Australia's 2026 property tax changes: Essential action steps for investors
The 2026–27 Federal Budget delivered the biggest changes to property investment tax rules in more than two decades. From negative gearing limits to a new capital gains tax formula, these changes are reshaping how Australians buy, hold and sell investment property.
The negative gearing and CGT reforms passed Parliament in June 2026 and are now law, with most changes taking effect from 1 July 2027.
A related measure, a new minimum tax on discretionary trusts, was also announced in the Budget but has not yet passed into law and remains under consultation. This blog post breaks down what's actually changing, who's affected, and what property investors should do next.
Key takeaways
- Australia’s 2026 property tax reforms significantly change how residential investors manage tax and property.
- The reforms cover negative gearing, CGT, foreign ownership rules and discretionary trust taxation. From 1 July 2027, owners of established properties purchased after 12 May 2026 cannot offset rental losses against salary or wages.
- The 50% CGT discount will be replaced by CPI indexation and a 30% minimum tax.
- Foreign buyers cannot purchase established Australian homes until 30 June 2029.
- A proposed 30% minimum tax on discretionary trusts may begin on 1 July 2028.
What property tax changes were announced in the 2026 Federal Budget?
On 12 May 2026, the Government handed down the 2026–27 Federal Budget, announcing sweeping reforms to negative gearing and capital gains tax (CGT) arrangements for residential property. These measures passed Parliament in June 2026 and are now law, with most changes taking effect from 1 July 2027.
In short, three things are happening:
- Negative gearing for residential property will be limited to new builds from 1 July 2027.
- The 50% CGT discount will be replaced with cost base indexation and a 30% minimum tax rate on capital gains.
- The ban on foreign purchases of established homes has been extended by more than two years, to 30 June 2029.
Alongside these, the Budget also introduced a minimum tax rate on income distributed from discretionary trusts from July 1, 2028. If your investment property sits inside a trust, this change affects you directly and is worth planning for now.
Negative Gearing Reform 2027: Established properties vs. New builds
From 1 July 2027, negative gearing will be restricted for established residential properties, while eligible new builds will retain full access. The changes aim to reduce competition for established homes and encourage investment in new housing supply. Here is how the new negative gearing tax rules will work:
- Properties held before 7:30 pm AEST, 12 May 2026 (announcement time): Fully grandfathered, including properties where a contract had been signed but not yet settled. These can continue to be negatively geared against any income (salary, wages, business income, etc.) indefinitely, for as long as the owner holds them. There is no forced sale date or expiry.
- Properties purchased between 12 May 2026 and 30 June 2027: Can still be negatively geared normally during this transition window; losses can offset other income like salary. This benefit ends on 30 June 2027, meaning any losses generated from 1 July 2027 onward on these properties fall under the new restricted rules, even though the property itself was bought earlier.
- Properties purchased from 1 July 2027 onward: Cannot be negatively geared against salary or wages at all, from day one of ownership. There is no transition period for these buyers.
- Ring-fencing rule (applies from 1 July 2027 to all non-grandfathered established properties): Rental losses can only be offset against other residential property income, meaning rental profits or capital gains from residential property, not against salary, wages, or other income sources. This applies to individuals, partnerships, companies and most trusts, though widely held trusts (e.g., most managed investment trusts) and superannuation funds, including SMSFs, are excluded from the rule.
- Carry-forward mechanism: If losses exceed available residential property income in a given year, the excess carries forward indefinitely (there's no expiry) to offset residential property income, including rental profit or an eventual capital gain, in future years. This ensures investors don't permanently lose the value of legitimate costs like maintenance and interest; they just have to wait to use them.
New builds get a big exception here. If a property is newly built, like a house on vacant land or a knock-down rebuild that adds extra homes (such as a duplex replacing one house), it doesn't face these restrictions. These new builds keep the full negative gearing benefits indefinitely. It's designed to encourage more homes to be built.
But there's a catch: this benefit stays with the property, not the owner. So if that new build is later sold to another investor, the new owner won't get the same negative gearing or CGT discount.
Negative gearing example: Sarah’s investment
Sarah earns $130,000 per year in salary and buys an established (not new-build) investment property in September 2026, after the announcement but before the 1 July 2027 start date, placing her in the transition window.
- 2026–27 tax year (Sept 2026 to 30 June 2027): Old rules still apply during this window. The property generates $9,000 in net rental losses (interest, repairs, and management fees exceeding rental income). Sarah fully deducts this $9,000 against her $130,000 salary, reducing her taxable income to $121,000, exactly as negative gearing has always worked.
Curious whether your own property is positively or negatively geared? Try our negative gearing calculator for an estimate of your potential tax benefit under current rules.
- 2027–28 tax year (from 1 July 2027): The new ring-fencing rules now apply to her property, since it was bought after the announcement. The property generates $28,000 in rental income against $38,000 in deductible costs, creating a $10,000 net rental loss. Sarah's taxable income stays at $130,000; she gets no wage tax reduction. Instead, the $10,000 loss is quarantined and carried forward on her tax return for future use.
- 2028–29 tax year: Suppose the property breaks even (unlikely, but illustrating a wash year), no further loss is added, and no carried-forward loss is used, since there's no rental profit to absorb it.
- 2029–30 tax year: Rent has risen, and the property now turns a $4,000 profit. Sarah applies $4,000 of her carried-forward losses to reduce that year's rental profit to $0. That leaves $6,000 in banked losses still available, which she can use against future rental profit or against her eventual capital gain when she sells the property.
Key point: Sarah is not fully grandfathered like a pre-announcement owner would be, she only gets normal negative gearing until 30 June 2027. After that date, any new losses on her property can no longer reduce her salary tax; they must instead be banked and used later against income from that same property, whether future rental profit or a capital gain on sale.
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Capital gains tax reform: CPI indexation & the 30% minimum floor
From 1 July 2027, the current 50% CGT discount is being replaced for individuals, trusts and partnerships. Two changes take their place: cost base indexation and a 30% minimum tax on capital gains.
1. Cost base indexation
Instead of a flat 50% discount, your original purchase price is adjusted upward for inflation (based on CPI) before your capital gain is calculated. This brings back the system that applied between 1985 and 1999. It covers any CGT asset, including property and shares, provided it's been held for at least 12 months. The ATO will provide tools and guidance to help taxpayers work out the indexed cost base.
2. A 30% minimum tax on gains
On top of indexation, a floor now applies. If the tax rate on your gain works out below 30%, you pay extra to bring it up to 30%. If you are already taxed at 30% or more, this makes no difference to you.
3. How it applies to an existing property
Properties bought before the changes take effect aren't taxed retrospectively — their value gets "split" at 1 July 2027, with each portion of the gain taxed under whichever rules applied at the time.
Capital gains tax exceptions and exemptions
A few categories sit outside the new rules entirely:
- Income support recipients: Anyone receiving a means-tested payment such as the Age Pension or JobSeeker in the year they realise the gain is exempt from the 30% minimum tax.
- Main residence: Your home stays exempt from CGT entirely, as it is now.
- Small business CGT concessions: The four existing small business concessions are unchanged.
- Pre-1985 assets: Gains accrued before 1 July 2027 on assets bought before 1985 remain exempt (legacy "pre-CGT" treatment continues).
- Affordable housing: The existing 60% CGT discount for qualifying affordable housing investments is fully retained.
- Start-ups and early-stage businesses: The Government has flagged separate consultation on how these reforms interact with existing tax incentives for this sector.
Transitional arrangements
Only gains made after 1 July 2027 fall under the new rules. Gains built up before that date stay protected under the old 50% discount, using a valuation (or an ATO-provided formula) to work out what the asset was worth as at 1 July 2027. Everything earned after that date is taxed using indexation, topped up to the 30% minimum where relevant.
Capital gains tax example
Sarah earns $100,000 a year and buys an established investment property for $519,000 (including stamp duty) shortly after the Budget announcement.
- Because it's an established property bought after the cut-off, she can't offset rental losses against her salary, only against rental income or capital gains from residential property, with any excess carried forward.
- Over her first five years, she runs at a rental loss and builds up $22,879 in carried-forward losses.
- In the following five years, her rent turns positive, and she uses most of those carried-forward losses to bring her net rental income down to zero.
- She sells the property ten years after buying it, for $814,447. Because she bought after 1 July 2027, the gain is calculated using cost base indexation rather than the 50% discount.
- Her remaining carried-forward losses reduce her real estate capital gain from $150,083 down to $145,284.
- Her marginal tax rate is already well above 30%, so the minimum tax floor adds nothing extra for her, since that floor only bites for people whose rate on the gain would otherwise sit below 30%.
- Overall, across the ten years, Sarah ends up paying just $186 more tax than she would have under the old rules.
The bigger practical change is timing: she can't use rental losses to reduce her salary along the way, and has to wait to use them against rental income or the eventual sale.
Had Sarah bought a new build instead, none of this would apply; she'd keep full negative gearing against her salary, and could still choose between the old 50% discount or the new indexation rules when she sold.
How does the extended foreign buyer ban affect the local market?
Extending the ban to 30 June 2029 keeps established homes largely off-limits to foreign buyers, while new builds stay open to them. This creates a few knock-on effects across the market.
Local market impacts
- Less competition in established suburbs: With temporary residents and foreign companies out of the picture, there's less competition for family homes in middle and upper-ring suburbs. Foreign buyers were never a huge share of the market overall, but they were concentrated in cities like Sydney, Melbourne and Brisbane.
- Slower price growth for existing homes: With less foreign money chasing established properties, prices depend more on local wages, local investor demand and how much people can borrow.
- More foreign money into new housing: Foreign investors can still buy new builds, off-the-plan properties and land for redevelopment (with FIRB approval). This keeps foreign capital flowing into construction, helping fund new apartment and townhouse projects through pre-sales.
- Tighter rental market: Temporary visa holders and companies still need somewhere to live, and they can't buy an established home. So they stay in the rental market, which keeps pressure on rents and vacancy rates, especially for inner-city apartments and areas near universities.
- Works alongside the tax changes: This ban and the 2027 negative gearing and CGT changes push in the same direction, making established property less attractive to buy purely for investment, and steering money toward new housing instead.
Who's exempt from the ban
Not every foreign buyer is locked out. A few groups fall outside the ban, or can still buy an established home under specific conditions:
- New Zealand citizens and Australian permanent residents aren't affected. The ban only applies to foreign persons.
- Redevelopment projects can still buy established property if the project adds a meaningful number of new homes, such as large build-to-rent developments.
- Approved employers under schemes like the Pacific Australia Labour Mobility (PALM) scheme can still buy established homes to house workers.
Impact on discretionary trusts
The government is introducing a 30% minimum tax on discretionary (family) trusts from 1 July 2028. This closes a long-standing strategy where trust income gets split among family members to reduce the overall tax paid.
This measure was announced in the 2026–27 Budget (12 May 2026) but is not yet law. Draft legislation has not been released, and it remains subject to consultation with stakeholders before it's introduced into Parliament. The rules described below could still change before 1 July 2028.
How it works:
- The trustee pays tax at a minimum rate of 30% on the trust's taxable income, no matter how that income is distributed to beneficiaries.
- Individual beneficiaries who receive a distribution get a non-refundable tax credit for the tax the trustee already paid. This means they can't get a refund for unused credit, and they generally can't bring their effective rate below 30%, even if their personal tax rate would normally be lower.
- Corporate beneficiaries do not get this credit, to stop trusts from routing income through a company to convert it into refundable franking credits and dodge the minimum tax.
- Trusts that receive franked dividends must use their franking credits to help pay the minimum tax, rather than passing them straight to beneficiaries.
Who is exempt:
Not every trust will be subject to the proposed minimum tax. The government has identified several exempt structures and income types, including those relating to superannuation, disability support and estates.
- SMSFs and other complying superannuation funds
- Fixed trusts where each beneficiary has a set share
- Widely held trusts, including most managed investment trusts
- Special disability trusts
- Deceased estates
- Charitable trusts
- Testamentary trusts already in existence on 12 May 2026 (new testamentary trusts set up after this date won't qualify for the exemption)
- Certain income types, including primary production income and income relating to vulnerable minors
Discretionary trust example
Steven earns $200,000 through a family discretionary trust and currently splits it four ways among family members with no other income, paying around $24,008 in total tax as a family.
Under the minimum tax, the trust would instead pay 30% tax on the full $200,000 regardless of how it's split, pushing the family's total tax bill up to roughly the same level as if one person had earned that $200,000 directly as a salary.
A time-limited, three-year rollover will let trustees restructure out of a discretionary trust (for example, into a company or fixed trust) without triggering an immediate tax cost. This rollover runs from 1 July 2027 to 30 June 2030, giving them a full year to act before the new tax starts on 1 July 2028.
What record-keeping will investors need under the new rules?
Good record-keeping always mattered, but from 2027 it became essential. Since rental losses are quarantined and CGT is now calculated using inflation-adjusted cost base indexation, investors need to keep clear records in a few key areas.
- Key dates: Keep your contract date, settlement date and (for new builds) construction dates. These show whether a property is grandfathered (bought before 7:30 pm AEST on 12 May 2026), sits in the transition period, or falls under the full 2027 rules. They also mark the starting point for indexation.
- Cost base and improvements: Keep records of what you paid to buy the property (stamp duty, legal fees, inspection costs) and any improvements you have made (renovations, extensions). These add up to your cost base, which is used to work out your taxable gain when you sell.
- Depreciation: Keep track of depreciation claimed on the building itself (capital works), since this reduces your cost base at sale. Keep plant and equipment items (like appliances and carpets) recorded separately too, as these are claimed and adjusted differently when you sell.
- A record of carried-forward losses: Keep an ongoing log of any quarantined rental losses. These build up over time and can be used against future rental profits or a capital gain when you sell.
- Valuations: Get a professional valuation at key moments, such as when a home you have lived in becomes a rental, when a property is inherited, or to set a clear starting value before 1 July 2027.
A properly prepared depreciation schedule is still one of the most useful tools here. It clearly separates what you can claim each year from what affects your capital gains tax bill down the track.
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Need experts' help understanding the 2026 property tax changes?
If you are unsure how these reforms could affect your property returns, tax obligations, or access to finance, our expert team at ZedPlus is here to support you.
With qualified expertise in both tax accounting and mortgage broking, we help you navigate complex regulatory changes with complete confidence. We will audit your current portfolio, optimize your tax position, and structure your loans for maximum flexibility. Book a call with our team today to secure your property strategy.
2026 property tax changes FAQs
1. What happens if I sell my post-cutoff established property at a capital loss after 1 July 2027?
Your capital loss is handled in two steps: it first absorbs any pre-existing carried-forward rental losses from that property, and any remaining net capital loss can then be carried forward indefinitely to offset future capital gains from other assets (like shares or commercial property).
2. Can I transfer a grandfathered property into a family trust or company without losing its grandfathered status?
No. Grandfathering attaches strictly to the specific legal owner at 7:30 PM AEST on 12 May 2026. Transferring ownership to a trust, SMSF, or company triggers a CGT event and causes the asset to lose its grandfathered status under the new owner.
3. How does cost-base CPI indexation work if inflation is zero or negative during my ownership period?
If the Consumer Price Index (CPI) decreases or stays flat, your cost base remains unadjusted—it never scales downward below your original purchase price plus eligible holding costs. You will simply calculate your gain against your unindexed cost base.
4. If I sell a new build after 1 July 2027, does the buyer get the same tax advantages I had?
No. The "new build" negative gearing exemption attaches to the transaction type, not the physical building, forever. Once you sell the property to a second owner, it is legally classified as an established dwelling for that buyer, subjecting them to loss quarantining.
5. What specific evidence does the ATO require to prove a property was under contract before the cutoff timestamp?
The ATO requires an executed contract of sale displaying a date and timestamp prior to 7:30 pm AEST on 12 May 2026, along with proof of deposit payment or conveyancer engagement logs generated prior to the deadline.
6. How are joint owners (e.g., spouses) treated if one owner buys out the other after 12 May 2026?
The original percentage share owned prior to the cutoff remains grandfathered. However, the newly acquired percentage share (bought from the spouse after the cutoff) is treated as a new acquisition and becomes subject to the 2027 quarantining rules.
2026 property tax changes: final thoughts
The 2026 property reforms represent one of Australia's most significant changes to property taxation and trust structures in years, involving trade-offs that will reshape how Australians approach property investment.
While several tax concessions have been scaled back or replaced, opportunities remain for those who proactively review their structures and adapt their long-term strategies. Rather than reacting to headlines, investors should focus on understanding how the new legislation applies to their individual circumstances and how it changes their financing options.
With qualified expertise in both tax accounting and mortgage broking, we help you navigate complex regulatory changes with complete confidence. We will audit your current portfolio, optimize your tax position, and structure your loans for maximum flexibility. Book a call with our team today to secure your property strategy.
Disclaimer
The information provided in this blog is for general informational purposes only and does not constitute financial, legal, tax, or credit advice. Tax laws, eligibility criteria, and government guidance may change over time. Before making any financial decisions, consider seeking personalised advice from a qualified mortgage broker, accountant, or financial adviser based on your individual circumstances.
