Federal Budget 2026: What Property Investors Must Do Now
The 2026 Federal Budget has fundamentally redrawn the rules for property investors. From 1 July 2027, negative gearing and Capital Gains Tax concessions change significantly, but the window to act under the current, more favourable rules is still open. Here is what you need to understand, and what to do before the deadline.
Negative Gearing: The Rules Are Changing
For decades, negative gearing has been one of the most powerful levers available to Australian property investors (the ability to offset rental losses directly against salary income). The 2026 Budget fundamentally alters this from 1 July 2027.
What the current rules allow
Under existing law, if your rental expenses exceed your rental income, creating a loss, you can deduct that loss against your wages or other taxable income in the same financial year. This reduces your overall tax bill immediately.
What changes from 1 July 2027
Under the new rules, rental losses will generally only be deductible against other passive income, such as dividends from shares or profits from other investment properties. If your rental losses exceed your passive income, the excess is carried forward to future years rather than offset against wages that year.
The critical exception: properties purchased before 7:30 PM AEST on 12 May 2026 (Budget night) are grandfathered. They retain the current negative gearing treatment for as long as you hold them. If you already own investment properties, your existing deductions are protected.
Additionally, new residential builds acquired after Budget night will remain eligible for negative gearing against all income types, a deliberate policy decision designed to incentivise housing supply.
| Property Type | Current System | After 1 July 2027 |
|---|---|---|
| Existing Properties (Pre-12 May 2026) | Fully deductible against wage income | Grandfathered (Remains fully deductible) |
| Established Properties (Post-12 May 2026) | Fully deductible against wage income | Losses carried forward (only offsets passive income) |
| New Residential Builds | Fully deductible against wage income | Fully deductible against wage income (Exempted) |
Capital Gains Tax: A New Baseline from 2027
Alongside the negative gearing changes, the Government is overhauling how Capital Gains Tax is calculated for assets held across the 1 July 2027 boundary.
The 50% discount is being replaced
The current 50% CGT discount, available to individuals, trusts, and partnerships who hold an asset for more than 12 months, will be replaced with an inflation-adjusted cost base indexation model. Under this system, only your real gain (adjusted for inflation) is taxed, subject to a minimum 30% tax rate on net capital gains.
The market value reset
For properties held before and sold after 1 July 2027, the ATO is expected to introduce a market value reset mechanism. Investors may be able to use their property's value as at 1 July 2027 as the new cost base for the portion of the gain accrued after that date, or apply an ATO-supported apportionment formula.
This is not just an accounting exercise. It has real tax consequences. Investors who do not have a professional, documented valuation dated at or before 1 July 2027 may be forced to rely on less favourable ATO default calculations.
Critically, gains accrued before 1 July 2027 remain eligible for the existing 50% discount rules, making the valuation date a pivotal milestone to document properly.
| CGT Rule | Current System | After 1 July 2027 |
|---|---|---|
| General Discount | 50% discount for assets held > 12 months | Replaced by inflation-adjusted cost base (Min 30% tax rate) |
| Pre-2027 Gains | 50% discount applies | 50% discount applies (Requires 1 July 2027 market valuation) |
| Post-2027 Gains | 50% discount applies | Inflation-adjusted taxation applies |
Why Depreciation Schedules Are More Important Than Ever
Under the new negative gearing framework, the depreciation deductions generated by your property don't disappear; they are carried forward. This means your tax depreciation schedule becomes even more strategically important, not less.
- Carried-forward losses compound: High depreciation during ownership increases your carried-forward loss balance, which offsets rental profits or future capital gains when you sell.
- New builds remain fully deductible: For newly constructed properties (which are exempt from the negative gearing restrictions), depreciation deductions can still be offset against all income, making them highly tax-efficient holdings.
- Division 43 capital works deductions: These deductions also reduce the cost base of your property, meaning lower capital gains on sale. This interaction between depreciation and CGT planning requires careful modelling.
If you don't currently have a tax depreciation schedule for your investment property, now is the time to get one, before the rules shift and before you need that carried-forward loss balance to be as large as possible.
The Action Window: What to Do Before 1 July 2027
The next 14 months represent a critical window. Here is what property investors should be doing right now:
- Review your existing portfolio: Confirm which properties are grandfathered under the old rules. Properties purchased before Budget night (12 May 2026) retain their negative gearing treatment indefinitely, but only if you hold them.
- Commission a professional CGT valuation: For any investment property you plan to hold past July 2027, a defensible market valuation dated on or before 1 July 2027 will be critical for accurate CGT calculations when you eventually sell.
- Get a tax depreciation schedule: If you don't have one, get it now. Even under the new carry-forward model, your depreciation balance reduces your future tax liability.
- Model new-build opportunities: If you're considering expanding your portfolio, new residential builds are exempt from the negative gearing restrictions. These present a strategic opportunity for investors willing to move before the rules lock in.
- Evaluate trust structures: The new 30% minimum tax on discretionary trust distributions (from 1 July 2028) may also affect how you hold property. A structural review now could save significant tax in future years.
The Bottom Line for Townsville Investors
These are the most significant changes to investment property taxation in a generation. But "significant change" does not mean "the end of property investment." It means the strategy must evolve.
Investors who act now, documenting valuations, reviewing their depreciation position, and understanding which properties are grandfathered, will be considerably better placed than those who wait until July 2027 to understand what applies to them.
The properties you own today may be your most valuable, precisely because they carry forward the old rules with them.
V-Force Tax Strategic Tip
If you own an investment property purchased before 12 May 2026, your negative gearing is protected, but only for as long as you hold it. We recommend scheduling a portfolio review now to model the CGT valuation date, review your depreciation schedule, and assess whether your trust or ownership structure remains optimal under the new rules from July 2028. The window to act strategically is open. Don't wait until it closes.
This article is intended as general information only and does not constitute financial or taxation advice. The measures described are subject to the passage of legislation. You should obtain professional advice specific to your individual circumstances before acting on any of the information contained in this article.