restrictions will then apply from 1 July 2027 onward.
• For those investing in a newly built property:
  New builds remain fully eligible. If you invest in newly built property, the current negative gearing rules continue to apply with no changes. Rental losses on new builds can still be deducted against your salary and other income. This applies to new house and land, off-the-plan properties, and new construction on previously vacant land that adds to housing supply. It doesn’t apply to knockdown-rebuilds that replace an older home on an existing block.

Infrastructure and housing supply

Alongside the tax changes, the Budget includes $2 billion in new funding through a Local Infrastructure Fund. This money will flow through state and territory governments to local councils and utility providers to help deliver the roads, water, power and sewerage connections needed to get new homes built. The government estimates this could help unlock around 65,000 new homes over the coming decade, with $500 million of that funding earmarked for regional Australia.

This builds on the government's broader housing investment, which it says now totals a record $47 billion, including the Housing Australia Future Fund and the expanded 5 per cent Deposit Scheme that allows first home buyers to purchase with a smaller deposit and no lenders mortgage insurance.

Tax relief for workers

The Budget also includes a permanent $250 annual Working Australians Tax Offset for more than 13 million workers, which will flow through tax returns from the second half of 2027. This sits alongside a new $1,000 instant tax deduction for work-related expenses, intended to simplify claims and reduce paperwork. Together with earlier rounds of income tax relief, the government projects these measures will leave the average worker $2,816 better off annually by 2028 compared with 2023–24 settings.

What to consider from here

These changes are proposed and will need to pass the Senate. While they represent the government's stated direction, the final detail may shift during the legislative process.

If you are a first home buyer, the tax settings around new housing, combined with the 5 per cent Deposit Scheme, are designed to make entering the market more achievable. If you already own an investment property acquired before Budget night, your current arrangements are protected.

For anyone considering a property purchase or investment, the distinction between new and established housing is now a meaningful factor in the financial equation. Speaking with a qualified financial adviser or tax professional about your individual circumstances is a sensible next step.

 

Disclaimer: This article is intended as general information only and does not constitute financial, tax or legal advice. Please seek independent professional advice before making any financial decisions.