Negative Gearing and CGT: What's Changed and Who It Hits Hardest
Australian Federal Budget 2026-27 — Tax Reform Series | Article 1 of 4
The 2026-27 Budget overhauls two of the most widely used investment tax strategies in Australia. The negative gearing and CGT changes work together, and the impact varies significantly depending on what you own and how you own it.
Negative Gearing: The Core Change
From 1 July 2027, losses from established residential investment properties purchased after 7:30 PM AEST on 12 May 2026 can only be offset against:
Rental income from residential properties, or
Capital gains from residential property disposals.
Excess losses carry forward against future residential property income — they don't disappear, but they can no longer shelter salary or business income.
See our detailed article on Negative Gearing if you want to understand exactly how it works.
What is grandfathered: Properties owned (or under contract) at Budget night retain full deductibility against all income indefinitely, until sold.
What is exempt from the changes entirely:
New residential builds
Properties held in superannuation funds (including SMSFs)
Widely held trusts (most managed investment trusts)
Build-to-rent developments
Private investors in government housing programs
Important: These changes apply to residential property only. Commercial property and shares are unaffected by the negative gearing restriction.
CGT: The 50% Discount Is Gone
From 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships is replaced by cost base indexation (adjusting the cost base for CPI) with a 30% minimum tax on net capital gains.
The transitional rules are important:
Assets sold before 1 July 2027: Current rules apply in full.
Assets owned before 1 July 2027, sold after: The 50% discount covers gains up to 1 July 2027; indexation and the 30% minimum apply to gains from that date. The ATO will provide an apportionment formula, or investors can obtain a formal valuation at 1 July 2027.
Assets purchased after 1 July 2027: Entirely under the new rules.
Note: Whether a formal valuation at 1 July 2027 beats the ATO's apportionment formula depends on how an asset's value has moved over time. Property and business assets with non-linear growth histories are more likely to benefit from a valuation. Worth reviewing in the next 12 months.
How Different Asset Classes Are Affected
Established Residential Property
Both the negative gearing restriction and the CGT changes apply. Properties purchased after Budget night face the full impact of both from 1 July 2027.
Impact: High
New Residential Property
Negative gearing is fully preserved. On CGT, investors can choose between the 50% discount or the new indexation method — whichever is more favourable. New builds are actively incentivised by this Budget.
Impact: Low — new builds are preferred
Commercial Property
The negative gearing restriction does not apply. The CGT changes do apply, but transitional protections cover pre-existing gains. Normal deductibility of losses against other income continues unchanged.
Impact: Moderate (CGT only)
Shares and Other Investments
No negative gearing restriction — losses on leveraged share portfolios remain fully deductible against other income. The CGT changes do apply, so the 50% discount on share gains is also replaced from 1 July 2027.
Impact: Moderate (CGT only)
Superannuation Funds (Including SMSFs)
The standout carve-out. Both the negative gearing restriction and the CGT overhaul do not apply inside super. The 33.33% CGT discount for super assets held more than 12 months remains unchanged. Holding investment property inside an SMSF becomes materially more advantageous relative to personal ownership; property prices may be depressed because of less demand from other types of entities, but they may earn more rent because of less supply from reduced investment by others.
Impact: Minimal — super is largely protected
Pre-CGT Assets
Assets acquired before 20 September 1985 were historically fully CGT-exempt. From 1 July 2027, gains accruing from that date are taxed under the new rules. Pre-1 July 2027 gains remain exempt.
Impact: High — the CGT-free status is ending
Start-Up and Founder Equity
The impact may be high. There will be consultations, and there’s a likelihood that the old system may apply (just as it does for new residential). Further, there is a new permanent $20k equipment writeoff plus very enhanced R&D Tax Credits, plus loss refunds. (I know these are dealt with further on but need to be highlighted as the quid pro quo). It is also unclear what happens to the remaining small business CGT concessions that remain very valuable (a second 50% discount, rollover and retirement relief) that still may mean very modest CGT costs for small business.
Impact: High
Key Dates
Event Date Negative gearing restriction applies to new purchases 7:30 PM AEST, 12 May 2026 Negative gearing restriction and CGT changes take effect 1 July 2027
All proposed measures are subject to legislation and may change. This article is general information only and does not constitute tax or financial advice.