The Australian Government announced proposed reforms to negative gearing and Capital Gains Tax (CGT) as part of the 2026–27 Federal Budget on 12 May 2026. These changes are intended to apply from 1 July 2027, but the Australian Taxation Office states that the measure is not yet law, which means details may change before implementation.
For property investors, the key issue is not only tax. These proposed changes may also affect borrowing capacity, cash flow, investment property strategy, and the choice between buying a new build or an established property. The client-provided Laxmi guide also focuses strongly on how these tax changes may flow through to lender servicing and borrowing power.
At Laxmi Home Loans, we do not provide tax advice. However, as mortgage brokers, we can help borrowers understand how lender policy, rental income shading, expenses, deposit size, loan structure and investment property cash flow may affect their home loan options. The client material positions Laxmi as a mortgage brokerage with access to 50+ lenders and experience helping Australian borrowers with investment loans, refinancing, construction loans and borrowing-capacity reviews.
Quick Summary: What Has Been Proposed?
The Government has proposed limiting negative gearing for residential property investments to new builds from 1 July 2027, while preserving existing arrangements for properties held before Budget night. It has also proposed replacing the current 50% CGT discount with inflation-based cost base indexation and a 30% minimum tax rate on capital gains from 1 July 2027.
| Area | Current / Existing Treatment | Proposed Treatment |
|---|---|---|
| Negative gearing for existing properties | Losses may generally be offset against other income, subject to current tax rules | For established residential properties acquired after Budget night, losses would only be deductible against residential property income and may be carried forward. |
| Negative gearing for new builds | Losses may generally be offset against other income | New builds would continue to receive negative gearing support. |
| CGT discount | 50% CGT discount may apply to eligible assets held more than 12 months | Proposed replacement with cost base indexation and a 30% minimum tax rate on gains from 1 July 2027. |
| Existing properties held before Budget night | Current negative gearing arrangements continue | Properties held at 7:30pm AEST on 12 May 2026 are proposed to be exempt from negative gearing changes. |
| Existing capital gains before 1 July 2027 | Current CGT rules apply | CGT reforms would only apply to gains arising after 1 July 2027. |
What Is Negative Gearing?
Negative gearing happens when the costs of holding an investment property are higher than the income it earns. In simple terms, the property makes a tax loss because expenses such as interest, maintenance, management fees and other allowable costs exceed the rent received. The client-provided Laxmi guide explains negative gearing in plain English as a situation where the investment property costs more to hold than it earns in rent.
Under existing arrangements, many investors have been able to offset that investment property loss against other income, such as salary or wages. Under the proposed reform, for established residential properties acquired after the relevant announcement time, the loss would no longer be offset against salary income and would instead be carried forward or used against residential property income.
Example: Before the Proposed Change
Priya earns $120,000 per year and owns an investment property that produces a $15,000 annual loss because the mortgage interest and other costs exceed the rental income. Under the current style of negative gearing treatment, that loss may reduce taxable income, subject to tax rules and individual circumstances. The client-provided Laxmi guide uses this example to show how negative gearing can reduce taxable income and create a tax benefit.
Example: After the Proposed Change
If Priya buys an established residential investment property after the proposed cut-off and the property makes the same $15,000 loss, she may not be able to offset that loss against her salary income under the proposed rules. Instead, the loss may need to be carried forward and used against future residential property income or relevant future gains, depending on the final legislation
Who May Not Be Affected?
Investors who held properties at 7:30pm AEST on 12 May 2026 are expected to keep existing negative gearing arrangements for those properties under the announced transitional treatment. New builds are also expected to retain negative gearing support, as the Government’s policy is designed to direct tax support toward new housing supply.
What Is Capital Gains Tax?
Capital Gains Tax, commonly called CGT, is the tax treatment applied when you make a capital gain on an asset such as an investment property or shares. It is generally applied to the gain, not the full sale price, meaning it is calculated on the difference between the cost base and the sale outcome, subject to tax rules and individual circumstances. The client-provided Laxmi guide explains CGT as the tax paid on profit when an investment property or shares are sold.
Under current rules, eligible individuals, trusts and partnerships may access a 50% CGT discount where an asset has been held for more than 12 months. The Government has proposed replacing the 50% CGT discount with cost base indexation and introducing a 30% minimum tax rate on capital gains from 1 July 2027
Example: Current CGT Discount
If an investor bought an investment property for $600,000 and later sold it for $900,000, the capital gain before costs and adjustments would be $300,000. Under the current 50% discount system, an eligible investor may only include half of that gain in taxable income, subject to tax law and personal circumstances. This example is also used in the Laxmi client guide to explain the current CGT discount in simple terms.
Example: Proposed Indexation System
Under the proposed system, the investor’s cost base would be adjusted for inflation, meaning tax would apply to the real gain above inflation rather than automatically applying a flat 50% discount. The Budget tax reform page states that the Government plans to replace the 50% CGT discount with a discount based on inflation and introduce a minimum 30% tax on gains from 1 July 2027.
New Build vs Established Property: What Changes?
The Government’s proposed policy appears to favour new builds because new housing supply is the main policy goal. The Budget tax reform page says investors who buy new builds will still be able to deduct losses from other income, while investors who buy established housing after Budget night will still be able to deduct losses against residential property income and carry forward unused losses.
| Feature | New Build | Established Property Bought After Budget Night |
|---|---|---|
| Negative gearing | Proposed to remain available against other income | Proposed to be limited to residential property income, with unused losses carried forward. |
| CGT treatment | Investors in new builds may be able to choose between the 50% CGT discount and the new arrangements | Proposed CGT reforms apply to gains after 1 July 2027. |
| Borrowing power | May be less affected where negative gearing benefit remains available | May be affected where negative gearing benefit no longer supports salary income. |
| Investment risk | Construction delays, builder risk, completion risk and valuation risk may apply | Established properties may have clearer rental history but may lose certain tax advantages under proposed rules. |
| Strategy consideration | May suit investors seeking new supply incentives | May suit investors focused on location, existing rental demand or established suburbs, but numbers need careful review. |
What Should Investors Do Before Buying?
Before buying an investment property, investors should run the numbers under different scenarios. The most important comparison may be between an established property and a new build, because the proposed rules treat these categories differently.
1. Check Your Borrowing Capacity First
Before looking seriously at properties, you should understand how much you may be able to borrow. Lenders assess your income, expenses, debts, dependants, rental income, interest-rate buffers and existing commitments. The Laxmi client guide emphasises that borrowing capacity can be affected by changes to tax treatment and lender servicing policy.
2. Compare New Build and Established Property Cash Flow
Do not compare properties only by purchase price. Compare rental income, vacancy risk, strata costs, maintenance costs, depreciation, potential tax treatment, location demand and expected cash shortfall. The Budget and ATO pages show that the proposed negative gearing treatment differs between new builds and established housing.
3. Speak With Your Accountant
A mortgage broker can help you with loan structure and lender comparison, but tax advice should come from a registered tax agent or accountant. The Laxmi guide also includes a disclaimer that the article is general information only and does not constitute financial, tax or legal advice.
4. Review Your Existing Loan
If you already own an investment property, it may be worth reviewing your current loan. Refinancing may help you compare interest rates, loan features, repayment options, offset accounts and equity access, depending on your circumstances and lender policy. Laxmi’s website structure and client files position refinancing and investment property loans as key service areas for borrowers.
5. Avoid Making Decisions Based Only on Tax
Tax treatment is important, but it should not be the only reason to buy or avoid a property. Investment decisions should also consider rental demand, location, infrastructure, affordability, loan serviceability, cash buffer, interest rate risk and long-term goals. The Laxmi guide frames the issue around both tax impact and borrowing-power impact, which is more helpful for borrowers than focusing on tax alone.
How Laxmi Home Loans Can Help
Laxmi Home Loans can help property investors compare loan options across a broad lender panel, understand borrowing capacity, review existing loans, structure investment lending and assess whether a loan scenario is likely to meet lender servicing requirements. The client-provided Laxmi guide states that Laxmi provides access to 50+ banks and lenders and supports borrowers across Australia.
We can help with:
- Investment property loan options
- Refinancing existing investment loans
- Construction and new build finance
- Borrowing capacity checks
- Loan structure reviews
- Equity-release discussions
- Comparing lender policy for rental income and serviceability
- Understanding how different loan scenarios may affect repayments and cash flow
Frequently Asked Questions
Speak With Laxmi Home Loans
The proposed negative gearing and CGT changes may affect how property investors think about borrowing, cash flow and investment loan structure. Before you buy, refinance or use equity for another property, it is important to understand your borrowing capacity and compare lender options carefully.
Disclaimer
This article is general information only and does not constitute financial, tax, legal or credit advice. The proposed negative gearing and CGT reforms announced in the 2026–27 Federal Budget are not yet law, and final rules may change. Please speak with a registered tax agent, accountant or financial adviser about your personal tax position. Loan approval is subject to lender assessment, eligibility criteria and individual financial circumstances.
Laxmi Home Loans is the trading name of Mero Chino Groups Pty Ltd, ABN 76 169 013 012, Credit Representative No. 476974 under Australian Credit Licence 383640, as stated in the client-provided guide.
