2026 Budget Changes for Property Investors: Why Building Is Now the Way In

Key Takeaways

• Negative gearing on established residential property bought after Budget night is quarantined from 1 July 2027, though the losses carry forward against residential property income.
• Property you already held at 7:30pm AEST on 12 May 2026 keeps its current treatment until you sell it.
• New builds keep negative gearing against all income and keep the choice of the 50% capital gains tax discount.
• New SMSF borrowing for residential property ends on 10 August 2026, with contracts signed before then protected.

The 2026 Budget changes for property investors landed with one clear message for anyone buying in their own name. An established rental no longer carries the tax treatment it did before Budget night. A new build does.

These measures are no longer a proposal. They were announced on Budget night, 12 May 2026, passed both houses of Parliament on 25 June 2026, and received Royal Assent the following day. The Australian Taxation Office (ATO) confirms these negative gearing reforms are now law.

None of it is retrospective, and nothing here changes your last tax return. Most of the measures start on 1 July 2027, which leaves a planning window rather than a panic. Your exposure depends on when you bought, what you bought, and whose name it sits in. Map those three and it is usually narrower than the headlines suggest.

What has changed is how the next purchase stacks up, and whether it should be an established home or a new build financed with a construction home loan.

What the 2026 Budget Changed for Investors

Five measures matter to property investors, and they run on different timetables. Each targets a different part of the way investors have structured property since the late 1990s:

The Negative Gearing Limit on Established Property

From 1 July 2027, net rental losses on an established residential property acquired after 7:30pm AEST on 12 May 2026 can no longer reduce your salary or other non-property income.

The losses are not destroyed. They are quarantined, which means they can only offset income from residential property, including a later capital gain on residential property, and they carry forward until you have that income to use them against. The measure applies to individuals, partnerships, companies and most trusts. Widely held trusts and superannuation funds are excluded.

Treasury published a worked example of an investor on $100,000 buying a $519,000 established property after the start date and selling 10 years later. Across the whole investment, she pays $186 more in nominal tax than under the old settings, because the carried forward losses are eventually used. The change bites hardest not on the lifetime number but on the annual cash flow of a higher earner who bought specifically to shelter wage income.

The Replacement of the 50% Capital Gains Tax Discount

The 50% capital gains tax (CGT) discount ends for individuals, trusts and partnerships on 1 July 2027. In its place, the cost base of an asset held at least 12 months is indexed for inflation using the Consumer Price Index, so tax applies to the real gain rather than the nominal one.

This one reaches well beyond property. It applies to CGT assets broadly, including shares. Whether you pay more or less depends entirely on your rate of return, because indexation rewards weak real gains and penalises strong ones.

The 30% Minimum Tax on Capital Gains

A minimum tax rate of 30% applies to real capital gains accruing from 1 July 2027. It only affects people whose gains would otherwise be taxed below 30%, which typically means someone realising a gain in a low-income year. Recipients of means-tested income support, such as the Age Pension or JobSeeker, are exempt where they receive a payment in the year the gain is realised.

The practical effect is that timing a sale for a year when your marginal rate happens to be low no longer does much for you.

The Ban on New SMSF Residential Borrowing

This one was not in the Budget. It arrived as a Senate amendment during passage and it caught a lot of people out.

From 10 August 2026, a self-managed super fund (SMSF) can no longer enter a new limited recourse borrowing arrangement (LRBA) to acquire residential property. The amendment works by requiring that any real property acquired under an LRBA be business real property, as defined in the Superannuation Industry (Supervision) Act 1993. A standard house or apartment does not meet that test.

Existing arrangements are grandfathered. Contracts entered before 10 August 2026 are protected even where settlement happens afterwards, and refinancing that maintains a pre-commencement borrowing is preserved. No fund is being forced to unwind anything it already holds.

The Minimum Tax on Discretionary Trusts

A 30% minimum tax on discretionary trusts is scheduled to start on 1 July 2028, with some exceptions, and rollover relief runs for three years from 1 July 2027 to help businesses restructure. The detailed rules are still to come, so trusts are worth reviewing with your accountant rather than restructuring on a headline. Trust structures carry risks of their own, separate from tax, and the common mistakes with trust loans are worth knowing before you move anything.

The Dates That Decide Your Position

Almost every question I field comes down to a date. Four of them do most of the work, and your answer changes depending on which side of each one you sit:

Properties Held Before 12 May 2026

Anything you held at 7:30pm AEST on 12 May 2026 is carved out of the negative gearing changes and can keep being negatively geared until you sell. A contract entered before that moment counts, even where settlement came later. A main residence you later convert to a rental is treated on the same basis, according to when you acquired it.

Changing ownership resets this. Where a co-owner comes off a title after Budget night, the remaining owner is generally treated as acquiring a new interest in that share, and that new interest does not carry the grandfathering. Relationship breakdowns, deaths and family restructures are the common triggers, and they are easy to miss.

Properties Bought Between 13 May 2026 and 30 June 2027

An established property bought in this window can be negatively geared for the rest of the period, then falls under the quarantine from 1 July 2027. It is a temporary position rather than a loophole. Where the purchase only works because of the offset, the arithmetic needs to survive its removal about a year later.

Properties Bought From 1 July 2027

An established residential property bought from this date carries the quarantine from day one. A new build does not.

Assets Held Across 1 July 2027

Gains get split at that date. The 50% discount applies to growth between your cost base and the asset value on 1 July 2027. Indexation and the minimum tax apply to growth after it. You can either obtain a valuation as at 1 July 2027 or use a specified apportionment formula based on the growth rate across your holding period, and the ATO has said it will provide tools to help estimate that value.

Why Investors Are Stepping Back From Established Housing

My position with clients has been blunt. For the time being, investors are out in personal names unless they are building. That is arithmetic rather than pessimism, and two things drive it:

Losing the Wages Offset

The negatively geared purchase worked because a shortfall between rent and costs reduced tax on salary. Remove that for established stock and the property has to stand on its own cash flow.

Treasury put the average negative gearing loss for an individual in the top tax bracket at $14,390 in 2022-23, roughly what a $1 million property produces at a 3.1% rental yield against a 5.7% interest rate. Losing the ability to apply that against wages changes the annual holding cost, even where the loss is eventually recovered against future property income. Cash flow is what people actually live with.

Paying More Tax on Strong Gains

Treasury modelled an asset bought for $500,000 in July 2027 and held 10 years, assuming 2.5% inflation. At a 5% annual return the investor pays about $8,075 more tax than under the 50% discount. At 7.5% they pay about $58,851 more. At 2.5% they pay about $24,858 less.  

What Still Works Under the New Rules

These reforms are targeted rather than sweeping. Several routes are untouched, and one or two are arguably more attractive than they were before Budget night:

Keeping What You Already Own

Nothing forces a sale. The transitional rules were designed to avoid creating a reason for one. Selling a grandfathered property gives up something you cannot buy back.

Building New Rather Than Buying Established

An investor in a new build keeps negative gearing against all income, including wages, and gets to choose between the 50% CGT discount and the indexation method on sale. You take whichever is better once you know your actual return. No other residential investor has that.

Clients weighing land and a build contract against an established purchase are usually surprised how far apart the two now sit once tax is included. Progress payments and builder milestones do not behave like a standard settlement, so the funding needs structuring from the start.

Investing Through Commercial Property

The negative gearing changes apply to residential property only. Commercial property and other asset classes remain under the existing gearing rules. The CGT changes still reach them, as they reach most assets held over 12 months.

Buying Business Real Property in an SMSF

The SMSF borrowing ban is narrower than its headline suggests. The operative test is business real property, so a fund can still borrow to buy premises a business genuinely operates from. For a tradie or builder who has been paying rent on a yard, workshop or warehouse for years, buying that premises inside super remains available after 10 August 2026.

The test does throw up anomalies. Some commercial property fails it, and some property that looks residential can pass it. Lifestyle blocks, hobby farms and mixed-use sites are the usual problem cases, so classification needs checking before anyone commits.

Holding Property in Super Without Borrowing

Superannuation funds, including SMSFs, were excluded from the negative gearing changes and continue to receive concessional treatment on gains. What has gone is the ability to gear into residential property with new borrowings. A fund with the cash to buy outright sits in a very different position to one that needed the loan.

What a New Build Is Likely to Mean

This is the part that decides whether the building strategy works, and it is the part still being finalised. Treasury has published its position, which is that a new build must genuinely add to housing supply. The examples below reflect that stated position rather than a final rulebook:

General guide only. The examples above reflect Treasury’s published position while the detailed rules are still being settled, and they may change. Confirm any specific project with your accountant before you commit to land or a build contract.

The Supply Test

The principle is dwelling count. Building on vacant land adds a dwelling. Demolishing one house and replacing it with two or more separately titled dwellings adds dwellings. Demolishing one house and replacing it with one better house adds nothing to supply, however new the result looks and however much it cost.

The Knock-Down Rebuild Trap

A like-for-like knock-down rebuild is not expected to qualify as a new build, and neither are substantial renovations. Anyone assuming a brand new house on an old block preserves negative gearing may be making an expensive assumption. Where the block can carry two dwellings, the answer may change entirely, which is a design decision made long before settlement.

The First-Sale Condition

A new build cannot have been previously sold, unless it was first owned by the builder and not occupied for more than 12 months. Buy a two-year-old rental from another investor and you are buying established stock, whatever the marketing says. The concession attaches to the dwelling being genuinely new to the market, not to its age.

The Unfinished Detail

The finer definition sits outside the primary legislation and has not yet been settled. Treasury has said it intends to publish the detail as soon as possible. Until it lands, treat a project as eligible only after your accountant has looked at the specific dwelling count and title arrangement, not because an agent described the property as new.

How to Review Your Position Before 1 July 2027

There is time, and the worst response available is a rushed decision made on a headline. A structured review usually takes one conversation and an afternoon of paperwork:

• Confirm the exact acquisition date of every residential property you hold, using contract dates rather than settlement dates.
• Check whether any ownership change since 12 May 2026 has reset the grandfathering on part of a title.
• Bring forward any SMSF residential purchase already in train, so the contract, fund and holding trust are in place before 10 August 2026.
• Test any proposed build against the supply test before committing to land or a build contract.
• Model the holding cost of any post-Budget established purchase without the wages offset from 1 July 2027.
• Ask your accountant how the split-gain calculation will apply to assets you expect to hold past 1 July 2027, including shares.

General guide only. Dates, thresholds and eligibility depend on your circumstances and on rules still being finalised. Confirm your position with a qualified adviser before acting.

You Still Have a Way In

You are not locked out of property. You are locked out of one particular version of it, and it was never the only version that worked.

The investors doing well right now are the ones who stopped reading the headline and started reading their own dates. They know what they held on 12 May 2026 and what that protects. They know a build and an established purchase are no longer the same trade. They know their accountant has a job to do before their finance adviser does.

That is a position of control rather than reaction, and it is available to anyone willing to spend an hour on it.

At Ausfirst Lending Group, I would rather map your position with you now than repair a rushed decision later. Bring your purchase dates and your plans, and we will work out which side of each line you are on.

Frequently Asked Questions (FAQs)

This article is general information only. It has been prepared without taking into account your objectives, financial situation or needs, and it does not consider your personal circumstances. Tax rules described here were current at the time of writing and some supporting rules were still being finalised. Please speak with a qualified accountant, tax adviser or finance professional about your own position before acting on anything you have read here.