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The Federal Budget, announced Tuesday 12 May, has confirmed a major shift in housing tax policy.
Negative gearing is to be limited to new builds from 1 July 2027, and changes to the CGT discount were announced, both designed to reduce the tax advantage of investing in established property.
The intent: reduce investor competition for existing homes, and redirect capital into new housing.
Negative gearing will be limited to newly built homes, with existing investments being grandfathered and remaining under the current tax parameters. There will be a one year grace period (to 1 July 2027) for investors to buy property and utilise the current conditions in perpetuity.
The 50 per cent capital gains tax discount will be replaced with an inflation-adjusted indexed system, meaning investors will be taxed on gains above inflation rather than receiving a flat discount after holding an asset for more than 12 months.
Together, the changes are designed to reduce the tax advantage of buying established investment properties and push more investor demand toward new supply.
Depending on your profile within the property industry, the changes may affect you significantly, indirectly, or not at all.
What do the housing policy changes mean for you?
First home buyers
The Budget aims to reduce investor competition and improve access to established homes for first home buyers. However, affordability pressures remain, with housing supply constraints and borrowing capacity continuing to affect market access.
The changes may shift housing pressure rather than reduce it. If investor demand for established homes declines, some buyers may face less competition. However, grandfathering provisions may encourage existing investors to retain their properties rather than sell, which could limit the number of established homes available for purchase.
If you’re looking to buy your first property, take a look at our buying resources, including:
Renters
While changes to negative gearing and CGT are designed to impact investors, the results of this will unfortunately flow onto renters.
If investors leave the market, established rental supply will shrink further and prices will increase
The policy may increase rental supply in some areas while reducing it in others. Established suburbs, middle-ring locations and areas with limited new development may become less attractive to investors, despite often having strong rental demand. This can reduce the range of rental properties available and limit flexibility within the rental market. Housing affordability is influenced not only by the total number of homes, but also by whether housing is available in the right locations, price ranges and property types.
For this reason, lower investor participation does not necessarily improve overall affordability. It may change who occupies a property, but if total housing supply does not increase, demand pressures can remain and may contribute to higher rents and fewer rental options.
Investors
Curbing an investor’s market and increasing supply for first home buyers is the main goal of the 26/27 Budget's housing tax reform. By changing the CGT from a 50% discount to an inflation-adjustment indexed rate, and abolishing negative gearing on existing property, the Australian property market will be less appealing to investors.
It means investors with lower gains will pay less tax, while those with
gains well above inflation will pay more. The CGT reforms will only apply to gains arising after 1 July 2027. Investors in new builds will be able to choose the 50 per cent CGT discount or the new arrangements.
Existing arrangements will remain unchanged for all properties held before
Budget night, and investors who buy new builds will still be able to deduct
losses from other income.
Investors who buy established housing after Budget night will still be able to deduct losses against residential property income. They will be able to carry forward unused losses to future years but won't be able to deduct them against other income like wages.
Homeowners
Homeowners aren’t the biggest focus of this Budget and avoid the biggest direct impacts. But if investor demand for established homes falls, owner-occupier competition is likely to increase instead.
Interest rates and borrowing power still remain the biggest short-term market drivers.
Thinking about rentvesting?
Many younger buyers have turned to rentvesting - a pathway to enter the property market and start building equity through buying a more affordable investment property, and still renting in an area close to work, family, transport or lifestyle amenities. However, limiting negative gearing to new builds also weakens this pathway.
Restricting negative gearing to new builds means younger buyers are increasingly locked out of the same pathway. They are being asked to enter the market later, with higher prices, larger deposits and fewer investment options. A policy designed to improve fairness could end up narrowing one of the few remaining ways younger Australians can build housing wealth.
Remember: if you're a first home buyer, you’re not eligible for the 5% deposit scheme if you’re planning to rentvest.
Key Federal Budget terms - explained
Australia's housing market was a key focus in the budget. We've broken down some of the key terms to help you understand what's happening.
Capital Gains Tax (and the CGT discount)
Capital Gains Tax is a tax payable on any profit you make on an asset when it appreciates, excluding any profit made when you sell your principal residence.
In 1999, the Howard government implemented a 50% discount on tax paid on capital gains (after holding an asset for more than 12 months) - an initiative designed to attract investment in property.
This incentive was seen as more desirable than paying the full tax rate on your taxable income.
The 2026/27 Budget announced the 50 per cent discount would be abolished for established properties and replaced with an inflation-adjusted indexation model, which taxes only real gains. The CGT discount of 50 per cent will still be available for investors in new builds.
Negative gearing
When a monthly mortgage payment on an investment property is higher than the monthly rental income, an investor can negatively gear the property.
This means taking the loss from the rental income and deducting it from your taxable income, bringing your tax bracket down - sometimes significantly.
i.e. if an investor pays $1,000 on a mortgage per week, and the rental yield is $800, they can remove $200 per week from their taxable income at the end of the financial year.
Similar to CGT discounts, negative gearing was implemented to encourage investment in the property market.
Grandfathering
Grandfathering refers to policy conditions that will continue even after new policy is implemented.
In terms of housing policy, it avoids “changing the goalposts” and is meant to prevent market shock should investors flee the market due to changed conditions.
Those who already negatively gear their property will continue to be able to utilise those tax conditions.
The 2026/27 Budget announced the 50 per cent discount would be abolished for established properties and replaced with an inflation-adjusted indexation model, which taxes only real gains. The CGT discount of 50 per cent will still be available for investors in new builds.
Rentvesting
Rentvesting is when a renter buys an investment property with no intention of being an owner-occupier, and continuing to rent.
This has become a popular way to get on to the property ladder, as first home buyers will purchase a property more cheaply in an outer or regional suburb and rent it out, while continuing to enjoy the lifestyle of the higher-priced area they live in.
There’s been no changes announced to rentvesting, but abolishing negative gearing and replacing the CGT tax discount could be seen as a barrier to entry for many first home buyers.
Inflation
Inflation measures how fast prices are rising; it is an increase in the level of prices of the goods and services that households typically buy.
The standard measurement of inflation in Australia is the Consumer Price Index, which captures price changes of the above goods and services and is calculated independently by the Australian Bureau of Statistics.
History tells us that low and stable inflation is essential for a strong economy, consistent full employment and growth in real wages.
The Reserve Bank of Australia’s target inflation rate is between two and three per cent.
Inflation indexation
Inflation indexation prevents tax on nominal gains - being gains that only happen due to inflation.
The inflation indexation model proposed for Capital Gains Tax (replacing the 50% discount) means that only gains made above the rate of inflation would be taxed.
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More about Housing tax reform shifts the pressure, it doesn’t solve itHousing tax reform shifts the pressure, it doesn’t solve it
The Federal Budget has confirmed changes to negative gearing and CGT. Here's what shifted, why it matters, and what it means for the market.
