The 2026 Australian Federal Budget handed down on 12 May 2026 introduced some of the most significant investment tax reforms in decades. The Albanese Government announced sweeping changes to negative gearing, capital gains tax (CGT), and discretionary trusts as part of a broader strategy to improve housing affordability and rebalance the tax system.

The reforms are expected to raise billions in additional revenue over the next decade while reshaping how Australians invest in property and structure wealth.

For investors, business owners and high-income earners, understanding the proposed changes is critical.

Negative Gearing Changes in the 2026 Federal Budget

What Is Negative Gearing?

Negative gearing occurs when the costs of holding an investment asset exceed the income it generates. Traditionally, Australians have been able to offset those losses against salary and wage income, reducing their overall tax bill.

For decades, this has been one of the most powerful tax strategies available to property investors.

What Has Changed?

Under the 2026 Federal Budget reforms:

• From 1 July 2027, negative gearing will generally only apply to newly built residential properties
• Existing investment properties owned before Budget night on 12 May 2026 will be grandfathered
• Investors purchasing established homes after Budget night will no longer be able to offset rental losses against wage income
• Losses on established properties can only be offset against future residential investment income or carried forward
• Build-to-rent projects, affordable housing projects and some institutional investors remain exempt

The Government says the reforms are designed to redirect investor demand toward increasing housing supply rather than competing with owner-occupiers for existing homes.

 Example: Impact of the New Negative Gearing Rules

Current Rules

Susan earns a salary of $190,000 per year and owns an investment property.

• Rental income: $800 per week
• Property expenses: $1,000 per week
• Annual loss: $10,400

Under the current rules, Susan deducts the $10,400 loss against her salary income.

This reduces her taxable income and saves approximately $4,856 in tax annually.

Under the New Rules

If Susan buys an established property after 12 May 2026 and the rules commence from 1 July 2027:

• She can no longer offset the $10,400 loss against her salary
• The loss can only offset future rental profits or future capital gains from property investments
• Her immediate annual tax saving disappears

For many investors, this significantly reduces the cash flow attractiveness of purchasing older investment properties.

Who Benefits and Who Loses?

Likely Winners

• First-home buyers
• Developers of new housing
• Investors purchasing new builds

Likely Losers

• Investors targeting established properties
• High-income earners using tax deductions to reduce PAYG tax
• Property markets heavily reliant on investor activity

Treasury estimates the changes could improve housing accessibility for younger Australians while increasing federal revenue over time.

Capital Gains Tax Changes Explained

How the Current CGT Discount Works

Since 1999, Australians who hold an asset for more than 12 months only pay tax on 50% of the capital gain.

This discount applies to:

• Investment properties
• Shares
• Managed funds
• Other CGT assets

Critics argue the 50% discount has fuelled property speculation and disproportionately benefited wealthier Australians. Treasury estimates the CGT discount costs approximately $21.8 billion annually in forgone revenue.

What Is Changing in 2026?

The Federal Budget announced that from 1 July 2027:

• The 50% CGT discount will be replaced with an inflation indexation model
• Investors will only be taxed on “real” gains after inflation
• A minimum 30% tax rate on net capital gains will apply
• Existing gains accrued before 1 July 2027 will remain protected under transitional arrangements
• Investors in new residential builds may choose between the old 50% discount or the new indexation method

Example: Current CGT Rules vs New Rules

Current Rules

Wayne buys an investment property for $500,000 and sells it for $700,000.

Capital gain = $200,000

Under the current 50% discount:

• Taxable gain = $100,000
• If Wayne earns $190,000 annually, the gain is taxed at 45%
• Approximate CGT payable = $45,000 plus Medicare levy

Under the New Budget Rules

Assume inflation averages 5% annually over three years.

Indexed cost base becomes approximately $579,000.

Real capital gain becomes approximately $121,000.

At the proposed minimum 30% CGT rate:

• Tax payable = approximately $36,300 minimum
• If Wayne’s marginal rate exceeds 30%, tax may be higher depending on final legislation

The new system favours lower-growth, inflation-driven assets while reducing tax advantages from rapid speculative price increases.

Key Investor Implications

Higher Complexity

Investors will now need to:

• Track inflation-adjusted cost bases
• Calculate gains before and after July 2027
• Potentially maintain dual CGT calculations

Reduced Incentive for Speculative Property Investment

The combination of:

• restricted negative gearing
• reduced CGT concessions
• minimum tax rates

may reduce the attractiveness of leveraged property investing strategies.

Increased Focus on New Housing Supply

The Government is clearly attempting to redirect investor capital into:

• new residential developments
• build-to-rent projects
• affordable housing initiatives

 Trust Tax Changes in the 2026 Federal Budget

Why Trusts Are Under Scrutiny

Discretionary family trusts have long been used by higher-income families to distribute income to beneficiaries on lower tax rates.

The Government argues that trusts have increasingly been used to minimise tax rather than simply manage family assets.

The Budget papers noted that more than 90% of private trust wealth is held by the top 10% of households.

What Is Changing?

From 1 July 2028, the Government plans to introduce:

• A minimum 30% tax rate on discretionary trust distributions
• Restrictions on income splitting to low-income adult beneficiaries
• Transitional restructuring periods for some small businesses and investors

Example: How the Trust Changes Could Work

Gerard operates his plumbing business through a discretionary family trust.

Current income:

• Gerard: $230,000 business income
• Wife: not working
• Adult son: earns $10,000 annually

Current Rules

The trust distributes income among family members:

• Gerard receives $120,000
• Wife receives $60,000
• Son receives $50,000

This reduces the family’s total tax bill from approximately $69,600 to around $44,400.

Under the Proposed Rules

If trust distributions become subject to a minimum 30% tax:

• Much of the tax advantage from splitting income disappears
• The family may pay significantly higher overall tax
• Some business owners may consider restructuring into companies or fixed trusts

What Business Owners Should Consider

Business owners and investors using trusts should review:

• Existing trust structures
• Succession planning arrangements
• Asset protection strategies
• Company vs trust tax structures
• Future distribution flexibility

The reforms could have major implications for SMEs, professional service firms, property investors and high-net-worth families.

What the 2026 Budget Means for Investors

The 2026 Federal Budget represents a major philosophical shift in Australian tax policy.

The Government is effectively reducing tax concessions tied to passive asset growth while redirecting incentives toward:

• new housing supply
• wage earners
• productive investment

The reforms remain subject to legislation and political negotiation, but they signal a significant change in how wealth creation through property and investment assets will be taxed in Australia.

For investors, business owners and trustees, early tax planning will become increasingly important over the next 12 to 24 months.

Key Dates to Watch

Measure	Commencement Date
Negative gearing restrictions	1 July 2027
CGT discount replacement	1 July 2027
Minimum CGT tax rules	1 July 2027
Trust minimum tax rules	1 July 2028

Sources:

• Budget Papers 2026 – 27
• Treasury- Budget Tax Reforms
• Reuters

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.

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General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Australia’s tax system may be on the cusp of significant reform, with renewed debate in 2026, the capital gains tax (CGT) discount and negative gearing rules. While no final legislation has been passed, ongoing discussions in Parliament and Treasury modelling indicate that changes could be on the horizon, particularly as housing affordability and budget repair remain key national priorities.

Recent commentary from Australian media and policymakers suggests these reforms could reshape property investment strategies, after-tax returns, and long-term wealth planning.

Understanding the Current CGT Discount and Negative Gearing Rules

Before exploring proposed changes, it’s important to understand how the current system works.

Current CGT Discount (2026)

• Individuals and trusts receive a 50% CGT discount on assets held longer than 12 months
• Companies do not receive the CGT discount
• Introduced in its current form in 1999

Negative Gearing Rules

• Investors can offset rental losses against other income (e.g. salary)
• Commonly used to reduce taxable income while relying on long-term capital growth

These two mechanisms are often used together, forming the foundation of many Australian property investment strategies.

Proposed Changes to the CGT Discount

The Federal Government is reportedly considering several reform options:

Key CGT Reform Proposals

Proposal	Description
Reduce CGT discount	Lower from 50% to 30% for individuals and trusts
Remove CGT discount	Eliminate discount for investment properties
Return to indexation	Adjust cost base for inflation instead of flat discount

These proposals aim to:

• Improve budget sustainability
• Address intergenerational equity
• Reduce perceived tax advantages for property investors

Proposed Changes to Negative Gearing

Negative gearing reforms are also being discussed, though historically they have been politically sensitive.

Key Proposals

Proposal	Impact
Ring-fencing losses	Losses only offset against investment income
Limit to new properties	Encourages new housing supply
Restrict number of properties	Caps tax benefits

These changes are designed to reduce investor demand in existing housing markets and improve affordability.

Latest 2026 News and Policy Commentary

Recent Australian news coverage highlights growing uncertainty:

• Property investors are delaying purchases amid fears of CGT changes
• The government is exploring targeted exemptions, such as for new housing
• Economists remain divided on whether reforms will improve affordability or reduce supply

This ongoing debate reflects a broader policy tension between tax reform and housing supply constraints.

Economic and Industry Concerns

The property and construction sectors have raised strong concerns about potential changes.

Key Risks Identified

• Reduced investment in housing
• Lower housing construction activity
• Increased rental prices due to supply shortages
• Potential job losses in construction

Industry modelling suggests that limiting tax incentives could have unintended economic consequences, particularly in already tight rental markets.

Practical Implications for Property Investors

Even though reforms are not yet law, investors should prepare for possible changes.

1. Transaction Timing

Future changes may include grandfathering provisions, but this is not guaranteed. Timing asset sales or purchases could impact tax outcomes.

2. Ownership Structures

Different entities are taxed differently:

• Individuals and trusts benefit from CGT discounts
• Companies do not

Changes could make structural planning more important.

3. Portfolio Strategy

Reduced tax concessions may:

• Lower after-tax returns
• Increase holding costs
• Change the viability of negatively geared investments

4. Stress Testing Investments

Investors should model scenarios with:

• Reduced CGT discount
• Limited negative gearing benefits
• Higher effective tax rates

This helps assess long-term sustainability.

What This Means for Housing Affordability

The government’s policy focus is clear: improving housing affordability.

However, the effectiveness of tax changes remains debated:

• Supporters argue reforms could reduce speculative demand
• Critics argue they may reduce supply and increase rents

This highlights the complexity of balancing tax policy with housing market dynamics.

What Happens Next?

More clarity is expected in the Federal Budget (May 2026), where the government may outline:

• Final policy direction
• Implementation timelines
• Transitional rules

Until then, uncertainty remains a key factor influencing investor behaviour.

Conclusion

The potential changes to the CGT discount and negative gearing represent one of the most significant tax reform discussions in Australia in recent years.

While no legislation has yet been finalised, the direction of policy suggests a shift toward reducing tax concessions for investment properties and improving housing affordability.

For investors, the key takeaway is preparation. Understanding how these changes could impact your portfolio, tax position, and long-term strategy is essential in navigating this evolving landscape.

As 2026 progresses, staying informed and seeking professional advice will be critical to making sound financial decisions in an uncertain policy environment.

Sources

• Australian Treasury policy discussions and modelling (2026)
• Australian Federal Budget commentary (2026 outlook)
• Australian Taxation Office – Capital gains tax and investment property guidance
• Industry and parliamentary discussions on CGT discount and negative gearing reforms

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.

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General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Negative gearing is a hot topic in Australia — and not just among property investors. It’s regularly debated in political circles, often mentioned in discussions around housing affordability, and widely misunderstood by first-time investors.

Despite its popularity, many Australians still don’t fully understand what negative gearing is, how it works, or who it benefits. As a result, they may be making investment decisions based on misinformation.

In this post, we unpack what negative gearing really means, clarify some of the most common misconceptions, and outline key factors to consider before using this investment strategy.

What Is Negative Gearing?

Negative gearing occurs when the expenses associated with owning an investment (like loan interest, rates, repairs, and maintenance) exceed the income it generates — typically rent or dividends. This results in a net loss, which investors can offset against their taxable income.

Example:

Let’s say your rental property earns $25,000 in rent per year, but your costs total $35,000. That’s a $10,000 loss. You can use that $10,000 to reduce your total taxable income for the year — lowering your tax bill.

While it’s most common in the property market, negative gearing can also apply to investments like shares.

 Common Misconceptions About Negative Gearing

1. “Negative Gearing Is Only for the Wealthy”

This is one of the biggest myths. While high-income earners may benefit more from the tax deductions, negative gearing is not exclusive to the wealthy. What matters is:

• Your ability to borrow money to invest.
• Whether you have sufficient income to fund the loss.
• If your taxable income is high enough to make use of the deduction.

Many middle-income Australians use negative gearing — particularly those looking to build wealth over the long term.

2. “It Guarantees a Profit”

Negative gearing is not a guaranteed moneymaker. The strategy assumes that the capital value of your investment will increase over time, eventually offsetting your losses. But if the value falls — or even stays flat — you may end up worse off.

Plus, you need to be able to sustain the cash flow losses year after year. If interest rates rise, or the property sits vacant, that can be a serious financial burden.

3. “You Get an Instant Tax Refund”

No — you don’t get a cheque from the ATO the day you lodge your BAS or tax return. Negative gearing reduces your taxable income, which in turn reduces the amount of tax you owe at the end of the financial year.

It’s a delayed benefit, not an immediate cash injection.

4. “Negative Gearing Is Always a Good Idea”

Wrong again. While negative gearing can be a useful long-term wealth-building strategy, it isn’t suitable for everyone.

You need to assess:

• Your financial stability and income reliability.
• Your investment timeframe — it’s typically not suitable for short-term investors.
• Your risk tolerance — especially in a rising interest rate environment.
• Whether the property or asset is likely to grow in value.

Negative gearing is a high-risk approach that requires careful planning and advice.

Frequently Asked: What Should You Consider Before Negative Gearing?

Before committing to a negatively geared investment, ask yourself:

• Can I afford to cover any shortfall between income and expenses?
• Do I understand the risks of rising interest rates, property vacancies, or market downturns?
• Am I investing for long-term capital growth?
• Have I sought advice from a qualified financial or tax adviser?

Many people assume that if everyone is doing it, it must be safe. But that’s rarely the case in investing. Negative gearing involves borrowing money to make a loss today, in the hope of gaining tomorrow. That’s not a strategy to enter lightly.

What About Housing Affordability?

Negative gearing is often criticised for giving investors an edge over first home buyers. Critics argue it drives up property prices by increasing demand and reducing affordability, especially in major cities.

Research from institutions like the Grattan Institute suggests that while negative gearing contributes to investor activity, it’s not the only factor affecting housing affordability. Supply constraints, population growth, and interest rates also play a role.

Still, it’s an important consideration in the broader economic context — especially for policymakers and younger Australians trying to enter the housing market.

Final Thoughts for Business Owners and Investors

Negative gearing is a legitimate investment strategy in Australia — but it’s not a guaranteed path to wealth, nor is it a loophole only accessible to the rich. The key is understanding the true nature of the risks and rewards.

We recommend:

• Doing your homework
• Assessing your financial situation honestly
• Seeking tailored advice from a licensed financial adviser or tax professional

Whether you’re investing in property, shares, or another asset class, understanding how negative gearing works — and clearing up the common myths — will help you make smarter, more informed financial decisions.

—————BOOK YOUR EXCLUSIVE 15 MINUTE ZOOM CONSULTATION————-

We offer a 15-minute no obligation consultation to existing property investors, first home buyers and small business owners who are looking at property investments, business and asset protection. To Book an Appointment simply click here and pick a time and date.

BOOK YOUR ZOOM APPOINTMENT HERE

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.

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General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Negative gearing has long been a hot topic in Australian real estate and investment circles. This tax strategy allows investors to offset losses on their investment properties against their other taxable income, effectively reducing their overall tax burden. While proponents argue that negative gearing stimulates investment and increases the rental supply, opponents contend that it inflates property prices and exacerbates housing affordability issues. But what if the Australian government decided to abolish negative gearing? Here’s a look at the potential implications.

Impact on Property Prices

One of the most immediate effects of eliminating negative gearing could be a shift in property prices. Investors often buy properties with the expectation of leveraging tax benefits. Without the incentive of negative gearing, some investors may reconsider their purchasing decisions. This could lead to a decrease in demand, particularly in the investment property market, potentially resulting in falling property prices.

While a drop in property prices might seem beneficial for first-time homebuyers, the ramifications could be more complex. Homeowners currently benefiting from capital gains could see their property values decline, which might reduce consumer confidence and spending in other areas of the economy.

Changes in Rental Market Dynamics

The rental market could also undergo significant changes if negative gearing were abolished. With fewer investors purchasing properties, the supply of rental properties might decrease. This could lead to a tightening of the rental market, resulting in higher rents as demand outstrips supply.

Current landlords who rely on negative gearing to offset losses may also be impacted. If their properties are generating less income due to increased vacancy rates or lower rents, they may struggle to cover mortgage payments, leading to potential sell-offs. This could further decrease rental stock and exacerbate affordability issues.

Effects on Housing Affordability

The debate surrounding negative gearing often centers on housing affordability. Advocates for reform argue that abolishing negative gearing could make housing more affordable by cooling the investment-driven demand that inflates prices. On the flip side, if property prices were to fall, it might create a more favorable environment for first-time buyers, but it could also lead to instability in the market and impact existing homeowners.

Without negative gearing, the balance between supply and demand could shift, leading to a more volatile housing market. Short-term price drops may not solve long-term affordability issues if the underlying causes—such as limited housing supply and urban planning challenges—remain unaddressed.

Investor Behavior and Market Sentiment

The removal of negative gearing could also change investor behavior significantly. Investors might pivot toward different asset classes, such as stocks or bonds, which could lead to increased volatility in the housing market as funds flow away from real estate.

Additionally, the overall sentiment towards property investment could shift. Investors may become more risk-averse, opting for less leveraged strategies that don’t rely on tax advantages. This could alter the landscape of property investment in Australia, leading to a more cautious approach among investors.

Economic Consequences

The economic implications of abolishing negative gearing could extend beyond the property market. The construction industry, which relies heavily on investment in residential properties, might see a slowdown. Reduced investment activity could lead to fewer new housing developments, impacting job creation and economic growth.

On the other hand, if property prices stabilize or decline, it could free up capital for first-time buyers, stimulating other sectors of the economy. The overall impact on the economy would depend on how swiftly the market adjusts to these changes.

Conclusion

While the potential abolition of negative gearing could lead to immediate changes in property prices, rental dynamics, and investor behavior, the broader implications would be complex and far-reaching. Housing affordability, market stability, and economic growth are all interlinked, and any significant shift in one area could lead to unforeseen consequences in another.

Ultimately, discussions around negative gearing should be part of a larger conversation about housing policy, supply, and affordability in Australia. A well-rounded approach that addresses the root causes of housing issues may be more effective than simply removing tax incentives. As policymakers consider these options, it will be crucial to weigh both the immediate effects and the long-term consequences on the housing landscape and the broader economy.

—————BOOK YOUR EXCLUSIVE 15 MINUTE ZOOM CONSULTATION————-

We offer a 15-minute no obligation consultation to existing property investors, first home buyers and small business owners who are looking at property investments, business and asset protection. To Book an Appointment simply click here and pick a time and date.

BOOK YOUR ZOOM APPOINTMENT HERE

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.

---

General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.