Already-owned investments keep the old rules. For new buys of established property, the investment criteria tightens: yield now matters as much as growth potential.
Key takeaways
- Four tax measures, staggered: start dates between 1 July 2027 and 1 July 2028. Existing investors keep the old negative gearing rules indefinitely.
- New builds, settings preserved: full negative gearing, choice of CGT method at sale, foreign buyers allowed.
- Established property, post-change: rental losses lock to rental income only, and the 50 per cent CGT discount is replaced. The screen for selecting the right asset gets tighter.
- The dollar picture: at 7 per cent growth and 4 per cent yield, the modelled wealth difference is about $58,000 over 10 years (around 10 per cent). Higher rental yields on established close the gap.
- Strategy adjusts, not retires: for established property, yield now matters as much as growth potential. Opportunities are still there; the analytical screen just tightens.
Treasurer Jim Chalmers handed down the 2026-27 federal budget on 12 May, calling it the biggest tax change in 26 years. Four measures rewrite the rules for property investors.
The housing measures
Negative gearing reform, from 1 July 2027. Negative gearing lets investors subtract a rental loss from their salary, lowering the tax on that salary. From July 2027, only new builds qualify. A “new build” has to genuinely add supply: construction on vacant land, an off-the-plan apartment, or a knock-down rebuild that creates more dwellings than were there before. Once sold on, it loses that status.
Existing investors are protected: any property bought before 7:30pm AEST on 12 May 2026, including those under contract but not yet settled, keeps the old rules indefinitely. For new buys of established homes from July 2027, rental losses no longer reduce salary tax. They can still offset rental income from other properties, with leftover losses carried forward and applied at sale to reduce the capital gains tax bill (capital gains tax, or CGT: the tax owed on the profit when you sell). Listed property trusts and self-managed super funds are excluded from the restriction.
Impact assessment
Take an investor on a 39 per cent tax rate (including the 2 per cent Medicare levy). A $10,000 annual rental loss on an established property currently saves $3,900 in tax. Under the new rules, that loss is locked away from salary, but it can still reduce CGT at sale, and offset rental income from other properties in the meantime. For a long-held property, those built-up losses take a real bite out of the CGT bill at sale, recovering much of the lost annual refund. The main impact is timing: the investor funds the holding cost each year without the refund, even though most of the economic value comes back at sale.
New build investors keep the full annual refund. That creates a real annual cashflow gap between new and established property for negatively geared investors, although the total after-tax outcome over the full hold is closer than the annual numbers suggest.
CGT discount reform, from 1 July 2027. Sell an investment property held more than 12 months today and only half the profit is taxable. That’s the 50 per cent CGT discount. From 1 July 2027, the discount is replaced by two things working together: your original purchase price is lifted in line with inflation, so only the gain above inflation is taxed (the “real” gain), and a 30 per cent minimum tax rate applies to that real gain. The 30 per cent minimum only bites for investors whose normal tax rate would sit below 30 per cent; incomes above about $45,000 are unaffected, and income-support recipients are exempt.
The protection for existing owners is narrower than under negative gearing: existing established-property owners hit the new CGT system on any gain that builds up after 1 July 2027, even if they bought years earlier. The pre-July-2027 portion keeps the old 50 per cent discount; the post-July-2027 portion uses the new system. Investors either get a formal valuation at 1 July 2027 or use an ATO formula based on average returns over the holding period. New builds keep both options at sale, picking whichever method gives the lower tax. The family home, super, the four small business CGT concessions, and the existing 60 per cent CGT discount on qualifying affordable housing are all unchanged.
Impact assessment
Under the old system, half the gain is taxable. Under the new system, the entire gain above inflation is taxable. Whenever property growth runs hotter than inflation (which it usually does), more than half the gain becomes taxable, producing a higher CGT bill.
At 7 per cent annual growth with 2.5 per cent inflation over 10 years, about 71 per cent of the dollar gain becomes taxable under the new system, versus 50 per cent under the old. The bigger taxable slice, taxed at the same rates, produces a materially higher CGT bill. Higher inflation narrows the gap: the inflation adjustment is bigger, the taxable portion shrinks, and the gap with the old discount closes.
Discretionary trust minimum tax, from 1 July 2028. A discretionary trust is one where the trustee decides each year how to share the trust’s income among beneficiaries (usually family members). Property investors often use them to send rental income or capital gains to family members on lower tax rates, lowering the household’s overall tax bill. From 1 July 2028, those distributions face a 30 per cent minimum tax, blunting the income-splitting benefit. Rollover relief lets existing trust holders restructure tax-free for three years, through 30 June 2030. Fixed trusts, charitable trusts, and deceased estates are among the exemptions.
Impact assessment
Investors using a discretionary trust have historically sent rental income and capital gains to family members on lower tax rates, lowering the household’s overall tax bill. A 30 per cent minimum tax on those distributions reduces the benefit. The trust structure still has a role for asset protection and estate planning, but the tax-minimisation edge is blunted. The three-year rollover window through 30 June 2030 is the time to talk to your accountant.
Foreign investor ban extended to 30 June 2029. Foreign nationals (including temporary residents and foreign-owned companies) already cannot buy established homes in Australia. The ban was set to end in March 2027 and has been pushed out by more than two years. New builds, worker accommodation, supply-adding projects, and spousal purchases remain permitted.
Impact assessment
Foreign buyers stay locked out of established homes but can still buy new builds. Across all four measures, the pattern is consistent: incentives for new supply are preserved, and the investment screen for established property is recalibrated. Opportunities in either type of property remain; the analysis around them is what adjusts.
Treasury’s read on the price impact. Treasury forecasts house prices growing about 2 per cent less over the next couple of years than they would have without the changes, with rent impact under $2 a week on the median. The design intent is to redirect investor demand toward new supply, not to engineer a price drop. The structural drivers of price (population growth, the supply pipeline, lending standards) are unchanged.
The investor playbook
First, who this actually affects. The negative gearing change only matters if a property is running at a loss. Cashflow positive properties (where rent covers all costs including interest) are unaffected. ATO data for 2022-23 shows around 1.2 million Australians, roughly half of all rental property owners, claimed a rental loss that year. Total losses: $11 billion; tax benefit: about $3.9 billion. That 1.2 million is the group affected by the new rule for any future buy of established stock.
The strategic response is to target higher yields. Yield (annual rent as a percentage of the property’s value) was a secondary factor under the old rules, behind capital growth. Under the new rules it becomes co-primary alongside growth potential. The properties that work best have both: markets with strong growth potential AND rental yields that cover the holding cost most of the way.
How that strategic shift plays out depends on where you sit as an investor:
The structural takeaway: picking the right asset matters more than ever. For established property, yield moves up alongside growth potential as the primary screen. For new builds, the pre-budget settings (full negative gearing, choice of CGT method) are preserved. Either way, asset selection just became the biggest lever in the system.
In dollars, here is a worked example at typical settings: an $800,000 property held for ten years at 7 per cent capital growth and 4 per cent rental yield, on a $150,000 income.
Two things to read from this. First, the gap is real but not enormous at typical settings: around 10 per cent of total after-tax wealth over ten years. Second, that 10 per cent is sensitive to yield. Push rental yield up and the year 1 cash position narrows, fewer losses get carried, and the established-vs-new-build gap shrinks. That is why yield moved from secondary to co-primary on the screen.
Beyond the tax changes
The tax measures are the headline. These other lines shape the market they’re landing in.
The bottom line
Property is still a good investment. The 12 May budget changed who pays what, not whether the asset class works. For new buys of established property, the analytical screen gets tighter: yield now matters as much as growth potential. New build settings are preserved. For either type, the brief is the same: find markets where strong growth potential and decent yield show up together. Asset selection was always the biggest lever; the budget made it bigger.
What’s next
The Deep Dive lands next: yield-by-growth sensitivity across capital cities, what the tighter screen looks like in practice for established property, and where the strongest combinations sit across both established and new build. Subscribe to get it delivered as soon as it’s out.
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