Negative Gearing and CGT Reform: Now Law. What Property Investors Must Do

The Full Picture: What Changed and What Did Not

The reform targets a specific slice of investor activity: established residential property purchased after the 2026 Federal Budget night (12 May 2026, 7:30pm AEST). Everything outside that slice is untouched.

The chart above captures the entire reform in one view. Notice that three out of four investor categories are either fully exempt or grandfathered. The restriction applies only to the fourth: established property purchased after Budget night.

Negative Gearing: The New Carry-Forward Rule

How negative gearing worked before

Under the old rules, if your rental property made a loss (interest plus expenses exceeded rent), you deducted that loss against your salary or other income in the same tax year. A $15,000 rental loss against a $120,000 salary reduced your taxable income to $105,000 in year one.

How it works for post-Budget established properties

For established properties purchased after 12 May 2026, losses still exist on paper, but they cannot offset other income until that property itself generates a profit. The loss accumulates in a carry-forward pool tied to the property. When the property becomes positively geared, or when you eventually sell it, the carried-forward losses reduce the taxable income from that property or its capital gain.

The practical impact depends heavily on how negatively geared a property is and how quickly rents rise to cover costs. For an investor with a $600,000 loan at 7% interest ($42,000/yr) and $27,000 rental income (4.5% yield), the $15,000 annual loss cannot reduce their PAYG tax bill under the new rules. It accumulates and waits.

CGT Changes: CPI Indexation Replaces the 50% Discount

For established investment properties purchased after Budget night and sold on or after 1 July 2027, the 50% CGT discount is replaced by CPI indexation of the cost base.

How CPI indexation works

Instead of halving your capital gain, you inflate your cost base by the CPI increase over the holding period. You pay CGT on the real (inflation-adjusted) gain rather than the nominal gain. For example:

The chart reveals something counterintuitive: at higher inflation rates, the CPI method actually produces a lower tax bill than the old 50% discount would have. Investors in high-inflation environments selling established property (post-Budget) are not necessarily worse off on CGT. The sting is in the negative gearing carry-forward, not the CGT change.

New builds: choose the better method

Investors who purchase a qualifying new build get the best of both worlds on CGT. They can choose whichever method produces the lower tax bill when they sell. In a low-inflation environment you use the 50% discount. In a high-inflation environment you use CPI indexation. This choice applies to the first investor purchaser only; subsequent resales of that property are treated as established property.

The 30% minimum tax rate

A 30% minimum tax rate on capital gains applies under the new rules. This acts as a floor to prevent high-inflation scenarios where CPI indexation reduces the effective rate below 30%. In practice, investors on the 47% marginal rate are well above the floor under any realistic scenario.

Annual Tax Saving Comparison by Property Type

The chart below shows the annual tax saving from negative gearing ($15,000 loss per year on a typical investment property) for each property type under the new law.

Grandfathered and new build investors continue to receive a real $7,050 per year tax saving on a $15k annual loss. Established post-Budget investors receive nothing in the current year. The $15k loss still exists, but it waits.

5 Investor Strategies That Still Work Under the New Law