By Tom Johnston, Founder & Strategic Investment Advisor
The 2026 Federal Budget reshapes negative gearing and CGT for residential property from 1 July 2027. Here is what actually changes, what does not, and how disciplined investors should respond.
Published 25 May 2026 — analysis of the 2026 Federal Budget property tax reforms announced 12 May 2026.
The 2026 Federal Budget has created one of the biggest shifts in Australian property investment settings in years.
From 1 July 2027, the Government intends to limit negative gearing for residential property to new builds. For established residential investment properties purchased after Budget night, excess rental losses will no longer be able to be offset against unrelated personal income, such as salary or wages. Instead, those losses will generally be quarantined and carried forward to offset future residential property income, including capital gains. Properties held before 7:30pm AEST on 12 May 2026 are expected to retain their existing negative gearing treatment.
The Budget also includes significant changes to capital gains tax. From 1 July 2027, the Government intends to replace the current 50% CGT discount with cost-base indexation and a 30% minimum tax rate on capital gains. Investors in new builds are expected to be able to choose between the existing 50% CGT discount and the new indexation method.
For property investors, this is clearly important. But it does not mean the investment case for established property has disappeared. Nor does it mean new builds automatically become superior investments.
It means the margin for error has changed.
The Budget is designed to redirect tax support away from established housing and toward new housing supply.
That is the policy intent. The Government''s position is that limiting negative gearing to new builds will help level the playing field for first-home buyers, while encouraging investment into additional housing stock rather than competition for existing dwellings.
For investors, the practical effect is that established property purchased after Budget night may become less attractive on an after-tax basis if it is negatively geared.
That matters most for investors who were relying on tax refunds to make the property affordable.
Under the proposed rules, if an established residential investment property produces a loss after rent, interest, maintenance, management fees and other expenses, that loss may no longer reduce the investor''s salary or business income from 1 July 2027. Instead, the loss may need to be carried forward and used later against residential property income or capital gains.
That does not make the loss disappear. But it may delay the benefit, which affects cash flow.
The fundamentals of property investing have not changed.
A good investment still needs to be assessed on:
Tax treatment can influence the result. It should not be the reason for buying.
This is especially important because tax rules can change again. A property purchased solely because of a tax advantage can become exposed if that advantage is reduced, removed, delayed, or outweighed by poor asset selection.
The Budget reinforces a principle that should already sit at the centre of any investment strategy: the property needs to make sense before tax.
Some commentary will suggest that established property is now unattractive for investors.
That is too simplistic.
Established property can still offer advantages that many new builds do not. These may include stronger land value, better scarcity, more proven rental demand, better established infrastructure, lower body corporate risk, and greater ability to add value through renovation, subdivision, secondary dwellings, or improved leasing strategy.
The issue is not whether a property is new or established. The issue is whether the numbers and fundamentals work.
An established house in a supply-constrained suburb with strong rental demand, a meaningful land component and scope to improve income may still be a better long-term investment than a new apartment or house-and-land package in an area with heavy future supply.
The Budget changes the after-tax equation. It does not remove the need for careful asset selection.
The Government is clearly trying to push investor demand toward new housing.
That may increase interest in newly built houses, townhouses, apartments, dual keys, duplexes and other forms of new supply.
For some investors, that may make sense. New properties can offer stronger depreciation benefits, lower immediate maintenance costs, and under the proposed rules, more favourable negative gearing treatment than established dwellings.
But new does not always mean better.
Investors still need to consider:
The Budget may improve the tax treatment of new builds, but it does not turn a lower-quality asset into a strong one.
One of the clearest impacts of the Budget is that investors will need to pay closer attention to cash flow.
In a higher-rate environment, many investors have already become more cautious about purchasing assets that rely heavily on tax refunds to remain affordable. These reforms strengthen that need for discipline.
If losses on established property can no longer be immediately offset against personal income, investors may need to carry those losses for longer. That could affect borrowing capacity, household budgeting, portfolio expansion and risk tolerance.
This does not mean every property needs to be positively geared from day one. There are still situations where a modest shortfall may be justified by strong growth prospects, land value, scarcity or value-add potential.
But the shortfall needs to be intentional, affordable and understood.
Investors should be asking:
That last question has become much more important.
The proposed reforms could change how different buyers approach the market.
Some investors may move toward new builds to preserve negative gearing benefits. Others may shift toward higher-yielding assets, dual-income properties, commercial property, or more cash-flow-focused residential strategies. Some may pause until the legislation is clearer.
At the same time, owner-occupiers may face less competition from investors for certain established properties, particularly those that are heavily negatively geared or less attractive from a cash-flow perspective.
But property markets are rarely uniform.
The impact will vary by location, property type and buyer demographic. A low-yield established house in a premium suburb may be affected differently from a dual-income property in a tight rental market. A new apartment in a high-supply precinct may behave differently from a newly built townhouse in a land-constrained infill location.
Investors should avoid broad conclusions and assess each opportunity on its merits.
For investors considering an established property after Budget night, the question is no longer whether they can rush to preserve the existing negative gearing treatment. That cut-off has passed.
The question now is whether the property still makes sense under the proposed new rules.
That requires a more disciplined assessment of the property''s pre-tax position, its long-term fundamentals, and the investor''s ability to hold the asset without relying on an immediate tax benefit from rental losses.
For some established properties, the answer may still be yes.
A property with strong land value, durable tenant demand, limited competing supply, scope to improve income, or potential to add a secondary dwelling may still justify consideration. The tax treatment may be less favourable, but the underlying investment case may remain strong.
For less resilient established properties, the answer may be different.
If the property has a low yield, limited land value, high holding costs, no clear upside, and depends heavily on tax refunds to be affordable, the Budget makes that weakness harder to ignore.
The same logic applies to new builds, but in reverse. A new property may receive more favourable tax treatment, but that does not automatically make it a better investment. Investors still need to test the purchase price, location, land component, rental assumptions, future supply and resale demand.
In other words, the post-Budget decision is not simply "new builds good, established properties bad."
The better question is:
Would this property still be worth owning if the tax benefits were lower than expected?
If the answer is no, the investor should be cautious.
The most sensible response is to reassess strategy, not abandon property investing.
Investors should review whether their current or planned acquisitions still make sense under less generous tax settings. That means modelling properties before tax, after tax, and under conservative assumptions.
For many investors, the focus should shift toward assets that have a stronger ability to stand on their own fundamentals.
That may include:
The right strategy will depend on the investor''s income, borrowing capacity, time horizon, risk tolerance and portfolio goals.
The 2026 Federal Budget does not end property investing.
It changes the rules around how certain investments are taxed, and it makes weak investment decisions harder to justify.
That is not necessarily a bad thing.
Investors who were relying primarily on negative gearing benefits may need to rethink their approach. Investors who focus on fundamentals — asset quality, cash flow, location, tenant demand, land value and long-term supply constraints — still have a framework for making sound decisions.
The key lesson is simple: tax treatment can improve an investment, but it should not carry it.
In the next phase of the market, the best investors will not be the ones who chase the biggest tax deduction. They will be the ones who buy assets that remain resilient even when the tax settings change.
At Firm Foundations Property, our approach has always been to assess assets on their underlying fundamentals first, and tax treatment second. The 2026 Budget reinforces that discipline. If you would like a considered view on how these changes affect your portfolio or next acquisition, get in touch.
Contact: info@firmfoundationsproperty.com.au