The Budget Has Changed the Rules of Property Investment — Here's What It Means for You

This week's Federal Budget wasn't just another set of policy tweaks. For property investors and aspiring home owners, it represents the most fundamental restructure of Australia's property tax system in decades. Paired with the RBA's current rate settings, the landscape has shifted significantly — and quickly.

As your mortgage broker, it's my job to cut through the noise and tell you what this actually means for your situation. Let me walk you through the key changes.

Negative Gearing: Still Alive, But Quarantined

The headline change is the restriction of negative gearing for established residential properties. Effective from Budget night (12 May 2026), if you purchase an established investment property, any net rental losses can no longer be offset against your personal wage income.

Instead, those losses must be quarantined — held against future capital gains or other rental income from residential property. They don't disappear, but the immediate cash flow benefit that investors have relied on for years is now gone for established properties.

"This will hit early-year cash flows for traditional property investors hard. The tax shield that made established investment properties so attractive has been removed."

Properties purchased before 7:30 PM AEST on 12 May 2026 are grandfathered — existing investors retain their current arrangements until they sell. If you were already in the market, you're protected for now.

New Builds: The Clear Winner

The Government has deliberately carved new construction out of these restrictions. Investors who build new stock retain full access to traditional negative gearing and, importantly, the 50% CGT discount as well.

This is a significant policy signal. Overnight, new construction has become the most tax-effective property investment vehicle in Australia. If you're weighing up your next purchase, this changes the calculus considerably.

Capital Gains Tax: A Major Structural Shift

From 1 July 2027, the longstanding 50% CGT discount will be replaced by a cost base indexation model. In simple terms, only your gains above inflation will be taxed — but a minimum 30% tax rate will apply to those net capital gains.

Transitional arrangements mean gains accrued before 1 July 2027 still attract the 50% discount, so the timeline matters. If you're considering selling in the near future, this is worth discussing with your accountant.

For investors in new residential properties, there's flexibility — you can choose between the indexation model or the 50% discount, whichever works better for your situation.

What About Discretionary Trusts?

From 2028, a 30% minimum tax will apply to the net taxable income of discretionary trusts. If you hold property through a family trust, this deserves a serious conversation with your accountant and financial adviser.

The Government is offering a CGT rollover window starting 2027 to allow families to restructure into companies or fixed trusts without triggering a capital gain — a meaningful concession, but one with a deadline.

The Other Schemes Continuing in Parallel

Alongside the new tax reforms, a number of buyer-support schemes remain active:

•      5% Deposit Home Guarantee Scheme — first home buyers can still access government-backed low-deposit loans

•      Help to Buy (Shared Equity) — the Government co-purchases up to 40% of a new home or 30% of an existing property for eligible buyers

•      Foreign investor ban on established homes extended to mid-2029

Combined with the negative gearing changes, these measures are clearly designed to tip the scales toward first home buyers and owner-occupiers.

My Take: What Should You Do Now?

The property market has effectively split into two tiers. Established investment properties have lost their primary tax advantage. New construction has become more attractive than it has been in years. And borrowing capacity is being squeezed from both sides — more on that in my next article.

If you're an existing investor, your grandfathered status is valuable — don't make hasty decisions. If you're planning a new purchase, the type of property now matters more than ever to your tax position. And if your property is held in a trust structure, put a review with your accountant on the calendar now.

I'm happy to work through how these changes affect your specific borrowing position. Feel free to reach out directly.

Phil Aldridge  |  Mortgage Broker  |  This article is general information only and does not constitute financial or tax advice. Please consult your accountant or financial adviser for guidance specific to your circumstances.