Negative Gearing & CGT
Investment property tax rules may change
The proposed policy shifts tax concessions from broadly supporting investment assets to prioritising new housing supply and taxing real economic gains.
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1. Old vs new policy overview
Old policy
Negative gearing: available for existing and new homes.
CGT: 50% discount for assets held longer than 12 months.
Investor incentive: more tilted toward capital growth.
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New policy
Negative gearing: focus shifts to new builds.
CGT: indexation plus a 30% minimum tax.
Investor incentive: more tilted toward adding housing supply.
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Key takeaway: old policy rewards holding investment assets; new policy rewards adding new housing supply.
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2. The key timeline
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12 May 2026, 7:30pm AEST
Grandfathering cut-off: properties already held or under contract keep the existing negative gearing rules until sold.
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12 May 2026 to 1 July 2027
Transition period: established properties bought during this period may follow old rules short term, but they are not grandfathered.
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1 July 2027
New rules begin: losses on newly purchased established residential investment properties become quarantined from this date.
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In one sentence: 12 May 2026 determines grandfathering; 1 July 2027 determines when the new rules begin.
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3. Existing property vs new build
Buying established
Losses cannot directly offset salary after 1 July 2027.
Unused losses can be carried forward.
Future gains move to the new CGT method.
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Buying new
Rental losses can still offset salary and other taxable income.
CGT may offer a choice between the 50% discount or indexation plus minimum tax.
The project must genuinely add housing supply.
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The main shift is from “buying property gets tax advantages” to “adding new supply gets stronger tax advantages”.
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4. Negative gearing: where does the loss go?
Old system
A rental loss can offset salary, business income, or other taxable income for that year.
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New system
Losses from newly purchased established residential property are kept inside the residential property income bucket.
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Example: if Property A has a $10,000 loss and Property B has a $6,000 profit, the remaining $4,000 can no longer offset salary under the new rules. It is carried forward for future property income or related gains.
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5. CGT calculation
Old policy
Calculate the nominal capital gain.
Apply the 50% CGT discount if held longer than 12 months.
Tax the discounted gain at the personal marginal rate.
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New policy
Index the cost base by CPI.
Calculate the real capital gain.
Apply at least a 30% tax rate to real capital gains.
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Old rules tax a discounted nominal gain. New rules adjust for inflation first, then tax the real gain.
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6. Trust impact
From 1 July 2028, discretionary trusts would be subject to a 30% minimum tax.
Old logic
Trust income can be distributed to different beneficiaries, potentially using different tax rates.
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New logic
Low-tax distribution benefits are compressed, but trusts may still be useful for asset protection, estate planning, and family wealth structures.
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Trusts are not unusable, but they should not be used only for low-tax-rate distributions.
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7. Two key questions
How will banks recalculate borrowing power?
If rental losses no longer offset salary, banks may adjust how they assess serviceability for established investment property.
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Will capital flowing to new homes actually create supply?
The policy directs capital toward new builds, but supply also depends on planning approval, construction cost, labour capacity, and infrastructure.
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The policy redirects capital, but whether the market can deliver enough new housing is the next major question.
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This email is general information only and should not be taken as tax, legal, or financial advice. Investors should seek advice for their own circumstances.
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