We've noticed a lot of scare tactics in the media, so we're here to address them. This is why the tax changes are a good step forward for everyday Australians.
It's difficult to argue the fact that Australia's housing system has been broken for a long time.
Housing prices have risen more than twice as fast as average full-time wages since 1999. Many young Australians have fewer opportunities than their parents to build wealth and own their own home. And for many people renting, especially those on low incomes, finding somewhere affordable to live has become nearly impossible.
The 2026–27 Federal Budget announced two major tax reforms designed to start fixing that – changes to negative gearing and the capital gains tax (CGT) discount. There's been a lot of noise about these changes, much of it designed to alarm people. We think it's worth cutting through that noise and explaining what these reforms actually mean.
So, what do all these terms mean? Let's break it down.
What is negative gearing?
Simply put, negative gearing is a tax break for people who own assets (like a house). When you own an asset (such as a house) but the costs of owning it are more than you earn from it, you can deduct this loss from your other income, saving money on tax.
Taking housing for example. Negative gearing applies when an investment property costs more to own than it earns in rent. If you're a landlord and your mortgage interest, rates and maintenance add up to more than your rental income, you're 'running at a loss'. Let's say your investment property loses $10,000 a year, you can subtract that amount from your taxable income, such as salary, and pay less income tax as a result. Higher earners benefit more because they're in a higher tax bracket.
So, a house that earns less in rental income than it costs to maintain is 'negatively geared'.
What is the capital gains tax discount?
When you sell an investment property (or any asset) for more than you paid for it, you make money – a 'capital gain'. The capital gains tax (CGT) is a tax you pay on part of that profit. For many years, investors have received a 50% discount on this tax as long as they've held the property for more than 12 months, meaning they only pay tax on half of that profit. The other half is tax-free.
The discount was originally introduced to encourage investment, but over time it has had unintended consequences. These tax breaks make it more attractive (and easier) for investors to buy property, while people looking to buy their first home are competing in an increasingly unequal market.
Over time, we've seen massively inflated property prices, and instead of building more homes, investors gravitate towards buying established houses to quickly hit that 12-month quota. A Parliamentary Budget Office analysis revealed that this tax break arrangement was costing Australian taxpayers an estimated $10.9 billion a year in lost tax revenue in 2023–24, with the figure expected to grow each year.
What does "grandfathering" mean?
You may have heard the word "grandfathering" in discussions about these changes. In this instance, it means that if you already own a property, the old rules continue to apply to you.
Anyone who owned an investment property before Budget night will keep full access to negative gearing under the existing rules. And for CGT, the changes only apply to gains that accrue from 1 July 2027 onward, not to growth that happened in the years before. Existing investors are protected.
What is changing and what isn't?
The government announced these reforms as part of the 2026–27 Federal Budget, with changes to take effect from 1 July 2027. Here's what's proposed:
- Negative gearing on new builds is still retained in full, deliberately directing investment toward increasing housing supply. Negative gearing on established residential properties will only be available for properties purchased before Budget night (12 May 2026). Investors who buy existing homes after that date will still be able to offset losses against rental income, but not against wages or other income.
- The 50% CGT discount will be replaced with a system that adjusts for inflation (called cost base indexation) and a minimum 30% tax rate on capital gains. Crucially, this only applies to gains made after 1 July 2027, gains built up before that date are still treated under the old rules.
- Your own home is not affected! The main residence CGT exemption, which means you pay no capital gains tax when you sell the home you live in, remains completely unchanged. Age Pension recipients and people on income support are also exempt from the minimum tax.
Overall, these tax changes will allow a bit more stability to come into the market in the long term, boosting availability and hopefully leading to a plateau or even a slight fall in house prices and rent. This will hopefully boost supply by encouraging new builds, whilst reducing the proportion of investors in the market, allowing more people to own and live in their own home.
You might have heard some fearmongering around this, trying to scare people with rent rises. The reality is that renters already had a bad deal under the old system, and these changes are more likely to give renters a chance by slowing down the market. The most vocal opposition tends to come from those with the most to lose from a fairer system – not from the majority of middle Australians, who don't own a portfolio of investment properties.
The scare campaigns want you to worry about change. We'd invite you to consider who benefits from keeping things exactly as they are.
Investment is redirected to where it's needed most
By retaining negative gearing for new builds while removing it for existing properties, the changes push investor money toward building homes rather than competing with first home buyers for the ones that already exist. This is the reform's most important long-term effect: more homes built means more supply, which puts downward pressure on prices over time.
The government estimates the reforms will help put around 75,000 homes within reach of first home buyers.
