Australian Federal Budget 2026-27 introduces major reforms to negative gearing and capital gains tax

The Australian Government has introduced a fundamental shift in the nation’s property tax landscape, with Treasurer Jim Chalmers unveiling the 2026-27 Federal Budget on May 12, 2026. The centrepiece of the budget is a comprehensive overhaul of housing-related tax settings, specifically targeting negative gearing and capital gains tax (CGT). These measures are designed to rebalance the market in favour of first-home buyers and stimulate the supply of new dwellings, addressing a long-term trend where house prices have outpaced income growth since 1999.

Under the new policy, negative gearing benefits will be restricted exclusively to new residential investment properties, effective from July 1, 2027. This change aims to pivot investor capital away from established dwellings and towards the construction of new housing stock. To ensure stability for current investors, the government has included a grandfathering provision. Existing negatively geared properties purchased before 7:30 PM AEST on May 12, 2026, will remain exempt from the new rules until they are sold. This cut-off ensures that those who entered the market under previous settings are not retrospectively penalised.

Capital Gains Tax and Trust Reform

In addition to negative gearing changes, the Australian Treasury has moved to replace the existing 50% capital gains tax discount for individuals, trusts, and partnerships. From July 1, 2027, the discount will be replaced by a cost-base indexation method. Furthermore, a minimum tax rate of 30% will be applied to capital gains for assets held for more than 12 months. These reforms will apply to all gains accruing after the commencement date, representing a significant change in how investment returns are calculated and taxed in Australia.

The budget also addresses the use of discretionary trusts. Starting July 1, 2028, discretionary trusts will be subject to a minimum 30% tax rate on taxable income. Collectively, the reforms to CGT and negative gearing are expected to generate approximately $3.6 billion in revenue for the government over the four-year forward estimates period. This revenue is part of a broader fiscal strategy that sees the budget underlying cash deficit for 2026-27 sit at $31.5 billion, while the overall budget position is projected to improve by $44.9 billion over the five years to 2029-30 when compared to previous mid-year estimates.

Market Projections and Economic Impact

The Australian Treasury projects that these tax changes will assist an additional 75,000 Australians in achieving home ownership over the next decade. However, the modeling also suggests potential constraints on future supply. It is estimated that approximately 35,000 fewer new homes will be built over the next 10 years as a result of the shifting investor incentives. In the rental market, the impact is expected to be modest, with an estimated increase in median rent of $2 per week.