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Last night’s Federal Budget changed the tax incentives that have shaped property investment behaviour for a generation. For anyone active in Canberra real estate, ACT property or the broader Australian housing market, the important point is not simply that negative gearing and capital gains tax have changed. It is how they have changed, when they start, and where the carve-outs now sit.
The reform package does three big things. It limits negative gearing on residential property to eligible new builds from 1 July 2027. It replaces the 50 per cent capital gains tax discount with CPI-based cost-base indexation for gains accruing after 1 July 2027. And it overlays a 30 per cent minimum tax on realised capital gains, again from 1 July 2027, with exemptions for income-support recipients.
That is a major policy shift. But it is not a cliff edge.
On negative gearing, the Budget draws a line at 7:30pm AEST on 12 May 2026 for established residential property. If you already held the property before that time, including under contract but not yet settled, current negative gearing treatment stays in place until that property is sold. If you buy an established residential property between budget night and 30 June 2027, you can still negative gear it during that period, but not from 1 July 2027 onwards. From that date, losses on established residential property can only be deducted against residential rental income or residential capital gains, with unused losses carried forward.
The new-build carve-out is more generous than many expected. If a property genuinely adds to supply, negative gearing remains available, and when the property is sold the investor can choose either the old 50 per cent CGT discount or the new indexation-plus-minimum-tax method. The official definition matters: new builds include dwellings constructed on vacant land, or redevelopment where existing properties are demolished and replaced with a greater number of dwellings. A like-for-like knock-down rebuild or renovation that does not increase supply does not qualify. Subsequent purchasers of that dwelling do not inherit the concession.
On capital gains tax, the 50 per cent discount is replaced from 1 July 2027 by cost-base indexation using CPI. The key practical point is that the change is prospective. Gains accrued before 1 July 2027 remain under the current rules. Gains accrued after that date move to the new rules. For assets already owned at 1 July 2027 and sold later, taxpayers will need to determine the asset’s value at that date, either with a valuation or a specified apportionment formula, and the ATO has said it will provide tools to support that calculation.
A 30 per cent minimum tax on realised capital gains is added from the same start date. In practice, that means lower-tax-rate sellers without an income-support exemption may need to top up tax on their gain to that 30 per cent floor after indexation has been applied. Income-support recipients, including Age Pension recipients, are exempt from that minimum rate.
The family home remains exempt. The four small business CGT concessions remain unchanged. The existing 60 per cent CGT discount for qualifying affordable housing is retained. Commercial property and shares stay outside the residential negative gearing change, although the CGT reform applies broadly to CGT assets held by individuals, partnerships and trusts. Widely held trusts and superannuation funds, including SMSFs, are excluded from the negative gearing change.
For buyers, especially first-home buyers, the headline benefit is a more level playing field in established stock over time. Treasury’s modelling says the package should push the ownership mix toward owner-occupiers, resulting in around 75,000 additional owner-occupiers over the next decade. It also says house-price growth could run around 2 per cent lower over a couple of years than it otherwise would have. That is not a crash thesis. It is a modest affordability benefit.
In Canberra real estate, the read-through is that owner-occupiers may eventually face a little less investor pressure in established stock, particularly where yields are already tight and the previous tax settings did a lot of the heavy lifting. But buyers should not assume a flood of discounted listings. The official transition design is intended to minimise buy-sell distortion around the start dates.
For owner-occupier sellers, the direct tax impact is limited because the main residence exemption is unchanged. For sellers of investment property, it is more nuanced. Existing holdings keep the pre-Budget negative gearing treatment until sale, and the CGT transition means pre-1 July 2027 gains keep the current treatment. That reduces the chance of a forced rush to market. Treasury explicitly says the transition is designed so there is no incentive to buy or sell before specific dates.
The practical tip is record-keeping. If you hold an investment asset through 1 July 2027 and expect to sell later, valuation evidence and cost-base records suddenly matter more. In our view, this is one of the most under-appreciated parts of the package for ACT property owners.
This is where the Budget hits hardest. If your strategy relies on buying established residential property, offsetting annual losses against salary, and banking on the 50 per cent CGT discount on exit, the after-tax economics are materially weaker from this point forward. That does not mean investment disappears. It means the tax tail is shorter.
The carve-outs tell you where policy wants capital to go instead: new builds, higher-density supply, targeted affordable housing, and some build-to-rent pathways. Treasury also says exempting new builds should help limit supply impacts and encourage investors to rebalance toward new builds and higher-density dwellings. For Canberra real estate, that is particularly relevant to townhouse, apartment and infill projects that genuinely add dwellings.
There is also a fairness argument built into the Budget. Treasury says around 83 per cent of the current CGT discount benefit goes to the top 10 per cent of taxpayers by income. Whether you agree with the politics or not, that distributional point explains why the Government chose this fight.
The market conversation will inevitably jump to rents. Treasury’s own estimate is modest: less than $2 a week for a household paying the current median rent. It also says any supply impact from the tax package — around 35,000 fewer dwellings over a decade compared with no policy change — is more than offset by other Budget housing measures, including the new Local Infrastructure Fund that is expected to support up to 65,000 new homes.
That does not mean every local rental market sees the same outcome. In Canberra and the ACT property market, the local effect will still depend on delivery, approvals, feasibility and the attractiveness of new-build investment relative to established product. But the official package is clearly designed to avoid a sharp rental shock while nudging capital into supply.
Our view is that the most important local split is now between new supply and established investor stock. If a project genuinely adds dwellings, the tax settings are now relatively friendlier than they were the night before the Budget. If a buyer is looking at established, investor-grade stock, especially where the yield case is already thin, the tax support becomes less generous from July 2027.
For ACT property, that means sellers and developers should be careful about assuming “the market” will do the work. In a more selective environment, pricing, buyer depth and project feasibility matter more than headline policy alone. That is especially true in Canberra, where decisions are often more measured than emotional and campaigns tend to reward clear positioning. That final point is our market view rather than a Treasury forecast, but it is the lens we believe matters most on the ground.
This Budget does not abolish property investment. It changes the tax maths around where and why people invest. For buyers, that should modestly improve the odds in established stock over time. For sellers, it reduces the case for panic and increases the case for clean records and good advice. For investors, the message is unmistakable: if you want the best tax treatment, add supply. For landlords and tenants, the official expectation is not a major rent shock, but delivery still matters.
In Canberra real estate, the Budget matters. But the real story is not hype or fear. It is strategy.
Disclaimer: this is a market analysis, not personal tax or financial advice.
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