Major Changes to the Real Estate Industry in the 2026 Budget

Housing was a major focus of what Treasurer Jim Chalmers described as “the most important and ambitious budget in decades,” delivered on Tuesday night. One of the most significant changes announced relates to negative gearing and capital gains tax, both of which are set to reshape Australia’s property investment landscape.

Under the previous negative gearing rules, property investors could claim a tax deduction when their rental property expenses exceeded the rental income, resulting in a financial loss. This loss could then be offset against other income sources, such as wages or salary, helping to reduce overall taxable income.

However, from 1 July 2027, negative gearing will be restricted to newly built homes only. This measure aims to encourage greater housing supply by directing investor demand toward new developments rather than established properties.

Another major reform affects capital gains tax (CGT). Previously, investors who held a property for more than 12 months were entitled to a 50% CGT discount, meaning tax was only paid on half of the profit made from the sale.

From 1 July 2027, this 50% discount will be removed and replaced with the pre-1999 inflation-linked indexation system. Under this approach, the property’s cost base, including the original purchase price and associated costs such as stamp duty, will be adjusted in line with inflation before calculating the taxable gain.

According to Mr Chalmers, this change is intended to “restore the taxation of real gains” by ensuring investors are taxed more fairly on genuine profit rather than inflation-driven increases in property values.

Treasury modelling suggests these tax reforms will reduce investor demand and slow house price growth by around 2% over the next few years. For buyers purchasing a home at the national median house price, this could result in savings of approximately $19,000.