The May 2026 Federal Budget has proposed the most significant changes to property investment tax in a generation. Two measures stand out. First, the Budget would remove the 50 percent capital gains tax discount. Second, the negative gearing changes would tighten the rules for established residential property. Both are proposed to start on 1 July 2027.
However, none of it is law yet. That matters, because it gives investors time to understand the detail calmly rather than react to a headline. At Positive Income Properties, we have read through the proposals so we can explain them in plain English. We also want to show you the one part of the market these changes clearly aim to protect.
What Is Changing With the Capital Gains Tax Discount?
The capital gains tax (CGT) discount is the rule that lets investors halve the taxable gain on an asset held longer than 12 months. Under the Budget proposal, from 1 July 2027 the Government would remove that 50 percent discount and replace it with two mechanisms:
- First, an inflation-based indexation of the cost base, so the tax falls on the real gain after inflation rather than the full nominal gain.
- Second, a minimum 30 percent tax rate on net capital gains.
In addition, the change would apply broadly across asset classes such as property, shares and certain pre-CGT assets. As a result, it represents the largest shift in the CGT system since the discount began.
Which Assets Are Exempt From the CGT Changes?
The proposal carves out several important exemptions:
- Assets bought and sold before 1 July 2027 stay under the current rules.
- Newly built properties keep a choice. Investors can elect either the existing 50 percent CGT discount or the new indexation method. The Government frames this as a measure to encourage new housing supply.
- Qualifying affordable housing keeps a 60 percent CGT discount.
- Main residences remain exempt, as they are today.
- Superannuation funds keep their 33.33 percent CGT discount.
Overall, the pattern is clear. The proposal aims to keep the tax settings favourable for anything that adds new homes to the market.
New builds keep the 50 percent CGT discount and full negative gearing. If you want to know what that means for your own plans, a quick call is the easiest place to start.
Book a quick callHow Will the CGT Transitional Rules Work?
The transitional rules appear to target one risk in particular: a rush of investors selling before the deadline. Therefore the design works in three steps:
- First, the current rules still cover any sale before 1 July 2027, so investors have more than a year to plan.
- Second, an asset bought before 1 July 2027 and sold after it falls under two regimes. The gain up to 1 July 2027 keeps the 50 percent discount, while the gain after that date moves to indexation and the minimum 30 percent rate.
- Third, for pre-CGT assets, any gain up to 1 July 2027 stays exempt, while the new method taxes any gain after that date.
In practice, this means many assets would need a valuation as at 1 July 2027 to split the gain correctly. As a result, investors holding across that date should expect valuers to be in high demand around then.
What Are the Negative Gearing Changes?
Negative gearing lets an investor offset a rental loss against their other income, such as salary. The Budget proposes to reshape this from 1 July 2027. Specifically, under the proposal:
- Investors could only offset losses from established residential properties against rental income or future capital gains, no longer against other income such as wages.
- New builds would keep full negative gearing.
- The new rules would apply across individuals, partnerships, companies and trusts, although the rules would exclude widely held trusts and superannuation funds.
These are some of the most widely discussed negative gearing changes on the table this year. Importantly, the new-build carve-out sits at the centre of them.
What Counts as a New Build?
Because the rules treat new builds so differently, the definition matters. The Budget defines a new build as a property that genuinely adds to housing supply. For example, that includes:
- Construction on vacant land.
- Redevelopment that creates more dwellings than existed on the site before.
However, knock-down rebuilds and substantial renovations that do not increase the number of dwellings would not qualify. In addition, a new build must not have sold before, unless the first owner was the builder and left it unoccupied for no more than 12 months. Finally, qualifying new builds also keep access to the 50 percent CGT discount.
Here is a brand-new build that fits that definition:
Who Do the Negative Gearing Changes Affect, and What Is Grandfathered?
The negative gearing changes are proposed to apply to established residential properties acquired from 7:30 PM AEST on 12 May 2026, which was Budget night.
However, the Budget proposes to grandfather properties acquired before that time. This includes properties under contract but not yet settled. For those, the current negative gearing rules would continue to apply until the owner sells. In short, existing investors do not need to change anything they already own.
Why the Negative Gearing Changes Make New Builds a Stronger Focus
Step back from the detail and the direction is consistent. Across both the CGT and the negative gearing changes, the rules protect new builds. They keep full negative gearing, and they keep the option of the 50 percent CGT discount.
Clearly, this is a deliberate policy lever. The Government wants more homes built, so it is keeping the tax settings attractive for property that adds supply. As a result, the maths shifts for investors. Established stock would carry a heavier tax position after 1 July 2027, while brand-new property would keep the benefits investors have relied on for years.
That does not make established property a poor choice for everyone. However, it does mean the case for brand-new, supply-adding property is stronger than it was before the Budget.
Another new-build duplex in that protected category:
Thinking about where your next purchase should sit before the rules settle? We can walk through the numbers with you, calmly and with no pressure.
Book a quick callHow Positive Income Properties Helps Investors Respond
Positive Income Properties researches and supplies pre-packaged, brand-new residential properties in locations with genuine rental demand. Naturally, new-build houses and duplexes sit squarely inside the category these proposals protect.
To find where new stock makes sense, we assess employment growth, infrastructure pipelines, population forecasts and rental performance. In addition, our investors gain access to more than 1,600 positive cash flow investment properties, and many return to us as their portfolios grow.
Therefore, if the proposed negative gearing changes have you wondering where your current and planned holdings sit, the sensible step is to understand the numbers before anything is legislated.
One more new-build duplex our team is researching right now:
Conclusion
The 2026 Federal Budget has proposed a real shift in how investors are taxed on property. From 1 July 2027, the 50 percent CGT discount and broad negative gearing access would both narrow, while new builds would stay as the clear exception.
Still, none of this is law yet, and the detail and timing may change as the legislation takes shape. Therefore the calm approach is simple. Understand the proposals now, review your strategy early, and base any decision on your own numbers rather than the news cycle.
The proposed changes reward getting ahead of the detail. Book a quick call and see if we have a property that suits your budget and goals.
Book a quick callTo talk through what the changes could mean for your situation, you can also contact Positive Income Properties on +61 468 037 484 or bookings@positiveincome.com.au.
Disclaimer: This article is general information only and reflects proposed measures that are not yet law. The detail and timing may change. It is not tax, legal or financial advice. Return, yield and rental figures are estimates, not guarantees, and depend on market conditions. Positive Income Properties is not a financial adviser. Please seek independent legal, financial and taxation advice before making any investment decision.
Gil Elliott is the Managing Director and Founder of Positive Income Properties. Gil has a rich background in business consulting and property investment. All of these he gained in his nearly four decades of experience in the real estate and marketing industries.
