What the 2026 budget’s tax changes actually mean for property investors

By Jarrod McCabe and Jordan Telfer

The 2026 federal budget has introduced significant changes to how property investment is taxed in Australia. 

There has been no shortage of commentary since. But much of the discussion has focused on what’s been taken away, with less attention given to what the changes actually mean in practice – and where the real risks lie.

Here’s our read on what matters for current and prospective property investors.

What the budget changed on negative gearing and capital gains tax

From 1 July 2027, losses from established residential property will only be deductible against rental income or capital gains from residential properties – not against salary or other income. 

This captures any established property purchased after 7:30pm on 12 May 2026. Properties purchased before that date are grandfathered. Brand new properties purchased going forward will retain full negative gearing benefits.

Also starting from 1 July 2027, capital gains tax, the current 50% discount will be replaced by an indexation model for assets held longer than 12 months, with a 30% minimum tax applied to the real gain after indexation. This applies to all CGT assets, including pre-1985 holdings. Brand new property purchasers will have the choice of either the new model or the existing 50% discount.

Importantly, this is a budget announcement – not legislation. It will go through a parliamentary process and is unlikely to pass in its current form. Changes, whether minor or significant, should be expected.

Why current investors in established property should hold their nerve

If you currently hold established investment property, the provisions are grandfathered. You can continue to negatively gear as you do today. The more pressing question for most existing investors is whether the value of their property will be affected by the broader market response.

Our view is that any impact will be modest – particularly in Melbourne. Investors have not been a dominant force in the Melbourne market for some time. State-level rental reforms, rising holding costs and years of flat performance have progressively pushed investors to the sidelines. That demand has been backfilled by first home buyers, downsizers, town-base purchasers and other buyer profiles. The breadth of demand in the established Melbourne market has shifted, and that’s actually a stabilising factor.

In short, if you own a well-selected property with a broad demand base, the fundamentals haven’t changed. 

Don’t make knee-jerk decisions. We saw what happened during Covid – investors who panic-sold before understanding the full picture missed a significant rebound.

Why the budget’s new-build incentives are not what they seem

This is where our greatest concern lies. The government’s decision to retain negative gearing and depreciation benefits for new properties is designed to encourage construction and increase housing supply. That’s a legitimate policy objective – but investors need to understand the dynamic clearly. This is not the government assisting investors. This is investors assisting the government.

The spruikers are already out. Within days of the budget – in some cases before the announcement – we were receiving emails promoting off-the-plan opportunities and urging us to get our clients in quickly. This will intensify.

The risks are well established. Off-the-plan properties are at their absolute best when purchased. A large proportion of the price is tied up in improvements that begin depreciating immediately. Developer premiums, investor premiums and short-term rental guarantees inflate the entry price further. And critically, the tax benefits that attract you as the first purchaser are not transferable to the next buyer. When you come to sell, the investor market falls away. Your buyer pool narrows to owner-occupiers who will compare your property against a dozen similar offerings – or simply buy brand new themselves.

Negative gearing is the cherry on top. Not the cake. Chasing tax benefits has never been the driver of wealth creation through property, and buying the wrong asset for a tax benefit is a mistake we have seen repeated for decades.

The budget opportunities no one is talking about

The media coverage has been overwhelmingly negative. But there are angles that haven’t received much attention.

Carry-forward losses under the new rules

The ability to carry forward rental losses has always existed, but was rarely used when those losses could be immediately offset against salary income. That changes now. 

If your property runs at a loss, that loss can be banked and offset against future positive cash flow from the property – or against capital gains tax when you eventually sell. For investors with the capacity to absorb short-term losses, this is a meaningful mechanism.

Lower leverage as a response to reduced tax benefits

If the tax benefit of negative gearing is reduced, one response is to reconsider leverage. A lower loan-to-value ratio gets you to neutral or positive gearing sooner, which reduces your reliance on the tax offset altogether. 

This won’t suit everyone – requiring more capital upfront is significant, even at entry-level price points. But for those with the capacity, the equation shifts. The broader concern is that these changes may increasingly favour investors with greater financial resources, potentially narrowing the field of who can afford to invest at all.

The family home as the last tax-free asset

The principal place of residence remains exempt from capital gains tax. We expect to see more buyers stretch themselves on the family home as a wealth-building strategy – building equity in a tax-free asset, then downsizing later and deploying the untaxed proceeds elsewhere.

Value-add strategies in the established market

For investors who do proceed in the established market, the focus should be on properties with a broad demand base and clear value-add potential. 

An under-capitalised property in a strong location – where you can improve the kitchen, bathroom or presentation to lift the yield and generate depreciation benefits from targeted renovations – remains a sound strategy. You build wealth through the asset, not through the tax treatment.

Take home message

These are significant changes, and they will reshape parts of the investment landscape. But the fundamentals of sound property investment have not changed. 

Buy for capital growth. Select assets with broad demand. Don’t let tax benefits drive your property selection – extract them from the right asset, not the other way around.

Take a breath. Let the detail settle. And be very cautious of anyone telling you to rush in.

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