Proposed Negative Gearing and CGT Changes: What Property Investors Should Know
The Australian Government announced proposed reforms to negative gearing and Capital Gains Tax as part of the 2026-27 Federal Budget on 12 May 2026. These changes are intended to apply from 1 July 2027, but 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.
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.
Laxmi Home Loans works with 50+ lenders and supports Australian borrowers with investment loans, refinancing, construction loans, new build finance 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. |
This summary is general information only. The proposed reforms are not yet law and final legislation may differ.
What Is Negative Gearing?
Negative gearing happens when the costs of holding an investment property are higher than the income it earns. In plain English, the property makes a tax loss because expenses such as interest, maintenance, management fees and other allowable costs exceed the rent received.
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.
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.
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.
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.
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. Investors who buy new builds are expected to retain stronger negative gearing support than investors who buy established residential properties after Budget night.
| 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.
Check Borrowing Capacity2. 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.
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.
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.
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.
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.
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
Are the proposed negative gearing and CGT changes already law?
No. The measure is not yet law, which means the final rules may change before implementation. Investors should speak with a registered tax adviser before making decisions based on the proposed measures.
Could these changes affect borrowing capacity?
Potentially, yes. If lender servicing models change how they recognise tax benefits, rental income, expenses or investment losses, borrowing capacity could be affected. This will depend on lender policy and the final legislation.
Will new builds be treated differently from established properties?
Under the proposed policy, new builds are expected to retain stronger negative gearing support, while established residential properties bought after the relevant cut-off may have more limited loss treatment.
Should I buy an investment property before the rules change?
That depends on your financial position, tax advice, loan serviceability, cash flow and long-term goals. A mortgage broker can help with borrowing capacity and loan structure, but tax strategy should be discussed with your accountant.
Can Laxmi Home Loans provide tax advice?
No. Laxmi Home Loans does not provide tax advice. We can help with investment loan strategy, lender comparison, refinancing, borrowing capacity and cash flow considerations from a lending perspective.
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, understand your borrowing capacity and compare lender options carefully.
Contact Us Call 0433 589 626Disclaimer
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.
