Australia’s 2026 Federal Budget: Major Changes to Negative Gearing and Capital Gains Tax Explained

The 2026 Federal Budget marks one of the most significant shifts in Australia’s housing and tax policy in decades. Treasurer Jim Chalmers has unveiled reforms aimed at addressing housing affordability, intergenerational equity, and long-term budget sustainability, even as global economic uncertainty continues to weigh on the outlook .

At the centre of the budget are major changes to property tax concessions, particularly negative gearing and the capital gains tax (CGT) discount.

Changes to Negative Gearing

From July 1, 2027, negative gearing will be restricted to new residential builds only. Under the new rules:

• Investors purchasing existing properties will no longer be able to offset rental losses against other income.

• Losses from established properties can only be applied against rental income or capital gains from residential property.

• Existing investments will be grandfathered, meaning current investors retain their benefits until they sell.

• Certain categories — including new builds, build-to-rent developments, superannuation funds, and specific government housing programs — are exempt .

  
  

These reforms are designed to shift incentives toward increasing housing supply rather than encouraging investment in existing properties. The government argues this will improve access for first-home buyers and help rebalance the housing market .

Capital Gains Tax Reform

The budget also introduces substantial changes to the capital gains tax discount.

Currently, individuals receive a 50% discount on capital gains for assets held longer than 12 months. Under the new system, beginning July 1, 2027, the discount will be replaced with an inflation-indexed cost base model, similar to pre-1999 rules. A minimum 30% tax on net capital gains will apply to prevent excessive tax minimisation strategies .

Investors purchasing new residential properties will be able to choose between the existing discount structure or the new inflation-indexed approach. Transitional provisions will protect gains made before the reforms take effect .

Impact on Housing and First-Home Buyers

The government estimates these reforms could enable up to 75,000 additional Australians to buy homes over the next decade, as investor demand for established properties may ease .

Supporters of the reforms argue that decades of generous tax concessions have contributed to rising house prices and intergenerational inequality. Critics, however, warn that reducing investor incentives could affect housing supply and rental markets, although some analysis suggests the impact on rents may be limited .

Additional Budget Measures

Alongside housing tax reform, the budget includes broader fiscal adjustments, including changes to discretionary trust taxation and spending reductions in major programs such as the National Disability Insurance Scheme (NDIS) . These measures form part of a wider strategy to improve long-term structural budget outcomes while funding targeted relief and infrastructure initiatives.

What This Means Moving Forward

The 2026 Budget signals a clear shift in Australia’s tax policy direction — moving away from long-standing property investor advantages and toward reforms aimed at supporting home ownership and fiscal sustainability.

With implementation phased in over the next year, the full economic impact will unfold gradually. Investors, first-home buyers, and property market participants should carefully review the transitional arrangements and seek professional advice where needed.