The changes to Capital Gains Tax (CGT) and negative gearing announced in the 2026–27 Federal Budget have now passed and represent some of the most significant tax reforms affecting investors in decades. Commencing 1 July 2027, the capital gains tax (CGT) and negative gearing reform will have an impact on investment decisions, so understanding these measures will be important in the years ahead.
Capital Gains Tax (CGT)
Replacement of 50% CGT Discount:
- The 50% CGT discount for individuals and trusts will be replaced with indexation from 1 July 2027.
- Feeling like a step back in time, indexation will determine the capital gain on all assets from this date forward
- With increased gains assessed on assets with low-cost bases (e.g. founders, long-held assets) and record-keeping complexity (tracking expenditure by quarter and indexation factors), it will be important to review whether the government has introduced any carve-outs that will apply to you.
What’s happening on 30 June 2027?
This is where some complexity is added to your CGT calculations for the future.
- All existing CGT assets are deemed to have been sold at 30 June 2027 and reacquired on 1 July 2027 (market value or future apportionment method).
- Any gain to that point can access the 50% discount. Unless you have sold or transferred the asset on or before 30 June 2027, you will not need to calculate and include the gain in your return until you sell the asset.
- Any investment sales Post 1 July 2027 will now have their gains split in two and require additional calculations.
- Pre‑1 July 2027 gain (deferred): using the 50% discount
- Post‑1 July 2027 gain: subject to indexation (no discount)
30% Minimum Tax Rate on Capital Gains
From 1 July 2027, individuals must pay at least 30% tax on capital gains accrued from 1 July 2027.
Where your tax rate is already above 30%, there will be no change in the rate of tax you pay. However, if your income (including the gain) is below $45,000, this measure will increase your tax payable.
For some taxpayers impacted by these changes, the government has included some exclusions from the application of the minimum 30% tax on gains.
- Recipients of means tested income support (e.g. recipients of Age Pension or JobSeeker)
- Investors in new residential housing will get to choose which method they want to apply to their gains
With a lot of the new legislation designed to improve the affordability of housing and encourage the housing supply, what are the incentives for builders and developers?
- Taxpayers can choose the current 50% CGT discount or indexation method for new residential dwellings
- If the property qualifies as affordable housing, a higher 60% CGT discount can be applied
- If you choose to apply the discount method, the new minimum 30% tax on the capital gain is not applicable
- Under the indexation method, you will still need to apply the minimum 30% tax
Have you got some old assets that you have been holding onto?
- All pre‑20 September 1985 assets will no longer remain exempt from tax.
- Valuers will undoubtedly be busy providing values for the deemed disposal at 30 June 2027. Your gain to this point in time will remain exempt from tax, but any gains accrued from 1 July 2027 will now be taxable.
Negative Gearing
Property has been a favourite for many investors in building wealth through their investment in a rental property and being able to claim the losses against their other income. For this reason, existing investors will retain these incentives.
The changes to the law will impact the affordability of properties for new investors as well as their borrowing capacity when dealing with the banks. Time will tell what impact this has on property affordability in our capital cities.
If you held the property before 12 May 2026 (budget night), you can continue to claim your losses.
For residential property purchases after 12 May 2026, any losses you make will be quarantined and claimed against future rental income and capital gains. You can no longer apply the losses incurred after 1 July 2027 against non-property income. Where you have several properties, you will still be able to offset the losses on one property against the income on another.
A last-minute change to the rules to have legislation passed was to exclude Self-Managed Super Funds (SMSF) from being able to enter into Limited Recourse Borrowing Arrangements. You will no longer be able to borrow to purchase residential property in your SMSF.
Naturally, there are some exclusions from the quarantining
- Eligible new builds
- Grand-fathered properties held before 12 May 2026
- Commercial property
Do I need to do anything now?
While there is no impact for your 2026/27 income year, it may be important to review investment structures, obtain asset valuations and consider future planning strategies before the new rules take effect.
If you would like to discuss how these proposed reforms may impact your personal circumstances, please contact our team for tailored advice.