The Federal Budget 2026 has delivered one of the most significant shake-ups to Australia’s tax system since the introduction of the GST in 2000, particularly for property investors, who are facing major reforms to Capital Gains Tax, negative gearing, and long-term wealth-building strategies.
Here’s a roundup of the major changes announced in the 2026 Federal Budget.
Major property and investment reforms
Capital Gains Tax overhaul
From 1 July 2027, the 50% Capital Gains Tax (CGT) discount for assets held longer than 12 months will be replaced with a pre-1999 inflation-indexation model, alongside a minimum 30% tax rate on capital gains. However, investors who buy newly built properties will be able to choose between the existing 50% CGT discount and the new tax treatment.
Changes to CGT will only be partially grandfathered. Investors who sell their properties in the future will still receive the existing 50% CGT discount on capital gains accrued up to 1 July 2027, but any gains made after that date will be taxed under the new inflation-indexation model.
Current system:
50% CGT discount for investment properties and assets held longer than 12 months
New system from July 2027:
50% discount abolished
Replaced with CPI indexation only
Minimum 30% tax rate on capital gains
What does ‘indexed to inflation’ mean in the context of CGT?
Indexation means adjusting the original purchase price (or cost base) of an asset in line with inflation, using the Consumer Price Index (CPI), before calculating CGT.
What does that mean for property investors?
Property investors with lower gains relative to inflation will pay less tax, while those with large gains well above inflation will pay more.
Say you purchased a property for $500,000 and sold it 10 years later for $1 million. Your capital gain would be $500,000, but under the current system, you’d typically only pay tax on $250,000 after applying the 50% CGT discount.
Under the new system, the original purchase price would instead be indexed to inflation before calculating your taxable gain.
For example, if inflation was 20% over that 10-year period, your $500,000 cost base would increase to $600,000.
That means:
Sale price: $1,000,000
Indexed cost base: $600,000
Taxable capital gain: $400,000
So rather than being taxed on $250,000 under the current rules, you’d be taxed on $400,000 under the new inflation-indexed model.
Negative gearing restrictions
Negative gearing on established residential investment properties will be phased out from 1 July 2027. Properties acquired before Budget Night (12 May), including contracts exchanged but not yet settled, will be exempt from these changes until sold.
However, from 1 July 2027, net rental losses from established residential properties will no longer be deductible against wage or business income. Instead, those losses can only be offset against future rental income or capital gains from residential property investments.
Any excess losses can be carried forward to future tax years.
Newly built residential properties, those held in widely held trusts and superannuation funds and built-to-rent developments will continue to qualify for full negative gearing benefits.
What does that mean for property investors?
Mansour Soltani
Financial Services Expert
“The combination of changes to Capital Gains Tax and negative gearing is likely to shift investor behaviour over the coming years. Investors will need to place greater emphasis on cash flow, asset selection and long-term fundamentals rather than relying on tax concessions to drive returns.”
– Mansour Soltani, Director, Soren Financial
Investors may be less incentivised to purchase established residential properties, particularly if negative gearing benefits are reduced and capital gains tax concessions become less generous.
Other housing policy changes
“While the tax changes will attract most of the headlines, increased investment in housing supply and first-home buyer initiatives could have a meaningful impact on market accessibility. For many Australians, these measures may create opportunities that have been difficult to access in recent years.”
— Mary Nebotakis, Managing Director, Natloans
The Government will invest $2 billion through a new Local Infrastructure Fund to help fast-track roads, sewerage, and utilities needed to build new housing developments to bring 65,000 new homes on the market over the next decade.
It is also committing an additional $5.9 billion to states and territories towards the 100,000 Homes for First Home Buyers program.
In addition, the Government has extended the ban on foreign buyers purchasing established homes until 30 June 2029.
Discretionary trust tax changes
Discretionary trusts will have to pay a 30% minimum tax from 1 July 2028, with transitional relief available. Trustees will pay a minimum tax of 30% on the taxable income of discretionary trusts that is distributed to beneficiaries.
Beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee.
Expanded rollover relief will be available for three years from 1 July 2027 to support small businesses and others that wish to restructure out of discretionary trusts into another entity type, like a company or a fixed trust.
Instant asset write-off made permanent
Eligible small businesses with turnover up to $10 million will benefit from a permanent $20,000 instant asset write-off. Eligible SMEs can deduct the full cost of eligible new or second-hand assets costing less than $20,000.
Tax cuts and cost-of-living relief
$1,000 instant tax deduction for work-related expenses
Australians will be able to claim a $1,000 instant tax deduction for eligible work-related expenses in the 2026–27 income year without needing receipts. They will be able to claim the instant tax deduction on this year’s tax return.
$250 Working Australians Tax Offset
The Government is also introducing a $250 Working Australians Tax Offset from the 2027–28 financial year, with more than 13 million Australian workers expected to benefit. However, eligible taxpayers will need to wait until they lodge their 2027–28 tax return after 1 July 2028 to receive it.
Lower marginal tax rates are coming
The Australian Government will reduce the lowest marginal tax rate from 16% to 15% on 1 July 2026 for income between $18,201 and $45,000. This measure was originally announced in the 2025 Federal Budget, but will take effect this year.
Electric vehicle Fringe Benefits Tax (FBT)
Electric vehicle tax concessions will be scaled back, but not scrapped entirely.
Eligible electric vehicles priced up to $75,000 will continue to receive a full Fringe Benefits Tax (FBT) exemption if the fringe benefit arrangement starts before 1 April 2029.
From 1 April 2027, eligible electric vehicles priced above $75,000 will instead receive a permanent 25% FBT discount rather than a full exemption.
From 1 April 2029, all eligible electric vehicles will move to the reduced 25% FBT discount model.
Mansour Soltani
Financial Services Expert
With over two decades of experience in Australia’s real estate sector, Mansour has built a career specialising in the acquisition and sale of investment and commercial properties, spanning major metropolitan hubs and regional areas. As the founder and owner of a finance brokerage firm, he manages a loan portfolio exceeding $250 million while serving a broad range of clients nationwide.
A frequent contributor to money.com.au, Mansour has developed a deep understanding of diverse investment strategies, enabling him to provide valuable, well-informed perspectives on market trends and opportunities.