The Federal Budget explained

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.

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 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 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 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.

The government has introduced negative gearing changes with "grandfathering" provisions. This means if you already own a negatively geared investment property, you can continue to claim those tax deductions until you sell.

On CGT, gains arising on a sale before 1 July 2027 are unaffected and will still receive the current 50% discount. Any capital gains arising from a sale that occurs after 1 July 2027 will be taxed on inflation-adjusted gains rather than automatically receiving a flat 50% discount. The inflation-adjusted gain is then taxed at the investor's marginal rate, subject to a 30% minimum tax.

• Established Properties: You can still buy them, but from 1 July 2027 you will no longer be able to deduct rental losses against your salary or other income.
  

• New Builds: These retain the tax advantages of negative gearing, and investors can choose either the 50% CGT discount or inflation indexation at the time of sale. This flexibility is not available to established property investors.
  

However, there are two risks worth understanding.

First, when you eventually sell, the next buyer is purchasing an established property and won't receive the same tax treatment. This narrows your future buyer pool and is worth factoring into your purchase decision today.

Second, tax incentives alone do not guarantee a project is viable. Investors should satisfy themselves that any new build is in a location with genuine rental demand and that the numbers stack up independently of the tax benefits.

A "new build" is generally defined as a residential dwelling that has not been previously sold or occupied as a residence. This includes off-the-plan apartments, new house-and-land packages, and newly completed units.

To qualify, the property must be sold for the first time as residential premises and cannot have been previously occupied for more than 12 months and is still owned by the builder or developer.

Where an existing property is demolished, it only qualifies as a new build if it is replaced by a greater number of dwellings. For example, knocking down one house to build two or more townhouses.

As a tenant, the main risk is a tightening supply of established rental properties over time. Of 2.9 million households currently renting, 83% rent from private investors, so changes to investor behaviour directly affect rental availability.

Because negative gearing is grandfathered, it is unlikely we will see a sudden mass exodus of investors selling their properties. The more significant question is where future rental investment will go. New properties are generally more expensive to rent than established ones, and new investor stock is likely to concentrate in outer growth corridors and apartment precincts. This risks creating a location mismatch between supply and demand, particularly for those who depend on proximity to employment, schools, hospitals and transport.

The short-term risk is modest given grandfathering. The longer-term risk depends on how much new rental supply actually gets built, and where.

First home buyers will directly benefit from less investor competition, but grandfathering provisions may mean that fewer investors will sell their properties. The net impact on prices is uncertain as the effect will vary significantly by market.

In practice, relief is more likely in outer growth corridors where new supply is being built. Those seeking established homes in inner and middle-ring suburbs may see less change in competition than expected.

This policy alone will not solve affordability. The underlying shortage of housing in the places people want to live remains, and that is what ultimately drives prices.