What The Budget's Tax Changes Mean For The Property Market
By now most of us know that the 2026/2027 Federal Budget has introduced some very significant changes to how negative gearing and capital gains tax (“CGT”) on residential investment properties are dealt with. While those changes mainly impact property investors, they have an impact on all property owners because the changes affect market sentiment. A negative impact on property market sentiment translates into a reduction in property prices.
Before discussing how the Budget’s tax changes may affect property market sentiment and prices, let’s take a look at the changes themselves:
Negative Gearing
Under the revised framework, negative gearing deductions for residential investment property will mainly be limited to new builds. For established properties purchased after the Budget on12/05/2026, negative gearing benefits will be phased out from 1/07/2027. For investment properties purchased before then, the pre-Budget negative gearing arrangements will continue to operate (i.e. the arrangements will be “grandfathered”).
CGT
In accordance with the Budget changes, the 50% CGT discount will be removed for investment properties purchased after 1/07/2027 and replaced with an inflation indexing system. A minimum 30% CGT will be applied.
For investment properties bought before the Budget any gains accrued up to 1/07/2027 will keep the 50% discount. But future gains after that date will be subject to the new inflation indexing system with the 30% minimum. As a simplified example of how this will operate, consider a house purchased for $1.5m in 2024 and which is valued $2m in July 2027. That house is then sold in 2028 for $2.5m. Under the new CGT regime, the first $500k of gain will be taxed using the 50% discount and the remaining $500k of gain will be taxed using the inflation indexing system.
For property investors the Budget represents a significant shift that reduces the tax incentive to invest in established residential property and increase the attractiveness of new builds. One of the principal aims of the Budget changes.
The government has sold the above tax changes as a means of increasing the overall supply of available property which will help improve what they are calling “intergenerational housing inequality”. Many people, including economists, however, regard it as nothing more than a “cash grab” that has the significant benefit of appealing to the government’s voter base.
It is too early to know the full impact of the Budget on the residential property market, but it seems that at the very least they will lead to a significant slowing in price growth. However, the Budget changes when taken together with rising interest rates are leading some economists to forecast price reductions with Shane Oliver of AMP saying residential property prices could fall by up 5%.
It was one of the government’s election manifesto promises that it would not make any changes to the then existing negative gearing and CGT rules. That promise was clearly broken in the Budget and as some economists have noted, who knows what further property tax changes the government may introduce in the future.
The above is a brief summary of certain changes introduced by the Budget and you should seek detailed tax information from your accountant before acting on matters introduced by the Budget. If you would like to discuss with us any of the information referred to in this article, or matters which relate to the sale of your existing properties, please get in touch.