The 2026-27 Federal Budget introduced the most significant proposed changes to property investment taxation since 1999.
Through reforms to both the 50% Capital Gains Tax discount and negative gearing, the Government has signalled a substantial shift in the future taxation of residential investment property.
While the legislation has not yet passed Parliament, the proposed reforms would fundamentally alter the tax treatment of many residential property investments from 1 July 2027. For investors, the discussion is no longer whether change has been proposed, but what those changes could mean for existing portfolios, future acquisitions and long-term investment strategy.
The Government has already outlined commencement dates and transitional arrangements, giving investors an opportunity to assess how the reforms may affect their position before they take effect.
The following guide explains the proposed changes, who may be affected and the key considerations property investors should be reviewing now.
The end of the 50% CGT discount
Since 1999, individual investors, trust beneficiaries and partners who held a property for more than 12 months have generally been entitled to a 50% discount on their taxable capital gain. A property that generated a $400,000 gain would typically be taxed as though the gain were only $200,000.
Under the proposed reforms, that discount would no longer be available for individuals, trusts and partnerships from 1 July 2027.
In its place, the Government proposes a return to cost base indexation. Under this model, the cost base of an asset would be adjusted in line with inflation over the ownership period with tax applying to the gain above the indexed cost base rather than the original purchase price.
The practical impact of this change will depend on a range of factors, including the purchase price, holding period, inflation rates and the level of capital growth achieved by the asset.
The Budget also proposes the introduction of a 30% minimum tax rate on net capital gains from the same date. If implemented, this would limit the ability of taxpayers to reduce the effective tax rate on capital gains by realising gains in a year where their taxable income is otherwise low.
The proposed legislation includes a number of exemptions and transitional measures, which should be considered as part of any review of an investment portfolio or ownership structure.
Negative gearing on established properties: what has changed
While the proposed CGT reforms have attracted significant attention, the negative gearing changes may have a more immediate impact on some residential property investors.
For established residential properties purchased after 7:30pm AEST on 12 May 2026 (Budget night), net rental losses would no longer be deductible against salary, wages or business income. Instead, those losses could only be used to offset rental income from other residential properties or be carried forward to reduce a future capital gain when the property is sold.
The grandfathering provisions are important. Any established residential property owned or subject to a signed contract of exchange, before that cut-off time would continue to operate under the existing rules. The proposed changes also do not extend to commercial property or other investment assets such as shares.
For investors purchasing established residential property after the proposed commencement date, understanding how and when rental losses can be used will become an important part of assessing the tax implications of an investment.
The two protected categories: family homes and new builds
While the proposed reforms significantly alter the tax treatment of many residential investment properties, they do not apply equally across all property types. The family home remains largely untouched and specific concessions continue to apply to certain new residential developments.
The main residence exemption is unchanged. If you own a home, occupy it as your principal place of residence and later sell it, the existing capital gains tax exemption continues to apply. Neither the proposed indexation regime nor the 30% minimum tax rate affects the family home, which remains outside the scope of these reforms.
New residential developments are also treated differently under the proposed framework. Investors who purchase a newly constructed dwelling or undertake a qualifying knock-down rebuild that increases the number of dwellings on a site, retain access to full negative gearing against personal income. They may also choose, at the time of sale, whether to apply the existing 50% CGT discount or the new indexation method, providing a degree of flexibility that is not available for most established residential properties under the proposed rules.
One important limitation is that these concessions apply only to the first purchaser of the new dwelling. Once the property is sold, it becomes an established residential property and any subsequent purchaser will generally be subject to the standard rules applying at that time.
How different ownership structures are affected
The proposed reforms do not affect all ownership structures equally, which means the way an investment property is held may become increasingly important.
Discretionary and family trusts are among the most affected. Under the proposed changes, trusts would lose access to the 50% CGT discount from 1 July 2027. Combined with the proposed 30% minimum tax rate on discretionary trust income from 1 July 2028, this would significantly reduce the flexibility that many investors have traditionally relied on when distributing capital gains and investment income among family members.
Private companies are affected differently and have never been eligible for the 50% CGT discount and already pay tax on the full capital gain. As a result, the proposed reforms may reduce some of the tax advantages that individuals and trusts have historically enjoyed over corporate ownership structures.
Self-managed superannuation funds (SMSFs) remain largely unaffected by the proposed changes. SMSFs continue to operate under their existing concessional capital gains tax rules, which can result in significantly lower effective tax rates than those available through personal ownership or family trusts.
For investors with property held in a trust, company or SMSF, reviewing whether their current structure remains appropriate under the proposed rules may become an increasingly important part of long-term tax planning.
The transitional rules: how existing investments are treated
The proposed reforms include transitional provisions designed to distinguish between gains accrued before and after 1 July 2027.
Properties purchased and sold before that date would remain subject to the existing rules, including the 50% CGT discount. Properties acquired after 1 July 2027 would be subject to the new framework in full. For existing properties sold after 1 July 2027, the capital gain would generally be apportioned between the two regimes.
In practical terms, any growth in value up to 1 July 2027 would continue to receive the benefit of the existing 50% CGT discount, while growth occurring after that date would be subject to the new rules.
This means establishing the market value of an investment property as of 1 July 2027 may become an important part of future record keeping. Depending on the final legislation and administrative requirements, investors may wish to obtain a professional valuation or ensure they have appropriate documentation supporting the property's value at that date.
Looking ahead
While the proposed reforms have not yet passed into law, they represent one of the most significant changes to property investment taxation in decades. The impact on individual investors will depend on a range of factors, including the type of property held, the ownership structure used and whether transitional provisions apply.
For many investors, the key issue is not whether change is coming, but understanding how the proposed rules may affect their existing portfolio, future acquisitions and long-term tax position.
At Aubrey Brown Lawyers, we work alongside accountants and financial advisers to help clients understand how legal structures, trust arrangements and ownership vehicles interact with broader tax planning objectives.
If you hold investment property through a trust, company, SMSF or in your personal name, now may be an appropriate time to review whether your current structure remains fit for purpose under the proposed framework.
