CGT & Negative Gearing Changes - A General Guide

What Property Owners and Investors Need to Know Crowders Real Estate | General Information Guide

CGT & NEGATIVE GEARING CHANGES

There has been considerable discussion around the Federal Government’s changes to Capital Gains Tax and Negative Gearing, with the new measures set to significantly change the way some Australians will be taxed on investment assets and residential property in the years ahead. For property owners and investors, understanding what is changing, when the changes take effect and, importantly, what is not changing is becoming increasingly important. The reforms are scheduled to take effect from 1 July 2027, with transitional arrangements designed to preserve the existing treatment of gains accumulated before that date and protect certain existing property investments. As always, this guide is intended as a general guide only. Taxation is highly individualised and anyone considering buying, selling, retaining or restructuring an investment should obtain independent advice from their accountant, financial adviser or other appropriately qualified professional.

CAPITAL GAINS TAX IS CHANGING

One of the most significant changes is the proposed replacement of the existing 50% CGT discount with a new system based on cost base indexation for capital gains accruing from 1 July 2027. Under the current system, individuals who hold an eligible asset for more than 12 months can generally reduce a capital gain by 50% before the gain is added to their taxable income. From 1 July 2027, the Government will instead introduce an inflation based adjustment to the cost base of assets. The intention is that investors will effectively pay tax on the real capital gain above inflation, rather than simply receiving a blanket 50% discount. The amount of tax payable will depend on factors including the original cost of the asset, the period it has been held, inflation over that period, the amount of the capital gain and the taxpayer’s broader tax circumstances. The changes are prospective. Capital gains that accrue up to 30 June 2027 retain access to the existing 50% discount, while gains accruing from 1 July 2027 will generally be subject to the new indexation arrangements.

WHAT DOES THE 30% MINIMUM TAX MEAN?

Another major element of the reforms is the introduction of a minimum 30% tax rate on real capital gains accruing from 1 July 2027. The 30% figure does not simply mean that every investor will pay 30% tax on their entire property gain. Rather, the new rules introduce a minimum effective tax rate on the relevant real capital gain after the inflation adjustment has been applied. The measure is particularly relevant where an investor realises a capital gain in a year when they have relatively little other taxable income. The Government has indicated that recipients of certain government income support payments, including the Age Pension and JobSeeker, will be exempt from the minimum tax measure. Being a self funded retiree does not automatically provide the same exemption.

WHAT HAPPENS IF YOU ALREADY OWN AN INVESTMENT PROPERTY?

The CGT changes are prospective, meaning the Government has stated that capital gains accumulated before 1 July 2027 will retain the existing 50% CGT discount treatment. The new rules do not simply wipe away the tax treatment that applied to an asset when it was originally purchased. The way the gain is treated will depend on when the gain accrued and the relevant transitional provisions. For property owners who have held an investment property for many years, this distinction could become particularly important.

NEGATIVE GEARING IS ALSO CHANGING

From 1 July 2027, negative gearing for residential property will generally be restricted to new builds and certain specified housing investments. There is an important grandfathering provision. Residential investment properties held before 7:30pm AEST on 12 May 2026 will be protected from these changes. For investors who purchase an established residential property after 12 May 2026, the rules will be different from 1 July 2027. Losses from those properties will generally no longer be able to be deducted against unrelated income such as wages or salary. Instead, losses will generally be able to be deducted against other residential property income, including relevant capital gains, with excess losses able to be carried forward for use against future residential property income.

NEW BUILDS WILL BE TREATED DIFFERENTLY

One of the Government’s stated objectives is to encourage investment into additional housing supply. As a result, investors purchasing eligible new residential builds will continue to have access to negative gearing under the new arrangements. Investors in qualifying new builds will also have specific CGT treatment available under the new arrangements. The precise definition of what qualifies as a new build, along with detailed transitional provisions and exemptions, should be confirmed with a tax adviser before making an investment decision.

WHAT COULD THIS MEAN FOR PROPERTY INVESTORS?

The impact of these reforms will be very different from investor to investor. For some, there may be little immediate change. For others, particularly those purchasing established residential property after 12 May 2026 and relying heavily on negative gearing, the changes could materially alter the annual tax outcome. The eventual tax outcome can depend on when the property was acquired, whether it is an existing property or eligible new build, the original cost base, capital improvements and other costs, holding period, inflation, rental income, other taxable income, ownership structure and when the property is eventually sold.

DOES THIS MEAN INVESTORS SHOULD SELL BEFORE 2027?

Not necessarily. Tax should be one consideration, rather than the sole reason for making a property investment or selling decision. The property market, borrowing costs, rental returns, capital growth prospects, personal circumstances, retirement planning, estate planning and the investor’s overall financial position may all be considerably more important than the tax treatment alone. Selling an asset simply to avoid a future tax liability can also create other costs, including selling costs, stamp duty implications when purchasing another property, lost rental income and the potential loss of future capital growth.

A DIFFERENT PROPERTY MARKET MAY EMERGE

The reforms may influence the type of property investors choose to purchase, particularly because the Government’s stated intention is to direct tax benefits towards new housing supply rather than established residential property. However, property markets are influenced by many factors beyond taxation, including interest rates, employment, population growth, household formation, borrowing capacity, construction costs, supply and demand and local market conditions. For established coastal markets such as the Mornington Peninsula, investor demand may also be influenced by lifestyle demand, holiday accommodation considerations, rental returns and the scarcity of well located property.

THE IMPORTANT DATES

12 MAY 2026, 7:30pm AEST Important grandfathering date for residential investment properties for the negative gearing changes.

1 JULY 2027 Scheduled commencement of the new CGT and negative gearing arrangements.

THE BOTTOM LINE

The changes to CGT and negative gearing represent a significant shift in Australia’s taxation of investment assets. But they are not as simple as saying that “CGT is doubling” or that “negative gearing is being abolished”. Existing investors have important transitional protections. The 50% CGT discount is being replaced by an inflation based system for gains accruing from 1 July 2027, while a minimum 30% tax rate will apply to relevant real capital gains. Negative gearing is being restricted for established residential properties acquired after 12 May 2026, while eligible new builds will retain access to negative gearing. For property owners, the most important step is not to make a decision based on a headline. Instead, understand how the rules apply to your particular property, your ownership structure, your income and your long term plans. If you own investment property, are considering purchasing an investment, are approaching retirement or are thinking about selling a long held asset, now may be a sensible time to speak with your accountant or financial adviser and understand how the new rules could affect you.

IMPORTANT DISCLAIMER This guide is provided by Crowders Real Estate for general information and discussion purposes only. It is not taxation, financial or legal advice. Tax laws and transitional arrangements can be complex and may change. Before making any decision regarding the purchase, sale, transfer or retention of an asset, we strongly recommend obtaining independent advice from your own qualified accountant, financial advisor or tax professional.