The Federal Government's negative gearing and capital gains tax reforms are the biggest change to property investment tax treatment in a generation. Investors are already reworking their plans around them.
In one survey of more than 1,400 Australian investors, over 80% said residential investment property had become less attractive after the 2026 Budget, while 51.5% planned to hold and wait.
The core reforms have passed Parliament, though some of the detailed implementation rules are still being finalised ahead of commencement. If an investment purchase is somewhere on your horizon, here is what has changed and how it shifts the maths.
What Is Changing
On 12 May, Treasurer Jim Chalmers handed down a Federal Budget containing major changes to negative gearing and capital gains tax. From 1 July 2027, negative gearing for residential property investments will be limited to new builds, and the 50% CGT discount will be replaced with cost base indexation plus a 30% minimum tax rate on capital gains.
Grandfathering matters here. Properties held before the announcement, meaning 7:30 PM AEST on 12 May 2026, are exempt from the negative gearing changes, and the CGT reforms only apply to gains accruing after 1 July 2027. We can't give tax advice, so the specific consequences for your situation are a conversation for your accountant.
How The Market Has Responded
The market was already cooling when the changes landed, under the weight of cash rate rises, affordability constraints, offshore instability and cost-of-living pressure. The Budget deepened it, with auction clearance rates slipping below pandemic-era levels and investor confidence dropping.
The survey above is a useful snapshot of sentiment rather than a representative sample of every Australian investor, and it's early. There are signs investors are reconsidering where and how they buy, but it's too soon to say how the reforms reshape the market over the long term. The drop in auction clearance rates gives some context for how quickly sentiment moved.
New Builds Could Attract More Attention
With negative gearing limited to new builds from 1 July 2027, some investors are already pivoting toward newly constructed property. Data from property fund manager Oliver Hume shows the proportion of new-build sales to investors in Victoria has risen above 40% for the first time since December 2024.
The expectation among some analysts is that investor demand shifts toward new units and houses on the outer city fringes, while middle-ring suburbs see less investor stock come to market, which could put upward pressure on rents in those areas. That's a forecast rather than a certainty, and worth watching rather than acting on blindly.
Holding And Grandfathered Assets
Investors holding established properties bought before 12 May 2026 may simply keep them. Those properties are exempt from the negative gearing changes and continue to access the existing tax treatment, so the losses can still be negatively geared against wage income until the property is sold.
That creates an obvious incentive to hold, which is part of why more than half of surveyed investors said they intend to wait and see.
Cash Flow Becomes The Bigger Question
Negative gearing has historically let investors offset losses on established properties against taxable income. Under the changes, an investor buying an established property won't receive that immediate tax relief.
The practical effect is that rental yield, cash flow and long-term returns carry more weight in the decision, and positively geared properties look more attractive relative to investments that lean on tax concessions to work. Some investors are also looking for properties that could transition to positive gearing over time as rents grow. Our piece on why investors are focusing on rental income covers that shift in more detail.
What About SMSF Borrowing?
Alongside the tax reforms, the rules for self-managed super fund borrowing have changed. From 10 August 2026, SMSFs can no longer use Limited Recourse Borrowing Arrangements to buy residential property, with current arrangements grandfathered. SMSFs can still buy residential property outright using cash, and LRBAs can still be used to acquire business real property.
Reaction has been mixed, with some critics questioning whether it makes building retirement wealth harder, and others expecting commercial property to become more appealing to SMSF investors. SMSF property involves lending, tax and superannuation rules that interact in complicated ways, so specialist financial, legal and tax advice is particularly important here.
Considering An Investment Purchase?
These changes mean investors need to think differently about what they buy, how it performs on cash flow, and how it fits the broader plan. We can't provide tax or financial advice, but we can handle the lending side: reviewing your borrowing capacity, comparing suitable loan options, and showing how different property and loan scenarios change your repayments and structure. Knowing what you can actually borrow is the sensible first step, and the strategy hub on things to ask a broker in 2026 is worth a read before you commit to anyone.
