Why property is the centrepiece of this Budget

Australian house prices have risen by more than 400% since 1999, a period during which wages grew by roughly half that. The Government has framed several of this Budget’s key tax reforms as an attempt to improve affordability for first home buyers. 

Treasury modelling anticipates the combined effect of the proposed changes will see around 75,000 properties shift from investor to owner-occupier hands over the next decade.

For existing property investors, the protections built into the transitional arrangements are substantial. But for anyone considering new acquisitions – particularly of established residential property – the investment equation is changing.

It is worth noting that these measures are still proposals and will need to pass through Parliament before becoming law. If passed, the major changes are proposed to take effect 1 July 2027, which means there is time to take considered, well-informed action rather than reactive decisions.

Capital gains tax: the mechanics of the new rules

From 1 July 2027, the Government proposes to replace the current 50 per cent capital gains tax (CGT) discount with a new system. 

This applies to assets held for at least 12 months by individuals, trusts, and partnerships – including property, shares, and pre-1985 assets. Companies and superannuation funds, including self-managed super funds, are not affected by these changes and will continue to be taxed under current rules.

Under the current arrangement, only half of the profit from a property sale counts toward your taxable income if you have held the asset for more than 12 months. 

The proposed new approach adjusts the cost base for inflation and taxes the real gain (the portion above CPI growth) but with a floor of 30 per cent. 

It is also worth noting that two important existing concessions remain fully intact: the main residence exemption is unchanged, and the small business CGT concessions continue to apply as before.

The transitional arrangements are important. Assets held before 1 July 2027 will have their gains split: everything accrued up to 30 June 2027 is treated under current rules; gains from 1 July 2027 onwards fall under the new regime. 

For those with assets held since before 1985: it is proposed that pre-CGT status no longer provides full ongoing exemption under the new rules. Gains accrued on these assets before 1 July 2027 continue to be exempt under existing arrangements – but gains accruing from that date onwards will be subject to the new system. 

Investors who purchase new residential properties will be able to choose between the existing 50 per cent CGT discount or the new indexation approach when they eventually sell – an incentive designed to preserve investment flows into new housing supply.

Negative gearing: who is protected and what changes

Under the current rules, if the expenses on an investment property – including mortgage interest, maintenance, rates, and management fees – exceed the rental income, that loss can be deducted against other income, including wages and business income. 

This is negative gearing, and from 1 July 2027 it will be restricted – but only in relation to established residential property. This distinction matters. 

The negative gearing restrictions do not apply to commercial property, shares, managed funds, or other asset classes. The restrictions are specifically targeted at established residential property acquired from Budget night onwards.

The protections for existing residential property investors are comprehensive. However, properties purchased from 1 July 2027 will not be able to be negatively geared against other income – unless they are new builds, which remain fully accessible to negative gearing.

The market implications

Treasury’s own modelling anticipates that the reduced flow of investment into established residential property will result in around 35,000 fewer homes being constructed over the next decade due to a temporary dip in private investment. 

To offset this, the Government has committed $2 billion toward infrastructure – roads, sewerage, and related utilities – to unlock new housing lots, with an anticipated 65,000 additional homes over four years. The foreign buyer ban on established residential properties has also been extended to mid-2029, though new builds remain accessible to overseas investors.

What this means for your portfolio now

The window between now and 30 June 2027 gives you time to assess your strategy thoughtfully and understand what any changes could mean for your portfolio. That said, none of these proposals had been legislated at the time of writing – and until they are, many of the finer details remain unclear. Being prepared matters, but so does waiting for certainty before making significant moves.

If you’d like to work through how these proposed changes could affect your existing portfolio or future plans, we’re ready to have that conversation. Book a free 15-minute call through our website.