The Biggest Property Tax Shift in Decades
Dr Kevin Hoang – Chief Economist & Head of Property Market Forecasting
Following the Federal Budget announcement on 12 May 2026, the Government has confirmed major changes to housing tax settings, including reforms to negative gearing and capital gains tax (CGT), representing the most significant shift in decades.
The key change is that negative gearing will be abolished for future investors purchasing established properties, while it will remain available for newly built properties. Importantly, existing arrangements will be grandfathered for investments acquired before 7:00 pm on 12 May 2026.
This means that all properties currently owned by investors will continue to qualify for negative gearing under the existing rules.
The capital gains tax framework will also be significantly reformed. The current 50% CGT discount for assets held longer than 12 months will be replaced with an indexation-based model, alongside the introduction of a minimum effective tax rate of 30%.
Under the new system, the taxable capital gain will be calculated as the difference between the sale price and the inflation-adjusted cost base. This adjusted gain will then be taxed at the investor’s marginal tax rate or 30%, whichever is higher.
It is important to note that these proposed changes will need to pass through the legislative process before becoming law. However, at this stage, they appear more likely than not to proceed.
At a Glance: What’s Changed and When
- Negative gearing removed for established properties
Future investors purchasing property from 7:30 pm on 12 May 2026 will no longer be able to offset losses from newly acquired established investment properties against wage or salary income.
However, investors will still be able to deduct losses against residential property income and carry forward losses to future years to offset against property income and capital gains. - Existing investors are grandfathered
Properties acquired prior to 7:30 pm on 12 May 2026 (including contracts entered into but not yet settled) will be exempt from the changes until disposed of. - Negative gearing retained for brand-new properties
Investors will continue to receive negative gearing benefits when purchasing newly built dwellings, supporting new housing supply. - Capital gains tax discount changes
The current 50% CGT discount for assets held more than 12 months will be replaced with an inflation indexation model, similar to the pre-1999 system.
Investors will pay CGT at their marginal tax rate or a minimum of 30%, whichever is higher.
Pensioners and individuals on income support will be exempt from the 30% minimum rate.
To encourage investment in new housing, investors purchasing new builds will be able to choose between the existing 50% CGT discount or the new system upon sale.
- One-year transition period
The changes to negative gearing and CGT will apply to assets acquired from Budget night but will take full effect from 1 July 2027, providing a one-year transition period.
What This Means for Your Investment Strategy
Encouragingly, these changes do not alter the strategy we have consistently recommended to our clients. Our focus has been on brand new and off-the-plan investment opportunities across leading interstate markets – and this remains unchanged.
In fact, under the proposed framework:
- Negative gearing remains available for new properties
- The 50% CGT discount (or an alternative favourable treatment) remains accessible for new builds
- SMSF investment structures remain unaffected
By contrast, other asset classes such as shares, ETFs, managed funds and private company shares are expected to face less favourable CGT outcomes, which may further reinforce the relative attractiveness of property investment.
These changes reduce some investor incentives, particularly for established dwellings. However, they do not alter the underlying fundamentals of Australia’s housing market – demand remains strong, rental markets are tight, population growth continues, and new housing supply remains constrained.
For existing investors, the grandfathering provisions provide stability and continuity. For future investors, the emphasis now shifts even further towards asset selection, market fundamentals, and long-term performance.
Why the Long-Term Outlook Still Matters
Property remains the largest component of wealth in Australia. Cotality reported that the residential real estate market reached $12.6 trillion in March 2026, representing approximately 56% of total household wealth. National dwelling values increased by 9.9% over the past 12 months, remaining above the long-term average growth rate.
Demand Is Rising Faster Than Supply
Australia’s population continues to grow strongly, reaching 27.7 million in September 2025, with an annual increase of 423,600 people. Net overseas migration contributed 311,000 people, resulting in a growth rate of 1.6%, significantly higher than the OECD average of 0.5%.
This sustained growth continues to drive strong housing demand, particularly in capital cities and key growth corridors.
However, housing supply remains insufficient. The National Housing Accord targets approximately 240,000 new homes per year, yet only 180,000 dwellings were completed in the 12 months to September 2025, well below the required level.
Rental Pressure Continues to Build
Rental markets remain under significant pressure. SQM Research reported a national vacancy rate of 1.2% in April 2026, with approximately 35,000 vacant dwellings nationwide.
National asking rents have increased by 7.3% annually, indicating demand continues to exceed available supply. A vacancy rate near 1% reflects a structurally tight rental market, placing upward pressure on rents and supporting investor demand for well-located properties.
Vacancy rates are currently at record lows, while migration remains at historically high levels.
While capital growth may ease slightly from the ~20% levels currently being achieved across many of the top-performing interstate markets, rental growth is expected to accelerate.
This means total returns are likely to remain very similar and strong overall.
Market Sensitivity Across Different Segments
The impact of these changes is unlikely to be uniform, with certain market segments more exposed than others based on yield, affordability, and reliance on tax incentives.
Sydney and, to a lesser extent, Melbourne are likely to be more impacted, given their higher price points and lower rental yields.
For example:
- Sydney houses recorded -0.6% growth last quarter and 5.3% over the past 12 months
- Sydney units recorded 0.8% growth last quarter and 3.5% over the past 12 months
With average rental yields around 2.6% and interest rates significantly higher, many assets are already operating with substantial negative cash flow. The removal of deductibility for established properties increases holding costs further in markets that are currently experiencing more subdued growth.
By contrast, leading interstate markets such as Brisbane, Perth and Adelaide continue to demonstrate stronger performance fundamentals:
- Growth rates of approximately 20–26% per annum
- Rental yields 50–100% higher than Sydney
- More balanced cash flow positions and lower reliance on negative gearing
These markets are already aligned with the type of strategy we have been advocating – focused on affordability, yield, and long-term growth.
Key Takeaway
While these changes may feel significant, the underlying fundamentals of the property market remain strong.
For investors, this reinforces the importance of focusing on long-term strategy, sound asset selection, and sustainable cash flow, rather than short-term policy shifts.
CEO Perspective: Richard Sheppard
A Redistribution, Not a Decline
From my perspective, these changes are not inherently negative for the property market. Rather, they represent a redistribution effect.
Instead of reducing overall demand, these reforms are more likely to influence where capital flows within the market.
A Market That Diverges, Not Contracts
We expect to see increasing divergence between markets:
- Weaker segments: higher-cost, lower-yield markets
- Stronger segments: more affordable, higher-yielding markets
This is not a new trend, but one that is likely to accelerate as a result of these policy changes.
Capital Will Reallocate, Not Retreat
As some investors exit or avoid certain segments of the market, capital is expected to be redirected towards areas with stronger fundamentals.
For well-informed investors, this creates opportunity rather than constraint.
The Core Insight
The fundamentals of the property market remain strong.
In my view, these policy changes are more likely to influence where people invest, rather than whether they invest.
What This Means in Practice
Be cautious of:
- Low-yield, high-cost markets that rely heavily on tax benefits
Focus on:
- Markets with strong rental yields
- Low vacancy rates
- Underlying economic and population growth
Expect:
- Continued demand in more affordable markets
- Increased importance of cash flow resilience
Keep the scale of these changes in perspective
For example, an investor earning $100,000 with a property negatively geared by $15,000 per year would typically receive approximately $5,175 in tax benefits (based on a 34.5% marginal tax rate).
Under the proposed changes, this benefit would instead be carried forward to offset future capital gains.
While this alters the timing of the benefit, it does not eliminate it. In practical terms, for many investors, the annual impact may be relatively modest when considered within the broader investment strategy.
This reinforces an important principle – investment decisions should be based on underlying fundamentals and long-term outcomes, rather than short-term reactions to policy changes or media commentary.
Looking Ahead
At inSynergy, we remain agile and responsive to evolving market conditions and policy dynamics, delivering data-driven strategies to support our clients in building long-term property wealth.
We will continue to monitor developments closely, including:
- The detailed legislation as it is released and clarified
- The impact on borrowing capacity and lending policy across lenders
Next Steps
If you’d like to understand what these changes mean for your personal portfolio or future investment plans, we encourage you to speak with your Property Wealth Planner or book a portfolio review with our team.
For a deeper perspective, Richard also recently recorded a podcast discussing the proposed Budget changes, along with the broader impact of recent interest rate movements on the property market. You can watch it here:
👉 Property Insights with Richard Sheppard – Episode 1