The Treasurer delivered the Federal Budget on Tuesday, 12 May 2026, and has confirmed some major housing tax reforms. These changes will impact investors, first home buyers, and anyone planning their next property move.
The biggest change is negative gearing.
From 1 July 2027, negative gearing will generally be limited to newly built residential properties. That means investors buying established investment properties after Budget night – 12 May 2026 – will no longer be able to offset rental property losses against salary or wage income.
Importantly, this does not mean property expenses are ignored.
The rent will still be assessed against the property costs first. Things like interest, rates, insurance, property management fees, maintenance and other allowable costs may still reduce the taxable income from that property.
The key change is what happens if the property runs at a loss.
Under the current system, that excess loss can often reduce other taxable income, such as wages. Under the proposed rules for affected established investment properties, that excess loss will not reduce salary or wage income. Instead, the unused loss can be carried forward and used against future residential property income, including future capital gains.
Existing investment properties are grandfathered, so if you already owned the property before Budget night, or had already entered into a contract, the current rules can continue until that property is sold.
The Government is also changing Capital Gains Tax.
From 1 July 2027, the current 50% CGT discount will be replaced with an indexation-style model, with a 30% minimum tax rate on capital gains. Importantly, this only applies to gains from 1 July 2027 onwards, not gains already built up before then.
For new builds, the rules are more favourable. Investors buying qualifying new residential property will still be able to access negative gearing and may be able to choose between the existing 50% CGT discount or the new indexation model when they sell.
From a property market point of view, this is clearly designed to push investor demand away from established homes and towards new supply.
For first home buyers, that could mean slightly less competition from investors in the established market over time. But I would not read this as “property prices are going to fall”. Treasury’s own language is much more measured; they expect a small slowing in price growth, not a correction.
The Budget also includes:
- A $2 billion Local Infrastructure Fund to help unlock new housing supply.
- An extension of the foreign buyer ban on established homes until mid-2029.
- Continued support for first home buyer schemes and shared equity pathways.
- Tax cuts and a new $1,000 instant work-related deduction, which may slightly help household cash flow.
From a lending perspective, the biggest impact will be on investors’ strategies.
Established investment property may still make sense, but the tax assumptions need to be reviewed carefully. New builds may become more attractive for some investors because the tax treatment is more favourable. First home buyers may also need to be ready, because any policy that improves their relative position can also bring more buyers into the market.
As always, tax advice needs to come from an accountant. But for mortgage and borrowing advice, Universal Mortgage Experts are always here to help, contact our team today.
9 September
