The 2026 Federal Budget marks a significant shift in Australia’s property tax landscape, particularly for residential property investors. With reforms targeting both negative gearing and capital gains tax (CGT), the government is reshaping the incentives that have long supported property investment strategies.
Two major themes define these changes:
- Negative gearing reform
- Capital gains tax (CGT) overhaul
This represents one of the most significant property tax resets in decades, with wide-ranging implications for investors, landlords, and small business owners.
Combined Impact on the Property Market
The interaction between negative gearing changes and CGT reform creates a structural shift in how property investment is evaluated in Australia.
Reduced reliance on tax-driven investment
Property investment is expected to move away from being heavily tax-driven and toward fundamentals such as:
- Rental yield
- Long-term capital growth
- Cash flow sustainability
Tax advantages, which have historically supported leveraged investment strategies, will play a smaller role in overall returns.
Shift in demand toward new housing supply
Policy settings are increasingly designed to encourage investment into new housing rather than established dwellings.
This is likely to result in:
- Increased investor interest in new builds and development projects
- Reduced competition for existing residential properties
- A gradual rebalancing between investor and owner-occupier demand
CGT reform changes holding behaviour
The move away from the 50% CGT discount toward an inflation-adjusted model changes long-term investment decision-making.
Investors will now place greater emphasis on:
- Real (inflation-adjusted) gains rather than nominal gains
- Timing of disposal decisions
- After-tax performance rather than headline capital growth
A more segmented property market
The property market is expected to become more segmented, with clearer distinctions between:
- High-yield investment properties
- Growth-focused assets
- Owner-occupied housing
This segmentation will make investment outcomes more dependent on asset selection rather than broad market performance.
What Property Investors Should Do Now
1. Review your portfolio performance beyond tax benefits
Investors should reassess each property based on its underlying performance, not just tax advantages.
Key considerations include:
- Net rental yield after expenses
- Level of reliance on negative gearing
- Long-term capital growth outlook
Properties that only perform well due to tax offsets may become less viable under the new rules.
2. Reassess acquisition strategy
Future investment decisions will need to be more selective and fundamentals-driven.
This includes:
- Prioritising properties with stronger cash flow performance
- Re-evaluating established vs new build investments
- Avoiding reliance on tax outcomes as the primary driver of returns
Location quality, tenant demand, and rental sustainability will become increasingly important.
3. Plan carefully around CGT timing
With CGT rules changing, timing becomes a critical planning factor for investors.
Investors should:
- • Review planned property disposals
- • Assess potential transitional or grandfathering rules
- • Avoid reactive decisions based on short-term market sentiment
Strategic timing may significantly impact after-tax outcomes.
4. Strengthen tax structuring and advice
As property taxation becomes more complex, structuring becomes more important.
Investors should consider reviewing:
- Ownership structures (individual, trust, SMSF)
- Portfolio allocation across entities
- Long-term tax planning strategies
Professional advice will be increasingly important to navigate the changes effectively.
What This Means for Small Business Owners
For small business owners, the proposed removal of the 50% CGT discount has direct implications when exiting a business or selling shares in a business. From 1 July 2027, gains will no longer benefit from the discount, with the rules shifting to cost base indexation and a minimum 30% tax on net capital gains applying broadly to all CGT assets. This is likely to increase the effective tax cost on sale for many owners who have historically relied on the discount as part of their exit strategy.
The good news is that the existing small business CGT concessions—such as the active asset reduction, retirement exemption and 15 year exemption—are not specifically addressed in the Budget material and therefore remain expected to continue in their current form. Where these concessions fully eliminate a capital gain, there would be no net capital gain remaining, and therefore no amount against which the proposed 30% minimum CGT could apply. Careful planning at the time of business exit will be more important than ever to ensure these concessions are effectively utilised and overall after tax outcomes are optimised.
Webinar: CGT and Negative Gearing Discussion
We recently hosted a live webinar featuring our co-founder David Naylor and Rich Harvey, CEO of Propertybuyer, where they discussed the 2026 Federal Budget changes to CGT and negative gearing and what these reforms mean for property investors.
If you weren’t able to attend the session, you can request access to the webinar recording here.
About Chan & Naylor
Since 1990, Chan & Naylor has partnered with business owners and property investors in managing their taxes and building a tax-effective wealth. Choosing Chan & Naylor means you’re not just selecting a service provider; you’re gaining a partner aligned with your financial goals. You’ll have access to a dedicated client manager supported by a team of accountants that specialises in business and property tax.
Disclaimer
This article serves as general information only and may not account for the unique circumstances of individual readers. For personalised and strategic solutions tailored to your specific situation, we invite you to seek professional advice from Chan & Naylor. Our highly experienced team is dedicated to helping you navigate the complexities of Australian taxation, ensuring that your financial strategies align with the latest regulations. Contact us today to embark on a path of informed and customised tax planning for your property investments.
