Federal Budget 2026: What the Housing and Tax Changes Mean for Buyers and Investors

The 2026 Federal Budget dropped some of the biggest changes to property investment tax settings we’ve seen in decades — and if you own property, are thinking about buying, or have money tied up in real estate, it’s worth knowing what’s actually changing.

The headline moves are reforms to negative gearing and capital gains tax (CGT), both aimed at nudging investor activity away from existing homes and toward new builds. The government reckons the package could help around 75,000 more owner-occupiers into the market over the next ten years.

There’s plenty of detail to unpack though — and the good news for current property owners is that the Budget includes solid grandfathering provisions, so existing investments are largely protected in the short term.

Here’s the rundown.

Negative Gearing Restricted to New Builds from July 2027

From 1 July 2027, negative gearing on residential property will only apply to new builds — not established homes.

At the moment, if your investment property runs at a loss, you can offset that loss against your other taxable income (like your salary). The government’s argument is that this has been funnelling investment into existing housing stock and giving investors a leg up that owner-occupiers don’t get.

The transitional arrangements are actually pretty generous:

• If you already owned an investment property before 7:30pm AEST on 12 May 2026, you keep negative gearing on that property until you sell it — full stop.
• Buy an established property between 12 May 2026 and 30 June 2027? You can still negatively gear it during that window, but not after 1 July 2027.
• From 1 July 2027, new purchases of established properties won’t be eligible for negative gearing.
• New builds that add to housing supply will still qualify — both before and after the cutover.

The government’s definition of a qualifying new build is a dwelling on vacant land, or a project where an existing property is knocked down and replaced with more dwellings. Straight knockdown-rebuilds or renovations that don’t add extra homes won’t make the cut.

For investors looking to buy in future, this could seriously change the maths. Existing owners are well looked after, but anyone buying from mid-2027 onwards may find the numbers only stack up on new construction.

Capital Gains Tax Gets a Shake-Up from July 2027

The other big one is CGT, also kicking in from 1 July 2027.

Right now, if you’ve held an asset for more than 12 months, you can chop your taxable capital gain in half — that’s the 50% CGT discount most investors are familiar with. Under the new rules, that discount gets replaced with a system based on inflation indexation plus a 30% minimum tax on capital gains.

The key thing to know: the new rules only apply to gains accrued after 1 July 2027. Whatever you’ve built up before that date is still assessed under the current system.

So for assets you already own:

• The 50% discount applies to gains up to 1 July 2027.
• The new indexation rules apply to gains from that date forward.
• You’ll be able to establish your asset’s value at 1 July 2027 through a valuation or an ATO-approved formula.

If you invest in eligible new builds, you’ll get to choose between the current 50% discount or the new indexation method when you eventually sell — which is a handy bit of flexibility.

These changes apply beyond property too — shares and other CGT assets held by individuals, partnerships or trusts for 12+ months will also be caught.

How it all plays out in practice will depend on inflation, how long you hold, and what returns look like. Treasury’s own modelling suggests that under typical historical inflation, the effective discount under indexation could have landed anywhere between 35% and 60% for assets held five to ten years. Not necessarily worse — just different.

Treasury Says Don’t Panic on Prices

The government’s line is that this is about helping first home buyers without blowing up the market for everyone else.

What Treasury is projecting:

• Around 75,000 additional owner-occupiers over the next decade.
• House price growth roughly 2% lower over several years compared to if nothing changed.
• Rents up by less than $2 a week for the typical household.

The government’s bet is that any dip in investor demand gets more than offset by new housing coming out of the ground — which brings us to the next piece.

$2 Billion to Get More Homes Built

The Budget also set up a new $2 billion Local Infrastructure Fund to help unlock housing supply.

The idea is to get councils and utilities the funding they need to deliver the essentials that new developments require — water, sewerage, roads, power — so projects don’t stall waiting on infrastructure. The government says this could support up to 65,000 new homes over ten years, and takes total federal spending on housing infrastructure to $6.3 billion.

There’s a catch though: state and territory governments need to pull their weight on planning reform — faster approvals, simpler building codes — to access the funding.

For buyers, more supply coming through is probably the most meaningful long-term lever on affordability.

Foreign Buyer Ban Stays in Place Until 2029

The ban on foreign investors buying established homes has been extended through to mid-2029. The aim is to keep more stock available for Australians, though the Budget papers don’t put a number on the price or supply impact.

What About Trusts and SMSFs?

From 1 July 2028, discretionary trusts will face a 30% minimum tax rate. It’s a broader measure than just property, but relevant if you hold real estate through a discretionary trust structure.

The policy is about reducing income splitting and getting trust taxation closer to what regular wage earners pay.

Key carve-outs to know:

• SMSFs and other super funds are excluded.
• Fixed trusts and widely held trusts are also out of scope.

There’ll also be three years of rollover relief from 1 July 2027, giving investors time to restructure out of discretionary trust arrangements if that makes sense for them.

The Big Picture

This is a genuine shift in how the government wants property investment to work in Australia. Rather than broad tax concessions on any residential property, the incentives are increasingly pointed toward new construction — while trying to keep owner-occupiers in better shape relative to investors.

If you already own property, the grandfathering provisions mean you’re mostly protected in the near term. But for anyone thinking about their next purchase or planning an investment strategy beyond mid-2027, the rules of the game are changing.

How this actually plays out for you will depend on your situation, what you’re buying, and how you’re structured — so it’s worth having those conversations with your accountant and your broker sooner rather than later. If you want to talk through what it means for your investment loan strategy or your trust structure, we’re happy to help.