Treasurer Jim Chalmers handed down the 2026–27 Federal Budget on Tuesday 12 May, with the most significant changes to property tax in a generation. Two reforms in particular have reshaped how investment property is taxed in Australia — negative gearing will be limited to new builds from 1 July 2027, and the 50% capital gains tax discount will be replaced with inflation-adjusted indexation and a 30% minimum tax rate from the same date.
PRD Chief Economist Dr Diaswati (Asti) Mardiasmo has now published her assessment of the changes, and the headline for current investor-owners is reassuring. Properties held at 7:30pm on Budget night are grandfathered — existing negative gearing arrangements continue unchanged for those properties. In Dr Mardiasmo’s words, this means current investors are “safe”, which builds confidence and mitigates the risk of investors suddenly selling out and destabilising the rental market.
A point worth underlining: ATO data indicates that 71.5% of Australian property investors own only one investment property. The changes therefore affect a broad base of ordinary investor-owners, not only multi-property portfolios. Dr Mardiasmo notes that earlier “leaked documents” suggested the new rules would apply only to investors with multiple properties — but that’s not how the legislation has landed.
For investors planning future purchases, the message is more nuanced. New builds remain negatively gearable and retain access to the 50% CGT discount as an option at sale, which Dr Mardiasmo expects will stimulate some additional housing supply. The caveat is that new builds are not always immediately rentable — investors may carry mortgage costs through the construction period without rental income. Investors who purchase established properties after Budget night will still be able to deduct losses against residential rental income (just not against other income like wages), with unused losses carried forward.
The government has framed the package as creating roughly 75,000 additional homes for first home buyers over the next decade. Dr Mardiasmo offers some useful perspective on that number: with around 1.2 million investment properties currently negatively geared, 75,000 represents just under 7% of that pool. As she puts it, this suggests “the design in adding more homes to the market through the negative gearing / capital gains tax changes is just a very small part. It tells me that the government is not fully reliant on this design.” The $2 billion Local Infrastructure Fund, the extension of the foreign-buyer ban on established homes, and the first home buyer deposit scheme are doing the rest of the work.
Her overall reading is measured. The reforms “sound scary on the outset; however, there are some safety nets being built in.” Most investor-owners (the 71.5% with one property) will only sell once — and if they have held the asset for a while and seen capital growth, they will still be building wealth toward retirement, which is the underlying purpose of most property investment in the first place.
Our practical guidance for PRD owners and investors is straightforward. If you already hold an investment property, the Budget changes do not affect that asset. If you are considering buying over the next 18 months, the relative tax position of new versus established stock is now worth weighing carefully with your accountant. If you are contemplating selling, the 50% CGT discount still applies to gains arising before 1 July 2027, so there is time — but a planning conversation in the next 12 months is worthwhile.
If you would like to discuss how the changes affect your portfolio, the team at PRD Real Estate is here to talk it through. For Dr Mardiasmo’s full commentary, including her observations on income tax cuts, housing supply, and the wider economic implications, visit the PRD Research Hub at prd.com.au/research-hub.
Source: 2026–27 Federal Budget; Post-Federal Budget 2026-27 Comments, Dr Diaswati (Asti) Mardiasmo, PRD Chief Economist, 13 May 2026.
