Federal Budget 2026-27: Negative Gearing Changes, CGT Discount and What Property Investors Need to Know

The Federal Budget 2026-27 delivered on 12 May 2026 represents the most significant change to property investment taxation in decades.

Negative gearing will be restricted to new builds only from 1 July 2027. The capital gains tax (CGT) discount is being replaced with an inflation-based model. Discretionary trust distributions face a minimum 30% tax from 2028.

If you’re a property investor, high-income earner, or business owner using trusts, this budget 2026 directly affects your wealth strategy. Not in five years. Not eventually. From 1 July 2027.

Here’s what the federal budget 2026 negative gearing changes mean, what’s protected, and what you need to do before the July 2027 deadline.

Negative Gearing Changes 2026: What Property Investors Must Know

From 1 July 2027, negative gearing Australia (deducting rental losses against other income) will only be available for new residential property purchased after Budget night (12 May 2026).

What’s protected under the negative gearing changes: Any residential investment property you owned before 12 May 2026 is grandfathered. Existing properties retain full negative gearing benefits indefinitely.

What changes with budget 2026 negative gearing: Investment properties purchased from 13 May 2026 onwards only receive negative gearing benefits if they’re new builds. For established property investment purchased from now:

• Losses can only offset other property income (not salary, not business income, not capital gains)
• Losses can be carried forward to offset future property gains
• This makes established property investment significantly less tax-effective for high-income earners

What’s exempt: Shares, commercial property, and business assets are completely unaffected. Negative gearing continues for these asset classes.

The immediate impact of budget 2026 negative gearing changes: AMP economists predict a 5% short-term property price drop as property investors retreat due to reduced after-tax returns. We’re already seeing this in client conversations – investors who were considering established property purchases are pausing.

For property investors, this creates a 17-month window. Any established property purchased before 1 July 2027 receives full negative gearing treatment. After that date, only new builds qualify under the federal budget 2026 rules.

Capital Gains Tax Discount Changes: CGT 2027 Explained

The flat 50% CGT discount is being replaced with a taxation of real capital gains model from 1 July 2027, with a minimum effective tax rate of 30%.

How the new CGT discount works: Instead of discounting your nominal gain by 50%, the new capital gains tax model taxes your inflation-adjusted (real) gain, with a floor ensuring you pay at least 30% effective tax on gains.

The transition: Assets purchased before 1 July 2027 will be assessed using a proportionate mix of old and new tax models based on holding period. The longer you held the asset before the change, the more benefit you retain from the old 50% discount.

New builds get a choice: Properties classified as new builds can choose between the old 50% discount model and the new inflation-adjusted model. This softens the negative gearing change somewhat.

Who does this affect most:

• High-growth investors holding shares and businesses (potentially moving from low-end to high-end CGT rates internationally)
• Property investors in low-inflation environments where nominal gains significantly exceed real gains
• Anyone planning to sell assets purchased after 1 July 2027

The mathematical reality: Whether you’re better or worse off under the new model depends entirely on the relationship between asset price growth and inflation.

Example: Property appreciating 5% annually with 3% inflation over 12 years. Under the new model, you’re taxed on 2% real gain rather than 5% nominal gain (with 50% discount). In this scenario, you might actually pay similar or less tax.

But shares appreciating 12% annually with 3% inflation? You’re taxed on 9% real gain at a potentially 30% minimum rate. That’s materially higher than 50% discount on 12% nominal gain (6% taxable) at 47% marginal rate.

The CGT change favours income-producing assets with modest capital growth. It penalises high-growth assets where gains significantly exceed inflation.

Discretionary Trust Tax Changes: 30% Minimum Tax from 2028

From 1 July 2028, distributions from discretionary trusts (also called family trusts) will be taxed at a minimum rate of 30% under the 2026 budget trust tax changes.

Current strategy: Many business owners distribute trust income to family members in lower tax brackets, reducing overall family tax.

New reality: Even if distributed to someone in the 19% tax bracket, the trust income faces 30% minimum tax. The benefit of income splitting via trusts is reduced significantly.

Transition period: Three years from 1 July 2027 to restructure eligible trusts.

Who this affects: Business owners, professional practices, and investment structures using discretionary trusts for tax planning. This is potentially the most significant change for high-income business owners using trust structures.

What to review: Whether maintaining a discretionary trust structure still makes sense compared to company structures, direct ownership, or other vehicles. The tax efficiency that justified trust complexity diminishes materially from 2028.

Tax Relief: The Small Wins

Not everything in this budget increases tax. Several measures provide modest relief.

Bottom tax rate reduction: The 16% rate (for income $18,201-$45,000) drops to 15% from 1 July 2026, then 14% from 1 July 2027. Small benefit for most high-income earners, but reduces marginal tax as income grows.

$250 Working Australians Tax Offset: From 2027-28, eligible workers receive $250 direct tax offset (reduces tax owed, not taxable income). This is automatic when you lodge your return.

$1,000 instant tax deduction: From 2026-27, most workers can claim a flat $1,000 work-related expense deduction without receipts. Simplifies tax time, though for high-income earners with significant actual work expenses, itemising may still be better.

Government modelling: Average full-time worker $2,816 better off annually by 2027-28 once all tax changes apply. For high-income earners, the benefit is less pronounced (tax offsets and bottom rate reductions don’t affect top bracket income).

Small Business: The Permanent Win

Small businesses received genuine benefits in this budget.

$20,000 instant asset write-off made permanent: From 1 July 2026, small businesses can immediately deduct assets costing up to $20,000. Previously, this threshold fluctuated with each budget. Permanent status provides planning certainty.

Tax loss carry-back expanded: Small businesses can offset current losses against past profits for refunds, improving cash flow during difficult periods.

Regulatory cost reduction: Budget targets a $10 billion annual reduction in regulatory compliance costs. Whether this materialises remains to be seen, but the intent is clear.

For business owners, these changes make capital investment more attractive and reduce downside risk during loss years.

What Property Investors Should Do Before the July 2027 Deadline

The 17-month window between now and 1 July 2027 creates specific planning opportunities for property investors in Australia.

If you’re considering established property investment: Purchases settled before 1 July 2027 retain full negative gearing benefits forever. Settlements after that date receive restricted negative gearing (new builds only).

Property settlement timing matters: Property contracts typically take 60-90 days to settle. If you’re serious about established property investment leveraging negative gearing, you need to contract before March-April 2027 at the latest.

If you’re considering a new build investment: The negative gearing restriction doesn’t affect you. New builds retain full negative gearing benefits under the budget 2026 changes. You also get to choose between old 50% CGT discount and new inflation-adjusted model when you eventually sell.

If you own existing investment property: Nothing changes. Your properties are grandfathered under the federal budget 2026 negative gearing changes. Full negative gearing continues. The 50% CGT discount applies when you sell (or proportionate mix if you sell after holding post-July 2027).

Consider the strategic shift: With negative gearing restricted on established properties, the relative attractiveness of shares, commercial property, and super contributions all increase. These asset classes retain existing tax treatment while residential property becomes less tax-effective.

What Business Owners Should Do Now

Trust structures face material tax increases from 2028.

Review trust structures before 2028: The three-year transition period from 1 July 2027 provides time to restructure. Meet with your accountant and financial adviser to model whether discretionary trusts still make sense under 30% minimum distribution tax.

Consider alternative structures: Company structures (30% flat tax), direct ownership (47% marginal but access to franking credits and CGT discount), or other vehicles might deliver better after-tax outcomes than trusts from 2028 onwards.

Model the numbers: For some families, trusts still make sense despite the 30% minimum (asset protection, estate planning, complexity justified by scale). For others, the tax efficiency justifying trust administration costs disappears.

Don’t rush: You have three years. Use that time to model scenarios properly rather than making reactive decisions based on incomplete analysis.

Federal Budget 2026 Impact on High-Income Earners

The budget 2026 continues Australia’s trend toward higher effective tax on high-income earners.

Property investment becomes less attractive for high-income earners: Without negative gearing on established properties, the tax benefit of property investment for high-income earners diminishes. At 47% marginal rate, negative gearing was extraordinarily valuable. Restricted to new builds only, that value disappears for established property investment.

Super becomes more attractive: Super contribution caps and tax treatment are unchanged. With property tax benefits reducing, maximising super contributions ($30,000 concessional, $120,000 non-concessional annually) becomes even more important for high-income earners.

Shares maintain appeal: Shares are unaffected by negative gearing changes. CGT discount changes apply, but shares remain more tax-effective than property for high-income earners from 2027 onwards.

Investment sequencing matters more: The budget reinforces the sequencing we’ve long recommended: max super first, then consider property. With property tax benefits reduced, that sequencing becomes even more compelling.

The Economist Critique: What the Budget Misses

AMP’s chief economist Dr Shane Oliver published analysis yesterday highlighting what the budget fails to address.

Housing supply will decrease, not increase: Budget papers estimate the tax changes will reduce housing supply by 35,000 homes over the next decade.

This contradicts the government’s stated goal of improving housing affordability through increased supply.

When you reduce investor interest in property (which these changes will), you reduce overall housing investment. Less investment means less supply. Less supply means higher prices long-term, regardless of short-term price dips.

Tax hikes, not tax reform: The changes to negative gearing and CGT discount amount to tax increases on specific asset classes without addressing fundamental tax system inefficiencies. Australia’s high reliance on income tax (rather than consumption tax like GST) remains unchanged.

True tax reform would reduce income tax rates while broadening the tax base (raising GST, removing inefficient deductions). This budget does the opposite: maintains high income tax rates while removing specific deductions and concessions.

Structural deficits persist: Despite revenue windfalls from commodity prices, the budget projects deficits until 2036. Government spending remains elevated at 26.5% of GDP versus 24.8% pre-COVID average. This leaves little room for private sector growth without hitting capacity constraints and driving inflation.

Bracket creep continues: Revenue projected to reach record 27% of GDP by 2036 as bracket creep pushes more income into higher tax brackets. The rising burden on Millennials and Gen Z continues, with no structural solution proposed.

What This Budget Means for Adviser Selection

If your financial adviser hasn’t contacted you in the past 24 hours about this budget, that tells you something.

This is the most significant change to property investment taxation in decades. Negative gearing has been untouchable in Australian politics for years. It’s now being wound back materially from July 2027.

Advisers who are responsive, who understand the implications, who are reaching out to clients proactively to discuss strategies before the July 2027 deadline – those are advisers thinking ahead.

Advisers who mention it in passing at your next quarterly review six months from now? They’re reactive, not proactive.

For high-income Australians, property investors, and business owners, this budget creates a 17-month window requiring strategic decisions:

• Do you accelerate established property purchases before July 2027?
• Do you restructure trust arrangements before the 2028 minimum tax?
• Do you shift investment allocation away from property toward super and shares?
• Do you review CGT timing for assets you were planning to sell anyway?

These aren’t questions to answer in 2027. They’re questions to answer now, with professional advice, with proper modelling, with time to implement thoughtfully.

Our Response

We’ve been contacting clients since yesterday’s budget. Not in six months. Not at next quarterly review. Within 24 hours.

For property investors: modelling whether accelerating purchases before July 2027 makes sense given individual circumstances.

For business owners: reviewing trust structures and modelling alternative arrangements before the 2028 minimum tax.

For high-income earners: recalculating optimal investment sequencing given changed property tax treatment.

This is what responsive, proactive wealth management looks like. Not reacting to changes after they’ve happened. Positioning clients before deadlines, with time to implement strategies thoughtfully.

The July 2027 deadline is 17 months away. That sounds like plenty of time. It’s not. Property purchases take 60-90 days to settle. Trust restructures take months to design and implement. Strategic investment allocation shifts require careful execution, not rushed decisions.

Seventeen months becomes twelve months becomes six months becomes “we’ve run out of time.”

The clients who will benefit most from this budget’s transition periods are the ones taking action now, not in 2027.