The 2026-27 Budget delivered the biggest tax shake-up in 25 years, and if you own an investment property, hold shares, or run a discretionary trust, it affects you.
Two dates do the work in this reform. The first is 7:30 pm on 12 May 2026, Budget night. From that moment, negative gearing on newly purchased established residential property is restricted. The second is 1 July 2027, when the 50% CGT discount disappears, replaced by cost base indexation and a 30% minimum tax on capital gains. The CGT part isn’t just a property story, despite the way it’s been covered. It applies to every CGT asset you hold. Shares. Managed funds. Business interests. Pre-1985 assets. The lot.
Your own home stays exempt. Existing investments are partly protected through transitional arrangements.
Most of the conversations we’ve had with clients this week have revolved around the same questions. What’s actually changing. What’s protected? What to do before 1 July 2027. This post works through it in plain English, with worked examples for the parts that get fiddly.
Key takeaways
- Bought an established residential investment property after 7:30 pm on 12 May 2026? Rental losses no longer reduce your wages or other income. They can offset rental income on properties you own, or sit on the shelf as a carry-forward loss until you have rental income or a capital gain to apply them against.
- The 50% CGT discount disappears from 1 July 2027. In its place: cost base indexation, paired with a 30% minimum tax on capital gains. This isn’t just a property change. It applies to every CGT asset, shares, managed funds, cryptocurrency, business interests, the lot.
- New build investors can keep negative gearing and can choose between the 50% discount or the new indexation model on sale
- Property held before 12 May 2026 stays under the existing rules
- Pre-1985 (pre-CGT) assets get a deemed cost base reset to market value at 1 July 2027, and gains after that date become taxable
- Main residence exemption is unchanged. SMSFs are not affected at this stage
- Small business CGT concessions stay. So does the 60% CGT discount for affordable housing
The two dates that change everything
Two dates anchor the whole reform. Confuse them, and the rest of this stops making sense.
12 May 2026, 7:30 pm (Budget night):
The cutoff for negative gearing on established residential investment property. If you exchanged contracts before this time, your property will keep the existing negative gearing rules. Anything bought after this time falls under the new rules from 1 July 2027.
1 July 2027
The start of the new CGT regime. The 50 per cent CGT discount goes. Cost base indexation comes in. The 30% minimum tax kicks in. The change applies to gains accruing from 1 July 2027 forward, not gains that have already built up.
That second point matters more than people think. If you bought an investment property in 2019 and sell it in 2030, the gain that has built up between 2019 and 1 July 2027 still gets the 50% CGT discount. Only the gain from 1 July 2027 to the sale falls under the new system.
That’s the transitional arrangement, and it’s doing a lot of the heavy lifting in this reform.
Capital gains tax: 50% discount out, indexation and 30% minimum in
The CGT discount has worked the same way since 1999. You sell an asset you’ve held for more than 12 months. You calculate the gain. Half of it is added to your taxable income and taxed at your marginal rate. The other half isn’t taxed at all.
From 1 July 2027, two mechanisms replace it.
Cost base indexation
Your asset’s cost base, what you paid for it, plus eligible costs, gets indexed for inflation (CPI) over the holding period. You then pay tax on the real gain after inflation has been stripped out. This is the pre-1999 model brought back.
A 30% minimum tax
Once the gain is calculated, it’s added to your taxable income, but the effective rate on the gain can’t drop below 30%, regardless of what bracket you’d otherwise sit in. If you’d ordinarily pay 16% at your income level, you’ll still pay 30% on the capital gain portion.
The 30% floor is there to stop people parking gains in low-income years to dodge tax. Age Pension recipients and other income support recipients are exempt from the minimum.
What does this mean in practice? Two patterns emerge once you run the numbers. Slow-growth assets you hold for a long time often come out roughly even, or sometimes ahead, because indexation has time to do its work. The big losers are fast-growth assets sold within a few years. Indexation can’t keep up with real growth, and the 30% floor catches anyone hoping to time their sale into a low-income year.
Negative gearing: now restricted to new builds
Negative gearing isn’t being abolished. It’s being narrowed.
Under the current rules, if your investment property runs at a loss, rent doesn’t cover loan interest, rates, and repairs, you can deduct that loss against any other income, including wages.
From 1 July 2027, that only continues to work for:
- Investment properties exchanged before 7:30 pm on 12 May 2026
- Newly built homes
- Build-to-rent developments
- Widely held trusts and superannuation funds
- Private investors supporting government housing programs
For any established residential property bought after 12 May 2026, rental losses can only be deducted against:
- Income from other residential investment properties you hold, or
- Future rental income or capital gains from residential property
If you can’t use the loss in the year, you can carry it forward indefinitely. But you can no longer use it to reduce tax on your salary, business income, or share dividends.
That’s the headline change. It matters most to anyone who was planning to buy an established property after Budget night and rely on negative gearing in the early years to make the numbers work.
What counts as a new build (and what doesn’t)
The new build exemption is where the timing question gets practical.
A new build means a property that genuinely adds to the housing supply. So:
Counts as a new build:
- A newly constructed home is being sold or rented for the first time
- An off-the-plan apartment
- A house built on a previously vacant block
- A knock-down rebuild where the block has been subdivided, and multiple residences are added
Doesn’t count:
- A standard knock-down rebuild on a single block, same supply, just newer
- A renovated, established property, no matter how comprehensive the renovation
- An established home is being sold for the second time
- A duplex knockdown rebuild without subdivision
There’s also a 12-month rule worth knowing. A property only retains its “new build” status while the supply benefit is genuine. The fine print is still being finalised, but the principle is clear: the exemption exists to incentivise actual new supply, not to be a loophole for existing stock.
Granny flats sit in an interesting space. A granny flat built on an existing block to add a separate dwelling could qualify as a new supply, depending on how the final rules land. Same with secondary dwellings under state-level fast-track planning. This is one to watch for the legislation, not to assume.
Pre-1985 assets: the change most coverage missed
This one’s been quieter in the public commentary, but for long-held assets and succession planning it might be the most consequential change in the package.
Assets acquired on or before 19 September 1985 have been fully exempt from CGT since the tax was introduced. That ends on 1 July 2027.
From that date, pre-CGT assets get a deemed cost base equal to their market value at 1 July 2027. Gains accrued before then stay tax-free. Gains from 1 July 2027 forward become taxable under the new indexation and minimum tax regime.
The practical issue is valuation.
You’ll have two methods to determine the market value at 1 July 2027:
- A formal valuation: Get an independent valuer to assess the asset’s market value at that date
- The prescribed apportionment formula: Apply a growth-rate-based calculation that estimates value using the asset’s growth over the ownership period. The ATO will provide valuation tools for this
Each method has trade-offs. A formal valuation costs money and opens you up to an ATO challenge if your number gets contested. The formula method is cheaper and administratively simpler, but the growth-rate assumption can run wide of reality, particularly for assets that have grown unevenly or that carry significant intangibles.
For complex assets, closely held businesses, properties with significant intangibles, and unique investments, the valuation outcome can materially change the eventual tax bill. This is the work that needs to start in 2026, not the week before the deadline.
It’s not just property: CGT changes apply to shares too
Most of the public coverage has focused on property. That’s a gap.
The new CGT regime applies to all CGT assets held by individuals, trusts, and partnerships. That includes:
- Listed shares
- Managed fund units
- Cryptocurrency
- Interests in private businesses
- Investment artworks
- Vacant land
- Pre-1985 assets
If you’ve held a share portfolio for several years and were counting on the 50% CGT discount when you eventually sell, the calculation changes from 1 July 2027.
The same transitional treatment applies. Gains accrued before 1 July 2027 keep the 50% discount. Gains from 1 July 2027 forward fall under indexation and the 30% minimum.
Equity growth typically outpaces CPI, which means the 30% floor will be the binding constraint for most share portfolios held into the new regime. Indexation won’t be enough to claw back what the old 50% discount used to give you. The exception is shares that have flatlined through a soft cycle; there, indexation can come out roughly even.
Which leads to the SMSF question.
SMSFs, super, and what hasn’t changed
Based on what we know so far, complying superannuation funds, including SMSFs. keep their existing 1/3 CGT discount. The new regime doesn’t apply.
That’s not a small detail. It strengthens the case for holding long-term growth assets in super for many small business owners, particularly post-1 July 2027. The relative tax efficiency of super versus personal holdings widens.
Also unchanged:
- The main residence exemption: your own home is still fully exempt from CGT
- The small business CGT concessions: 15-year exemption, retirement exemption, active asset reduction, and rollover relief all stay
- The 60% CGT discount for affordable housing: retained in full
- The R&D Tax Incentive (though the rules around it are being adjusted from 1 July 2028)
What might change is how you structure asset ownership going forward, given the new gap between super and personal CGT treatment. That’s a conversation worth having with your tax adviser well before 1 July 2027, not the month it hits.
A worked example: how the new CGT calculation works
Numbers make this easier. Here’s a scenario close to one we’ve already walked a client through this week.
A Brunswick investor buys an established two-bedroom unit on 1 July 2025 for $815,000. (The negative gearing on this purchase is unaffected, because the contract was signed before Budget night.) Two years later, on 1 July 2027, the unit is worth around $935,000. She sells in June 2030 for $1,140,000.
Nominal gain on paper: $325,000. But that’s not the number she pays tax on.
Under the transitional rules, the gain splits at 1 July 2027.
The easy part is the pre-1 July 2027 piece. $935,000 minus $815,000 leaves $120,000 of gain accrued before the new regime starts. That portion keeps the old 50% CGT discount. So $60,000 lands in her assessable income for the year of sale.
The post-1 July 2027 piece is where the new system bites. Nominal gain is $205,000, the difference between the $1,140,000 sale and the $935,000 transition value. Indexation now does its work on the $935,000 cost base. Assume CPI runs at about 8% over the three years she holds post-2027. Her indexed cost base lifts to roughly $1,010,000. Real taxable gain: $130,000.
Add the two together, and she’s putting $190,000 onto her assessable income. Under the old system, a flat 50% discount on the $325,000 nominal gain would have meant $162,500. So she’s about $27,500 worse off under the new regime in this scenario.
Then there’s the 30% floor to think about. If she’s had a strong income year and her marginal rate would sit at 39% or 47% anyway, the minimum tax does nothing; she pays at her marginal rate, same as before. But if she’s had a quiet year and her marginal rate would have been 16%, the minimum tax bumps the post-2027 portion to an effective 30%. On a $130,000 indexed gain, that’s another $18,200 in tax.
The maths reveals the shape of the new system. Long holds past 1 July 2027 favour the investor, because indexation gets longer to compound. Fast post-2027 growth hurts the investor because indexation can’t keep up. And the 30% floor is the ATO’s safety net for quiet income years.
Discretionary trusts and the new 30% minimum
From 1 July 2028, discretionary trusts will be subject to a minimum 30% tax. The mechanism is still being finalised, with some exceptions to come, but the direction is clear: the ability to distribute trust income to low-rate beneficiaries and capture a lower effective rate is being curtailed.
There’s a three-year rollover relief from 1 July 2027 for small businesses and others wanting to restructure. If your current structure relies on a discretionary trust for tax efficiency rather than asset protection or succession reasons, the next 18 months are the window to review whether it still works for you.
The other Budget changes worth knowing
The CGT and negative gearing reform have dominated coverage, but several other measures matter for small businesses and individual taxpayers:
$250 Working Australians Tax Offset: an annual offset from 2027-28 for over 13 million workers.
$1,000 instant tax deduction: from 2026-27, simplifies work-related expense claims for around 6.2 million workers and cuts compliance costs by roughly $380 million a year.
$20,000 instant asset write-off made permanent: from 1 July 2026, small businesses with a turnover under $10 million can immediately deduct eligible assets costing under $20,000 each. The year-by-year extension cycle finally ends.
Loss carry back reintroduced: from 2026-27, eligible companies that make a loss can carry it back to get a refund of tax paid in the prior two years. Up to 85,000 companies will benefit, mostly small businesses.
PAYG instalment flexibility: from 1 July 2027, businesses can opt into monthly PAYG instalments and access dynamic instalment calculations through business software.
Electric car FBT: transitioning to a permanent 25% FBT discount for eligible electric cars over $75,000 from 1 April 2027.
The combined effect on cash flow for small businesses is meaningful, particularly the permanent $20,000 write-off and loss carry back together. They remove a lot of the year-end uncertainty that’s been part of small business tax planning for the better part of a decade.
What to do between now and 1 July 2027
A few things worth thinking about in the next twelve months.
If you’ve been considering an established residential investment property, the negative gearing treatment depends sharply on whether you sign contracts before or after 12 May 2026. That decision can’t be undone after the fact.
If you hold pre-1985 assets, particularly in a family business, trust, or long-held property, the 1 July 2027 valuation will set the cost base for all future CGT. Starting that valuation conversation now, not in eighteen months, is the practical move.
If you have a significant share portfolio with embedded gains, the question of whether to realise some gains under the existing 50% CGT discount before 1 July 2027 is worth modelling. There’s no universal answer. It depends on your holding period plans, marginal rate, and the gains involved.
If you operate through a discretionary trust, review whether the structure still suits your circumstances, given the 1 July 2028 minimum tax. The three-year rollover relief gives you time, but planning shouldn’t wait until the deadline approaches.
And if you’ve been carrying messy books or unclear records for an investment property or share portfolio, this is the year to sort it out. The transitional calculations rely on accurate cost base records, holding dates, and capital improvement spend. Clean records save real money. Patchy records create real problems, particularly when the cost base at 1 July 2027 is the line that everything pivots around.
That’s the part we see most often. People know roughly what they own. They don’t always know what they paid, when capital works happened, or where the original purchase contract is. The reform makes those details matter in a way they haven’t for 25 years.
If you’re trying to work out how the Budget changes affect your investment property, share portfolio, or business structure, the answer depends on your specific position, holding dates, cost base records, and what you’re planning to do in the next 18 months.
We work with Melbourne small business owners and investors to get the records right before 1 July 2027 hits. Clean cost base history, properly documented capital improvements, and an organised picture of what you actually own and when you bought it. That’s the foundation everything else gets built on.
If that’s where you’re sitting, speak with us.
Frequently asked questions
Can I still negatively gear my existing investment property?
Yes. If you exchanged contracts before 7:30 pm on 12 May 2026, your property remains under the existing negative gearing rules for as long as you own it. Rental losses can still be deducted against your wages and other income. The new rules only apply to properties acquired after that date.
Is my own home exempt from the CGT changes?
Yes. The main residence exemption hasn’t changed. If your home is your principal place of residence the whole time you own it, gains on sale stay fully CGT-free.
Where it gets more interesting is the conversion scenario. Say you live in a home for five years, then rent it out for the next ten before selling. The years you lived there stay exempt. The rental years post-1 July 2027 fall under the new indexation regime, with the 30% minimum applying to that portion. The valuation at the point of conversion becomes the cost base for the rental-period calculation. We’re already seeing clients ask whether it’s worth converting before 1 July 2027 to lock in some of the existing treatment. The answer depends on your numbers, but it’s worth modelling rather than guessing.
What is cost base indexation, in plain English?
Indexation lifts your asset’s cost base in line with inflation. The point is that inflation gains shouldn’t be taxed as if they were real wealth gains; they’re just the dollar getting weaker.
Quick worked version. You bought an asset for $485,000. CPI runs 10% over your holding period, so the indexation factor lifts your cost base to $533,500. When you sell, you only pay tax on the gain above $533,500. Anything below that figure is the inflation portion, and it doesn’t get taxed.
The pre-1999 CGT regime used indexation, and it was replaced with the 50% discount in 1999. We’re now going back to the older logic, with the addition of the 30% floor to stop people parking gains in low-income years.
Is the 50% CGT discount or indexation better for me?
Honestly, it changes asset by asset. The variables that matter most are how long you hold, how fast the asset grows post-2027, and what your marginal rate looks like in the year of sale.
A rough rule of thumb. Long-held assets that grow slowly tend to do better under indexation than the old 50% discount, because CPI eats most of the gain. Fast-growth assets sold within a few years do worse, because indexation can’t keep up with real growth, and you don’t get the 50% buffer anymore. Add in the 30% floor, and the gap widens for anyone whose marginal rate would otherwise be low.
New build investors get the only real escape; they choose between the old 50% discount or the new indexation model when they sell. Everyone else takes what they’re given.
Does this affect my SMSF or super?
Based on the Budget announcements, no. Complying superannuation funds, including SMSFs, retain their existing 1/3 CGT discount. The new indexation and 30% minimum tax regime doesn’t apply to super.
Is a knock-down rebuild treated as a new build for negative gearing?
Only if it genuinely adds housing supply. A standard one-for-one knock-down rebuild doesn’t qualify. You’re pulling down one dwelling and putting up one dwelling, same supply, newer bricks. The exemption isn’t designed to reward renovation cycles.
Subdivide the block and put up multiple dwellings, though, and the picture changes. A duplex or three-unit development on what was previously a single-dwelling block typically qualifies, because you’ve actually increased the number of homes on the land. The test, every time, is whether the build adds to supply or just refreshes existing stock.
What happens to my pre-1985 property under the new rules?
Gains accrued before 1 July 2027 remain CGT-free. From 1 July 2027, your property’s cost base resets to its market value on that date. Growth from that point becomes subject to indexation and the 30% minimum tax. You’ll need a valuation method. either a formal valuation or the ATO’s prescribed apportionment formula.
Do these changes affect shares or only property?
They affect all CGT assets, including listed shares, managed funds, cryptocurrency, and private business interests. The negative gearing changes are property-specific. The CGT changes are not.
Should I buy an investment property before or after 12 May 2026?
The cutoff has already passed; 12 May 2026 was Budget night. Any contract exchanged from 7:30 pm that evening falls under the new negative gearing rules unless it’s a new build. If you signed before, you’re under the existing rules indefinitely
