Canberra: 7.30pm (AEST), 12 May 2026

Federal Treasurer Jim Chalmers launched the 2026/27 Federal Budget in the House of Representatives tonight with a heavy focus on major changes to property and investment taxes. These changes have received a large amount of media attention over the past few months, fuelling concerns that the reforms will hurt investors, home buyers and renters.

The major ‘property related’ announcements were:

Capital Gains Tax

The current policy is for the net capital gain on the sale of an investment property to be taxed at the top marginal rate for a tax payer when the property has been owned for less than 12 months. After 12 months, the capital gain is discounted by 50% with tax then paid on the remaining half of the capital gain.

For example: if the net capital gain (net being after purchase and sale costs such as stamp duty on the purchase and sales agent costs on the sale) on the sale of a property is $100,000 and the tax payer is on a top marginal income tax rate of 37%, if the property is sold within 12 months of purchase, capital gains tax of $37,000 would be payable whereas; if the property was sold after 12 months of ownership, the capital gains tax would be halved, leaving a tax bill of $18,500.

Tonights announcement will see capital gains tax rules changed as follows:

• From 1 July 2027 the 50% CGT discount for investment assets held for more than 12 months has been replaced for individuals, partnerships and trusts. 

• Under the new policy, for established residential properties: 
  • Existing capital gains up to 30 June 2027 will continue to receive the current 50% discount. 
  • Future gains after 1 July 2027 will be assessed under a new indexed cost base system that is similar to the system used up to 1999. 
  • A 30% minimum effective tax rate on capital gains will apply. 

• Investors who purchase newly constructed residential properties (houses, townhouses and apartments, etc) can choose between applying the old 50% discount or the new indexation policy with the new 30% minimum tax when they sell their investment property. 

• Pre-CGT assets (those purchased before 1985 and were previously exempt from CGT) will now fall under the new policy. 

• The existing exemptions for the family home will continue, as will the existing super fund discount. 

These changes apply to all CGT assets, including; shares, property and other investments. 

Negative Gearing

Negative Gearing allows a property investor to off-set losses on a rental property against their normal income such as salaries and wages or profits from a small business taken as personal income. Investment property losses occur when the income from an investment property (such as rental income) is less that the costs to own that property (including council rates, insurance, maintenance and interest on a loan used to finance the purchase of the property).

For example: Rental income totals $25,000 for the year, property costs including loan interest total $30,000 for the rear, creating a net loss of $5,000. The tax payer might earn income from wages of $100,000 for the year and would have paid tax on the full amount of that income (tax payable of around $20,788). However, because of the loss on the investment property, the tax payers taxable income is assessed as $95,000 ($100,000 – $5,000), leaving a tax bill of $19,288, a saving of $1,500 in tax due to negative gearing.

Tonights announcement will see negative gearing tax rules changed from today (12 May 2026) as follows:

• From 1 July 2027 negative gearing will only be possible for properties that were purchased prior to 12 May 2026 and newly constructed property (houses, townhouses, apartments, etc).

• For all other residential investment properties, rental losses can only be off-set against:
  • Rental income (profits) from other residential investment properties, or
  • Be carried forward to future years and be off-set against rental profits, or
  • Capital gains on the later sale of the investment property.

• These changes apply to any entity that holds investment properties, such as individuals, trusts, companies and partnerships. Companies and Trusts were treated this way before these changes so in other words, negative gearing for individuals has now fallen in line with how negative gearing is assessed for Companies and Trusts.

• These changes only apply to residential properties, negative gearing remains unchanged for commercial properties, shares and other investment assets. 

Family Trusts

Family Trust structures (Discretionary Trusts) are used for a myriad of reasons. It might be to hold investments such as property and shares, it might be a structure used by a trading business.

Using a trust structure often provides an opportunity to distribute profits to lower income earning individuals or companies (for example) to reduce the total tax bill. Distributed profits are then taxed at the marginal rate for the individual or company receiving the income from the trust.

For example: A trust invests in shares and property, generating a net profit for the year of $100,000. Profits are then distributed to a person with no other taxable income such as a non-working spouse or child who may then pay income tax of $20,788. Had these profits been distributed to a tax payer on the top marginal rate of 45%, income tax on those profits might have totalled $47,000. The difference ($26,212) representing a tax saving.

Tonights announcement will see tax rules for family (discretionary) trusts changed as follows:

• From 1 July 2028, discretionary trusts will be subject to a minimum income tax rate of 30%. 

• Income from the trust which is distributed to a beneficiary will include a credit for the tax already paid however, if their individual tax rate is less than 30% they will not receive a refund for the difference between their tax rate and 30% on the income distributed from the trust. 

These changes do not impact other forms of trusts such as superannuation trusts.

Our Key Takeaways

• These announcements are designed to achieve two objectives:
  • Improve the Federal Budget by reducing the cost of negative gearing and capital gains tax while increasing revenue from income earned via discretionary (family) trusts,
  • Reduce the incentives for individuals to invest in established residential investment property.

• These changes are primarily about tax revenues, and do little to increase supply of residential housing (there is a weak connection between allowing negative gearing on new builds leading to an increase in the supply of new housing).

• Investors who currently own an investment property hold an asset that is now unique as its in a fixed group of assets that receive a more favourable tax treatment than a property purchased after 12 May 2026.

• Investors experiencing higher costs will look to increase rental income to mitigate higher costs. Some forecasts are predicting rental increases as high as 20%.

• This will increase the ‘lock-out’ effect renters experience as they will have even less savings to put toward buying a home of their own.

• With the building sector under significant pressure due to rising building costs and labour and materials shortages, these new policy announcements do nothing to address these problems nor address slow planning approvals and red-tape in the industry.

• As we move towards the 2032 Olympics and with games and government infrastructure projects getting into full swing, these problems in the construction industry are set to worsen and hence, place even more pressure on housing supply.

• Property investment remains an attractive vehicle to build passive income and increase wealth. The ATO reported that 49% of tax payers claimed a tax deduction for negative gearing. For those in the remanning half, the changes to negative gearing have no impact on them and their future investment decisions.

• Similarly, the vast majority of investors intend to hold their property for the long term and for many, pass their assets onto their family. The changes to capital gains tax only impacts an investor who decides to sell a property and often thats driven for reasons other than capitalising on a profit hence the changes in tax treatment may not be a consideration.

• We will likely see a shift into investing via a structure such as a company which attracts a tax rate of 25%.

• We will see a shift in focus for investors from increasing wealth via capital growth towards higher yielding properties which often means looking at investment in short term let properties, which will worsen housing supply for renters.

• Commercial properties are not caught up in these changes, we will see some investors shifting away from residential.

The fundamentals in the Queensland property market have not materially changed. The demand-supply imbalance remains in place and may actually worsen, placing more upward pressure on property prices. We will likely see a slowing in the very high growth rates that we have seen the past few years, back to more normalised, long-term grown rates for a while, possibly to the end of 2026 however property prices are likely to continue rising and will potentially speed up again in 2027 through to 2032.

Read our updated market outlook here.

This article contains general information and simplified examples of current, past and new policy changes. You should seek advice from your accountant, mortgage broker or financial advisor which is specific to your circumstances. The information contained in this article is general and should not be relied upon for any specific decisions you might make relating to the ownership, purchase or sale of property and when managing your tax affairs.