The Australian Government has announced sweeping changes to property investment and capital gains tax in the 2026–27 Federal Budget, marking one of the biggest overhauls of investment taxation in decades.
The reforms are aimed at improving housing affordability, encouraging new housing construction, and shifting home ownership back toward first-home buyers rather than investors.
Capital Gains Tax Discount to Change
One of the most significant measures is the replacement of the current 50 per cent capital gains tax (CGT) discount.
Under existing rules, Australians who hold an asset — such as an investment property, shares, cryptocurrency, or artwork — for more than 12 months receive a 50 per cent discount on tax payable from any profit made when the asset is sold.
From July 1, 2027, this discount will instead be linked to inflation. The government says the change is designed to create a fairer tax system and reduce incentives for speculative investment.
A new minimum tax rate of 30 per cent on capital gains will also apply, preventing investors from delaying asset sales until years when their income is lower. Pensioners and recipients of income support payments will be exempt from this minimum rate.
Importantly, gains accrued before July 1, 2027, will still qualify for the current 50 per cent discount.
Incentives Retained for New Housing
To encourage investment in new housing supply, investors purchasing newly built homes will still be able to choose between the existing 50 per cent CGT discount and the new inflation-based system when they eventually sell.
The budget also partially removes long-standing exemptions for assets purchased before 1985. Owners of these older assets will now pay tax on gains made after July 1, 2027, using the new inflation-based method.
Negative Gearing Restricted
The government has also announced major changes to negative gearing.
Currently, landlords can deduct losses from rental properties — including interest payments and maintenance costs — from their taxable income. Critics argue this system has fuelled investor demand for existing homes.
Under the new rules, negative gearing will only apply to newly built homes purchased after budget night. Existing investment properties purchased after the announcement will no longer qualify for full negative gearing benefits.
However, investors in existing properties will still be able to deduct losses against residential rental income and carry losses forward to future years.
Properties owned before budget night will be grandfathered under the current rules.
Housing Affordability Goals
The government says the combined CGT and negative gearing reforms are expected to raise $3.6 billion over five years from 2025–26.
Officials estimate the measures will help 75,000 Australians purchase their first home over the next decade by shifting properties from investors to owner-occupiers.
The reforms are also expected to reduce housing supply by around 35,000 homes. To offset this, the budget includes a $2 billion infrastructure package over four years to help councils and utility providers accelerate housing development through new roads, pipes, electricity and sewerage connections.
The government says this infrastructure investment will support the construction of 65,000 additional homes, resulting in a net gain of 30,000 homes overall.
Treasury forecasts rents could rise modestly, by around $2 per week, as a result of the reforms.
Foreign Investment Restrictions
The budget also extends the ban on foreign investors purchasing existing homes for another two years, until mid-2029. The restriction will not apply to investments in newly built housing.
AI Tool to Speed Up Development Approvals
As part of a broader productivity agenda, the government will invest $105.9 million over four years to develop an artificial intelligence tool aimed at simplifying environmental approval processes for developers.
The system is intended to reduce delays and cut through planning red tape, helping new housing and infrastructure projects gain approval more quickly.
