The federal government has used the Budget to announce some of the most significant changes to property investment tax settings in decades, alongside new measures designed to increase housing supply and improve access to home ownership.
The centrepiece reforms are changes to negative gearing and capital gains tax (CGT), both of which are intended to shift investor demand away from established properties and towards new housing construction. The government says the reforms could support an additional 75,000 owner-occupiers over the next decade.
For existing homeowners and investors, the details matter. While the proposed reforms are broad, the Budget includes extensive grandfathering provisions designed to limit disruption for current property owners.
Here’s a closer look at the major housing and property measures announced in the Budget and what they could mean for borrowers, investors and buyers.
From 1 July 2027, the government plans to limit negative gearing for residential property investments to new builds only.
Under the current system, investors who make a loss on a rental property can generally use that loss to reduce other taxable income, such as salary and wages. The government argues this encourages leveraged investment into existing housing stock and gives investors tax advantages not available to owner-occupiers.
The Budget papers outline several important transitional arrangements:
The government defines eligible new builds as dwellings constructed on vacant land or projects where existing properties are demolished and replaced with a greater number of dwellings. Knock-down rebuilds and renovations that do not increase housing supply will not qualify.
For property investors, the reforms could change how future investment decisions are assessed. Existing property owners appear largely protected, but future investors may increasingly focus on newly constructed dwellings if tax incentives become concentrated there.
The changes also create a stronger distinction between investing in established homes and investing in projects that add supply to the housing market.
The government has also announced a major overhaul of capital gains tax arrangements from 1 July 2027.
Currently, individuals and trusts can generally reduce taxable capital gains by 50% on assets held for more than 12 months. Under the proposed reforms, that 50% CGT discount will be replaced with a system based on inflation indexation combined with a 30% minimum tax on capital gains.
The Budget papers state the new approach is designed to better account for inflation and reduce incentives for investment decisions driven primarily by tax outcomes.
Importantly, the reforms will only apply to gains accrued after 1 July 2027. Gains accumulated before that date will continue to be treated under the current system.
For assets owned before 1 July 2027 and sold afterwards:
The government says taxpayers will be able to determine an asset’s value at 1 July 2027 either through a valuation or through an ATO-approved apportionment formula.
One notable feature is that investors in eligible new builds will be able to choose between the current 50% CGT discount or the new indexation system when they eventually sell the property.
The reforms extend beyond property and will apply broadly to CGT assets including shares, provided they are held by individuals, partnerships or trusts for at least 12 months.
For many investors, the long-term implications may depend on inflation, investment returns and holding periods. The Budget papers note that under historical inflation patterns, the effective discount under an indexation model could have ranged between 35% and 60% for typical assets held over five to ten years.
The government says the reforms are intended to support first home buyers while limiting disruption to existing property owners and the broader housing market.
According to Treasury modelling included in the Budget papers:
The government argues that any impact on supply from lower investor demand should be more than offset by housing construction initiatives included in the Budget.
Alongside the tax reforms, the Budget includes a new $2 billion Local Infrastructure Fund intended to support housing-enabling infrastructure projects.
The funding is designed to help local governments and utilities deliver essential services including:
The government says the fund could support up to 65,000 homes over the next decade and brings total federal investment in housing-enabling infrastructure to $6.3 billion.
Access to the funding will be tied to planning and zoning reforms by state and territory governments, including faster approvals processes and a simpler national construction code.
For borrowers and buyers, increased housing supply remains one of the key long-term factors likely to influence affordability.
The government has also extended the existing ban on foreign investors purchasing established homes until mid-2029.
The measure is intended to prioritise housing availability for Australian buyers, although the Budget papers do not estimate the impact on prices or supply.
The Budget also proposes a 30% minimum tax on discretionary trusts from 1 July 2028.
While the measure is broader than property investment, it may still be relevant for some investors who use discretionary trust structures to hold property assets.
The government says the change is designed to reduce income splitting and better align trust taxation with the tax rates paid by wage earners.
However, several important exclusions apply:
The Budget papers also note that rollover relief will be available for three years from 1 July 2027 to help eligible businesses and investors restructure out of discretionary trust arrangements if they choose to do so.
Taken together, the Budget measures represent a significant shift in the way the government intends to support housing affordability and investment.
Rather than broadly encouraging residential property investment through existing tax concessions, the reforms are designed to direct investment towards new housing construction while improving access for owner-occupiers.
For current property owners, the extensive grandfathering arrangements mean many existing investments may be largely unaffected in the near term. But for future buyers and investors, the rules around property selection, ownership structures and long-term tax outcomes may look very different from July 2027 onwards.
As always, major tax changes can have different implications depending on your financial position, investment strategy and borrowing structure.
If you’d like to understand how the proposed Budget measures could affect your plans, call Shore Financial on 1300 416 700, email info@shorefinancial.com.au or fill in this online form.
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