The recent Federal Budget proposes significant tax changes for property owners, investors and farming families. While the final detail will depend on the legislation, the direction is clear: from 1 July 2027, the tax treatment of established residential property and capital gains more generally is proposed to change significantly. For many higher-growth assets, the CGT outcome may be less favourable than under the current 50% discount system.
The Budget papers frame these measures as part of a broader policy to improve housing affordability, support new housing supply and create a fairer tax system. For those who own, invest in, develop or inherit property, the proposed changes have important legal, tax and succession planning consequences.
Negative gearing and residential property
From a property perspective, the most immediate change is the proposed restriction on negative gearing.
The Government proposes to limit negative gearing for residential property to new builds from 1 July 2027. Existing arrangements will remain unchanged for established residential properties held before 7:30 pm AEST on 12 May 2026, including where a contract had been entered into but had not yet settled. Those properties will effectively be grandfathered until sold.
For established residential properties purchased after Budget announcement night but before 1 July 2027, investors may still be able to negatively gear during the interim period. However, from 1 July 2027, those properties will generally no longer be able to be negatively geared against the owner’s salary, wages or other general income unless they qualify as new builds. Losses will instead be quarantined and carried forward to offset future residential rental income or residential capital gains.
This distinction between new residential builds and established residential property is important. New builds are proposed to receive more favourable treatment because the policy is intended to encourage additional housing supply. Established homes, particularly those bought by investors after Budget night, may become less attractive where the investment case depends on using early-year losses to reduce personal taxable income.
It is also important to understand that grandfathering is expected to protect the existing owner, not the property itself. If a grandfathered established residential investment property is later sold, the purchaser is unlikely to inherit the vendor’s grandfathered negative gearing treatment.
Capital Gains Tax changes
The second major change is to capital gains tax.
From 1 July 2027, the Government proposes to replace the 50% CGT discount for individuals, trusts and partnerships with cost base indexation for eligible assets held for more than 12 months, together with a 30% minimum tax on real capital gains.
This change is not limited to residential property. It may affect a broader range of assets, including residential property, commercial property, rural land and business assets, depending on ownership structure and the final form of the legislation. Companies do not currently receive the 50% CGT discount, so the effect on company-held assets may differ.
Investors in new residential builds will be able to choose between the existing 50% CGT discount and the new indexation model. However, that favourable treatment is expected to apply to the first investor purchaser of the new build. Later purchasers will not inherit that new-build treatment.
Implications for farming families and pre-CGT assets
A major issue for rural and long-term property clients is the proposed treatment of pre-CGT assets.
Assets acquired before 20 September 1985 have historically been outside the CGT regime. However, the Budget materials indicate that gains accrued before 1 July 2027 will remain protected, but gains arising after that date may be brought into the CGT system under transitional valuation rules and the indexation model.
This is particularly relevant for farming families who have held land across generations. Future growth in land value after 1 July 2027 may no longer be entirely CGT-free.
What this means for different clients
For residential clients, the key questions will be when the property was acquired, whether it is a new build or established dwelling, and whether any grandfathering applies.
For commercial clients, the negative gearing changes may have less direct impact because they are directed at residential property, but the CGT changes may still affect business premises, investment properties and development land.
For rural clients, the issues may be more complex, particularly where land is pre-CGT, held in family structures, used in a primary production business, or intended to pass to the next generation.
The practical message is that property owners should not wait until sale or transfer. Acquisition dates, ownership structures, cost bases, improvement records, succession plans and likely sale timing should be reviewed well before 1 July 2027. Grandfathering may protect some existing arrangements, but it will not remove the need for careful tax and legal advice before buying, selling, restructuring or transferring property.
These proposed changes may have significant implications for property owners, investors and farming families. To understand how they may affect your circumstances, contact our Land, Home & Water team for tailored advice on your property, tax and succession planning needs.
Contact Wayne: Wayne@morganenglish.com.au
