What the 2026 Negative Gearing and CGT Changes Could Mean for Property Investors

On Tuesday night, 12 May 2026, the Federal Government proposed significant changes to property investment taxation in Australia.

These changes still require legislation to be passed, but we anticipate this will occur, potentially with some minor tweaks. For now, we are working on the assumption that they will become law, and we will continue to monitor developments for you.

While the headlines will continue to generate interest and speculation in the coming days and weeks, we wanted to share how we have made our initial assessment of what these changes may mean for property investors.

Importantly, for existing property investors, now is not the time to make any rash decisions.

The changes are not retrospective. Furthermore, the proposed changes to capital gains tax do not take effect until 1 July 2027. For now, life goes on, with rents being paid and returns being made.

Before we unpack the proposed CGT and negative gearing changes in more detail, you may also like to watch the latest episode of The Property Couch (embedded above this blog), where Ben Kingsley (Managing Director) and Bryce Holdaway (Partner) break down what has been announced, what it could mean for property investors, and the key questions investors should be asking right now.

What the Capital Gains Tax Changes Mean for Property Investors

The 50% CGT discount will be replaced from 1 July 2027 for gains accruing after that date. Past gains up until this point will be honoured with the 50% CGT discount, provided the asset has been held for more than 12 months.

Following this date, the discount will be replaced with an indexed, inflation-adjusted method, alongside a minimum 30% tax rate on capital gains after indexation for individual investors.

Investors in eligible new builds are expected to be able to choose the method that results in the lower tax outcome at the time of sale.

At this stage, there are no proposed changes to investments held in superannuation funds.

What is important to remember is this: CGT is only payable when you sell.

Our investment philosophy for most of our clients is a long-term buy-and-hold approach. As such, with no intention of selling down or exiting your portfolio, the immediate impact is less significant than the headlines suggest.

Replacing the 50% discount with inflation indexing for individuals and trusts will impact investments differently, depending on the asset’s growth rate.

By way of example, let’s consider an $800,000 property held over 10 years, growing at 6% per annum, assuming 3% annual inflation over this period. Your cost base would index to $1,075,133. If the property grew in value by 6% per annum, the value would be $1,432,678.

Putting aside purchase and sales costs, you would pay the full marginal tax rate on the difference between the two of $357,545, which at the top rate of 47% would be $168,046 in tax payable.

Under the previous policy of a 50% discount, you would pay full marginal tax rates on $316,339, which at the top rate of 47% is $148,679. So, the outcome is roughly an additional $19,500 in tax when you sell, or another 3% of the total gain of $632,678.

As you can see, over the life of the investment, the difference is materially smaller than the headlines suggest. Again, it is also only relevant if you sell.

The fundamentals of long-term property investment do not change overnight because of a tax adjustment.

Interestingly, as noted above, there were no changes to the capital gains tax arrangements for superannuation funds. This may increase the appeal of property investing through superannuation for some investors, and could be a question worth discussing with their financial planner or accountant.

Pro-Rata CGT for Existing Investors

The Budget announcement stated that all assets, even those currently owned, will be brought into the new indexation system and pro-rated based on the time held.

We are still seeking clarification, but based on the Budget papers, you can expect to use valuation or apportionment methodologies, subject to final legislation, to determine the “value” under the new system.

Each outcome will depend on several variables, including the growth rate of your property before the changes come into effect and its future growth rate. So, it is important to get your accountant to assist you with any calculations before making any decisions.

Negative Gearing

From 1 July 2027, negative gearing will be limited to new builds, while owners of existing investment properties held prior to the Budget announcement on 12 May 2026 will still be able to negatively gear their investments under a grandfathering approach.

Many people may be missing this key point: investors who buy established properties after 12 May 2026 can still deduct any losses against property income and carry forward any unused losses to future years.

We refer to this as a deferred benefit. When the rental income exceeds operating costs in the future, you will be able to offset these losses to reduce taxable income then. These accrued losses can also be offset against any residential capital gain if the property is sold.

What you cannot do is deduct those losses against other income in that tax year.

It is best summarised as deferred benefits rather than lost benefits, as restricting negative gearing will impact short-term cash flow. Savvy investors will adapt, as investment decisions are not made on cash flow alone. They are made on long-term total returns.

Our assessment is that the most likely consequence of this change is that rents will increase, as the cash flow burden does not disappear. It shifts.

The irony is that the intended beneficiaries of these reforms may be hit with higher rents.

When negative gearing was abolished in 1985, rents surged on three-bedroom homes, particularly in Sydney and Perth, and the policy was reversed within two years.

Although this time the Government is hoping to incentivise investment in new builds to help offset rental pressure, those new builds are primarily likely to occur on the fringes of cities or in medium and high-density apartments, which may not align with the preferences of many renters based on current demand patterns.

Should I Invest in Residential Property Anymore?

For those wondering whether these tax changes mean residential property may no longer be a low-risk, sensible investment, consider the market challenges we have faced decade after decade.

And in recent times alone, we have seen a global financial crisis, pandemic, wars and aggressive interest rate tightening cycles.

Through all of it, residential real estate has proven resilient.

Why?

Well, that is what we plan to share in detail at our special client-only webinar. If you are an Empower Wealth client, you should have already received an email from us with your exclusive invitation.

If you are not currently an Empower Wealth client, all good. We are also organising a separate session for The Property Couch podcast community, which you can register for here: thepropertycouch.com.au/registernow

However, in summary, there are six core drivers that create and sustain long-term land and property value appreciation:

• Ricardian Rent Theory
• AMM Theory
• Agglomeration Economies
• Amenity and Spatial Equilibrium
• Scarcity Protection
• Veblen / Status Effect

Now, while some of these may be new terms you may not have been exposed to before, we promise that if you are an existing property investor client of ours, you would know these as being simplified into Economic Activity, Human Interest and Human Behaviour principles.

These core values are also supported by location hierarchy principles and market cycle drivers.

Again, we hope you can join our upcoming webinar, where we will make a strong case for the future of residential real estate in this country, including why some locations will do much better than others.

What About Buying New Residential Property?

Our investment principles and philosophy have always been about total long-term returns, factoring in the core drivers noted above when considering a location’s scarcity, desirability, supply and productive use of land.

While brand-new property will be exempt from these changes, it does not always mean you should buy brand new.

Our own investigations into the performance of new versus existing property is why we recommend existing property in the first instance.

In our upcoming webinar (more details below), while not completely ruling out new builds depending on location and strategy, we will once again explain our preference for existing and established locations and property.

It is best remembered this way: in the long run, land goes up in value and buildings go down.

So be wary of the return of the self-interested property spruiker trying to convince you to buy new.

What Should I Do Right Now If I’m Thinking of Buying a Residential Investment Property?

Our recommendation is simple. If you are considering your next move and you have not already done so, you should reach out and talk to our Client Managers within our property services team. Lock in a free initial consultation with them here or simply fill in the form below this post.

Of course, your current cash flow and job security are things you must always keep in mind as a starting point.

Any Further Questions?

If you have any further questions in relation to the property tax changes, please do not hesitate to reach out directly to your adviser for assistance.

If you are not an existing client and would like to understand what these changes could mean for your tax position, especially as we approach tax return season, you can request an initial consultation with our tax team here >

Upcoming Webinar Details

When:

• Monday 25 May at 7:30pm AEST (Exclusive for our clients only. If you’re an Empower Wealth client, please check your email for more details).
• Tuesday 26 May at 7:30pm AEST (Open session. Register here: thepropertycouch.com.au/registernow)

Webinar’s Focus:

What we know and think changes post-property tax reform

• Cash flow models
• Regional markets

What we know and think does not change

• Our investment philosophy
• Investment principles and application
• Why some locations always win in the long run

Plus, we will also host a live Q&A.

Thank You

We are here for you. You are why we do what we do, and we do our very best to help you on your journey towards building wealthier tomorrows and your lifestyle by design.

Thank you for your attention.