What do the 2026 Budget negative gearing changes mean for commercial property investors

The 2026 Federal Budget's reforms to negative gearing and capital gains tax have been framed as a housing measure, but the implications for commercial property investors are significant and in some respects more far-reaching than those facing residential investors.

What the Budget confirms

From 1 July 2027, the 50 per cent CGT discount will be replaced with cost base indexation and a 30 per cent minimum tax on net capital gains. These changes apply to all CGT assets held by individuals, trusts and partnerships. Commercial properties such as industrial, retail, office and alternative assets are fully in scope with no new-build carve-out of the kind available to residential investors.

Negative gearing changes are residential-specific. Limiting deductions on established residential properties does not directly affect commercial property income deductibility. But commercial investors face the full CGT change, and from 1 July 2028 a separate 30 per cent minimum tax on discretionary trusts will apply. The discretionary trust is the dominant holding structure for private commercial property investment in Australia, and the government's own revenue estimate of $4.47 billion in 2029-30 alone signals the scale of the structural change anticipated.

Will investors pivot to commercial?

The residential changes create a meaningful incentive shift. Established residential property acquired after Budget night is no longer negatively gearable, and the CGT treatment for residential investors choosing new builds remains more flexible than for commercial. For investors reassessing their portfolio strategy, commercial property retains full deductibility of losses against other income and offers no restriction on asset type. In that narrow sense, commercial property becomes comparatively more attractive for investors who were previously active in residential.

For some private investors, this Budget may be the prompt to consider diversifying into commercial property for the first time. The income yields are compelling, averaging above residential yields across most commercial assets, often with long leases and sticky tenants providing income certainty that residential investment rarely matches. Investors who previously used residential property as their primary wealth-building vehicle may find the commercial sector increasingly worth examining as the tax settings around residential tighten.

That said, the pivot is not straightforward. Commercial property carries a meaningfully different risk profile to residential. Entry costs are higher, financing is more complex and often negative gearing is not possible, and lease vacancy or tenant default can have a more immediate impact on cash flow than a vacant residential property. Asset selection requires a clearer understanding of location fundamentals, tenant covenant strength, and lease expiry profiles. For private investors without prior commercial exposure, the learning curve is steep. The opportunity is genuine but requires more considered due diligence than simply redirecting residential investment capital into the nearest commercial asset.

The hold decision

The more immediate effect for existing commercial property investors is on the timing of disposals. Gains crystallised before 1 July 2027 retain the existing 50 per cent discount treatment. Investors who have been considering selling have a window to lock in current tax treatment, which should support transaction activity over the next twelve to eighteen months.

Beyond that deadline, the after-tax cost of disposal increases, and the rational response for many investors will be to hold rather than sell. Combined with the discretionary trust minimum tax from 2028, the incentive to defer realising gains strengthens considerably. Reduced turnover has consequences beyond individual decisions. Lower transaction volumes reduce price discovery, affect lender confidence, and flow through to valuations, agents and advisers across the sector. Commercial property has been in a recovery phase through 2024 and 2025 after significant rate-driven repricing. A structural shift in investor holding behaviour will extend the period of subdued turnover even if capital values remain relatively stable.

The unintended consequence

The CGT and trust reforms were designed to address housing affordability. Commercial property is caught in the scope of those changes without any of the compensating concessions available to residential investors. For private investors across retail, industrial, office and alternative assets, the after-tax return from holding and ultimately disposing of commercial property in standard private structures has been permanently reduced. The pivot opportunity is real but carries risks that residential investors need to understand before acting. The hold incentive is stronger and that will define how this market moves for years to come.