The Federal Budget announcements have sparked plenty of debate, particularly around property tax changes. With so much commentary flying around, it’s easy for the detail to get lost in the headlines. Here’s a straightforward summary of what has been proposed, what it could mean for property owners and purchasers - and importantly, the likely flow-on effects for renters and the broader housing market.
Capital Gains Tax (CGT)
The Government has proposed significant changes to Capital Gains Tax from 1 July 2027.
What’s changing?
Two key reforms have been flagged:
The current 50% CGT discount will be replaced with an inflation indexation model
Rather than automatically discounting half of the gain, the cost base of an asset would instead increase in line with inflation. Tax would then apply only to the “real” gain after inflation is taken into account.A minimum 30% tax rate on capital gains would apply
Even if your marginal tax rate is below 30%, capital gains would be taxed at a minimum rate of 30%. Pensioners and certain income support recipients are expected to be exempt.
These proposed changes apply broadly to CGT assets held by individuals, trusts and partnerships — including investment properties, shares and managed funds — not just residential real estate.
Importantly, the family home exemption remains unchanged, and existing CGT treatment for complying superannuation funds, including SMSFs, is expected to stay in place.
A simple example: investment property sale
If a property’s cost base was $500,000 and it sold 10 years later for $1 million, the gain would normally be $500,000. That investor would be taxed on a $500,000 capital gain, minus the inflation over that 10 year period. Say inflation was 20 per cent over that time, they would therefore be taxed on a $400,000 capital gain. That gain would then be taxed at the higher of the owner’s marginal tax rate or the proposed 30% minimum.
Existing property holdings
For assets already owned before 1 July 2027, gains accumulated prior to that date are expected to remain eligible for the current 50% discount. Where an asset spans both systems, transitional rules are expected to apply. Accountants will likely either:
Obtain a formal valuation as at 30 June 2027, or
Apply an ATO-approved formula to estimate the pre-2027 gain component.
Changes for pre-CGT assets
One of the more significant changes affects assets acquired before 20 September 1985. Historically, these “pre-CGT” assets have been entirely exempt from Capital Gains Tax. Under the proposal, that exemption would effectively end from 1 July 2027, and the asset’s market value at that date would become its new cost base. Gains accrued before 1 July 2027 would remain exempt, while future gains would fall under the new indexed CGT system and minimum 30% tax rate.
For families or businesses holding long-term property assets acquired before 1985, this is likely to become an important planning consideration.
New residential builds
Investors purchasing newly-built residential properties would reportedly have the option of choosing between:
The existing 50% CGT discount, or
The new indexed method.
Importantly, that choice would be made at the time of sale rather than purchase, allowing investors to select whichever produces the better tax outcome.
Negative Gearing
The proposed negative gearing reforms are likely to attract the most attention. From 1 July 2027, negative gearing for residential property would be restricted to homes that are currently negatively-geared, and newly-built homes.
What does this mean?
Properties owned before Budget night (7:30pm AEST, 12 May 2026) are expected to be grandfathered, meaning existing investors would retain current tax treatment. This protection is also expected to apply to properties already under contract before Budget night, even if settlement occurs later.
However, investors purchasing established residential properties after that date would no longer be able to offset rental losses against wages or other personal income. Losses could still potentially be applied against future rental income or capital gains from residential property, with unused losses carried forward.
Commercial property unaffected
The proposed negative gearing restrictions apply only to residential property. Commercial assets, shares and other investment classes are expected to continue operating under existing tax rules.
SMSFs unchanged
The changes are also not expected to apply to complying superannuation funds, including SMSFs.
What could this mean for tenants and the rental market?
While much of the public discussion has focused on investors, the broader implications for tenants may be just as significant. One likely outcome is a reduction in the supply of rental housing over time - and an increase in rents.
Property investors play a major role in providing rental accommodation across Australia. If investing in established residential property becomes less financially attractive due to higher tax burdens and reduced deductions, some investors may:
Exit the market altogether,
Redirect funds into other asset classes such as shares or commercial property, or
Focus only on newly built developments.
In theory, the policy aims to encourage investment into new housing supply. However, in practice, there are concerns that the transition period could reduce the number of available rental properties — particularly established homes that currently make up a large portion of the rental market.
Increased competition for rentals
If investor demand falls and fewer rental properties are added to the market, tenants could face:
Lower rental stock availability,
More competition for available properties,
Longer search times, and
Continued upward pressure on rents.
This is particularly relevant in cities already experiencing extremely low vacancy rates.
Even a modest reduction in investor participation can tighten supply further in an under-supplied market. For tenants, that can mean more applicants per property, fewer choices, higher rents and stronger bargaining power for landlords.
Potential unintended consequences
Critics of the changes argue that while the reforms are designed to improve housing affordability, they may instead create unintended pressure in the rental sector. Currently, about 30% properties are purchased by investors. If fewer investors purchase established homes:
Existing rental properties may eventually transition into owner-occupied housing,
The pace of rental supply growth may slow,
Smaller “mum and dad” investors may leave the market, and
Institutional or large-scale investors may increasingly dominate new housing supply.
This is particularly so given that interest rates are currently increasing, providing investors with steady, risk-free returns in the bank. Over time, this could create a more competitive environment for renters.
Discretionary Trust Changes
From 1 July 2028, the Government has also proposed a 30% minimum tax on discretionary trust income, subject to certain exemptions. To assist with restructuring, a three-year rollover relief period is expected to apply from 1 July 2027.
For those holding property through discretionary trusts — residential or commercial — these proposed changes may warrant early discussions with accountants and advisers, particularly where restructuring options are being considered.
What happens next?
At this stage, these measures remain proposals and will still need to progress through the legislative process. As always, the final version may differ from the initial announcement. Periods of major policy change often create uncertainty, but they also create opportunities for informed decision-making.
For property owners, investors and even tenants, the key issue will likely be how these changes influence housing supply, investor confidence and rental availability over the coming years. While the reforms are aimed at reshaping investment behaviour and improving housing affordability, the real-world impact may ultimately depend on whether enough new housing is delivered to offset any reduction in private investor participation.
In the meantime, many property owners are likely to review:
Ownership structures,
Timing of future purchases or sales,
Financing arrangements, and
Long-term investment strategies.
Equally, tenants may be watching closely to see whether these changes improve affordability — or simply intensify competition in an already strained rental market.
