2026 Budget: Negative Gearing & CGT Changes Explained

The 2026 Australian federal budget announced the biggest overhaul of property tax rules in a generation, reshaping how negative gearing and the capital gains tax (CGT) discount work for residential investment property. The headline measures: from budget night, new investors in established (existing) homes lose the ability to use rental losses against their wage income, and the long-standing 50 per cent CGT discount is replaced with an inflation-based discount carrying a minimum tax rate.

Two dates matter throughout this guide. The first is budget night itself (7:30pm on budget Tuesday), which is the cut-off used to decide which properties keep the old rules. The second is the start of the new financial year that follows, when the negative gearing changes actually begin (with a one-year grace period), while the new CGT treatment phases in from July 2027.

A rental property is negatively geared when the deductible costs of holding it — loan interest, council rates, insurance, repairs and maintenance — are higher than the rent it earns. The property is running at a loss. Under the rules in place before these changes, that net rental loss is tax deductible against your other assessable income, including your wages, which reduces the total income tax you pay.

This is why negative gearing has been so widely used. Each year a property is negatively geared, the owner pays less income tax, and many investors rely on the property's value rising over time to make back the losses when they eventually sell. The Australian Taxation Office's position is the authority on how rental losses are claimed — see the fact-check sources at the end of this guide.

Capital gains tax is paid when you sell an asset such as a property or shares. The "gain" is the increase in value between when you bought the asset and when you sell it. The gain is added to your income and taxed at your marginal rate — but with a discount.

For individuals who have held an asset for more than 12 months, the discount has been 50 per cent. That means only half of the gain is taxed and the other half is tax-free. This 50 per cent discount has been a fixture of the system since 1999. If the asset is your own home (your main residence), it is generally exempt from CGT altogether.

Anyone who exchanges contracts on an investment property after 7:30pm on budget night will no longer be able to use rental losses to reduce tax on their ordinary wage income. The change starts from the following July (with a one-year grace period before it takes effect).

• Rental losses on affected properties can no longer offset wage or salary income.
• Losses can still be used against income from other residential investment properties.
• Unused losses can be carried forward to offset future residential property income, or deducted against the capital gain when the property is sold.
• Newly built homes are exempt — investors in genuinely new dwellings can keep negatively gearing against all income.
• A knockdown-rebuild only counts as new if the land is subdivided and multiple residences are added.
• Properties bought before 7:30pm on budget night are grandfathered and keep the existing negative gearing rules for as long as they are owned.

Anyone who buys an investment property after 7:30pm on budget night receives a CGT discount equal to inflation over the time the asset is held — replacing the flat 50 per cent discount — with the change taking full effect from July 2027. Gains accrued before July 2027 keep the 50 per cent discount.

Once a gain is adjusted for inflation, it is taxed as regular income, but subject to a 30 per cent minimum rate of tax. That means even someone whose income sits under the tax-free threshold or in the lowest bracket would still pay at least 30 per cent on the capital gain.

One practical challenge is valuing a property on the changeover date. Many people will split the gain evenly across the holding period; others will obtain an independent valuation. Owners who switch a property between being their home and a rental already face similar calculations today.

If you buy your own home in future and later convert it into a rental, it is treated the same as any other future rental property. First home buyers are the intended beneficiaries — see the housing market section below.

Treasury's stated expectations for the decade following the changes:

• Around 75,000 homes shift from investors to first home buyers over ten years.
• The policies reduce housing supply by about 35,000, but other budget housing investments add about 65,000 — a net increase of roughly 30,000 homes.
• House price growth is expected to be about 2 percentage points slower than it otherwise would have been.
• Rents are expected to rise by around $2 per week.

These are forecasts, and forecasts carry uncertainty. The interaction between negative gearing, CGT and the wider housing supply pipeline is complex, and the actual outcome will depend on how the final legislation is drafted and how investors and buyers respond.

If you are weighing up buying sooner because of these changes, read our guides on the hidden costs of buying a home and building versus buying an existing home — the new-build exemption is central to how these rules play out.

The mechanics described here — how negative gearing reduces taxable income, and the long-standing 50 per cent CGT discount for assets held more than 12 months — reflect the rules administered by the Australian Taxation Office. The budget measures themselves are government policy as announced and remain subject to legislation. Always verify the current position against these official Australian Government sources:

• Australian Taxation Office — negative gearing and rental property expenses
• Australian Taxation Office — the capital gains tax (CGT) discount
• The Treasury — budget tax policy detail and explanatory material
• Federal Budget — official budget papers and measures

ato.gov.au — Negative gearing · ato.gov.au — CGT discount · treasury.gov.au · budget.gov.au