21/05/2026
2026 Fed Budget - key changes and summary - how can it affect you?
Ordinarily, I don’t make a habit of flooding my clients with information via email drops – I know how annoying they can become. However, at present I feel some trepidation out there following the Fed Govt’s proposed changes to tax on residential Investment Properties and Trust distributions. So, please feel free to read through the following, which I hope simplifies things a little.
The Budget that the Fed Govt handed down last week introduced a number of proposed changes aimed at easing cost of living pressures while reshaping parts of Australia’s tax and property landscape over the coming years.
While some measures provide short-term household relief, others — particularly the proposed changes to negative gearing and Capital Gains Tax (CGT) — could have a significant impact on property investors, borrowing strategies and long-term wealth planning.
Below is a summary of the key announcements and what they may mean for you.
Major Property Investor Changes
The most significant long-term reforms announced in this Budget relate to investment property taxation. Important to note, the negative gearing reforms announced relate to residential property only - retail, commercial & industrial property all remain unaffected.
Negative Gearing Changes
From 1 July 2027, negative gearing will be limited to eligible new-build residential properties only.
What This Means:
• Existing investment properties owned before 12 May 2026 are grandfathered and unaffected
• New residential builds will continue to qualify for full negative gearing benefits
• Established residential properties purchased after the changes commence will no longer allow losses to offset salary or other personal income
Instead, investment losses on affected properties will become “quarantined”, meaning they can only be offset against:
• Future rental profits, or
• Capital gains from property investments
This is a major structural change for residential property investors and may influence:
• Future borrowing capacity assessments
• Cash flow planning
• Investment property selection
• Long-term portfolio strategies
The reforms are also expected to increase investor demand for new-build housing and potentially commercial property, which remains unaffected.
Currently, the majority of mainstream lenders have not altered their treatment of assessing negative gearing in servicing residential investment loans, however we can most likely expect that soon – this provides a short term window now, to retain a higher level of borrowing capacity.
Capital Gains Tax (CGT) Changes
The Budget also announced proposed reforms to Capital Gains Tax treatment on investment assets.
Currently, individuals generally receive a 50% CGT discount on assets held longer than 12 months.
Under the proposed changes from 1 July 2027:
• The flat 50% CGT discount will move to an inflation-based model
• A minimum effective tax rate of 30% will apply to capital gains
• Assets owned before 1 July 2027 will retain existing CGT treatment under grandfathering provisions
Why This Matters for Investors
For many property investors, capital growth has traditionally been supported by:
• Negative gearing benefits during ownership, and
• The concessional 50% CGT discount upon sale
The proposed reforms may reduce the after-tax profitability of future residential investment property sales, particularly for established residential properties purchased after the new rules commence.
Importantly, depreciation deductions remain available under the proposed reforms.
Investors can still claim:
• Division 40 plant & equipment depreciation (where eligible)
• Division 43 capital works deductions
This means tax depreciation strategies remain highly relevant for property investors.
As a result, we may see:
• Greater investor focus on new housing developments & non-residential property
• Increased emphasis on long-term capital growth strategies
• More careful consideration around ownership structures and investment timing
• A stronger focus on cash flow and asset performance rather than purely tax-driven investment decisions
Small Business & Superannuation
For business owners:
• The $20,000 instant asset write-off becomes permanent from 1 July 2026
• Sole traders will also benefit from the new Working Australians Tax Offset
In superannuation:
• Contribution caps and access rules remain unchanged
• However, super balances above $3 million will begin transitioning into the new Division 296 tax framework from 2026–27
Final Thoughts
Importantly, many of these measures are still proposed legislation and may change before becoming law. I would say that it's not the time for any rash decisions. I would urge you to have a chat with your Accountant, Financial Planner and trusted advisor to make sure that your future plans are commensurate with proposed changes that this Budget outlines and work towards making informed decisions.
However, the announcements clearly signal a shift in the Government’s long-term approach to housing, investment property taxation and wealth creation strategies.
With lending policy, taxation outcomes and investment structures all potentially affected, now is an important time for investors and borrowers to review their plans and ensure they remain aligned with their long-term goals. Ownership & borrowing structure will also become critical in planning, with changes to treatment of tax applied on trust distributions.
