Negative Gearing
Negative gearing has traditionally allowed property investors to claim investment losses, such as interest costs and property expenses, against their taxable income.
For many investors, this has helped improve cash flow while holding an investment property.
Under the 2026 budget reforms, investors purchasing existing residential investment properties after 7:30pm AEST on 12 May 2026 will face changes to how property losses can be used from 1 July 2027. Rather than offsetting rental losses against salary or other income, losses will only be able to offset income generated from residential property investments, including future capital gains.
Importantly, any unused losses will not disappear. Investors will still be able to carry forward excess losses and apply them against future residential property income, helping preserve deductions for costs such as maintenance and ongoing holding expenses.
The proposed rules are expected to apply to individuals, partnerships, companies, and most trust structures, while widely held trusts (such as many managed investment trusts) and superannuation funds, including SMSFs, are proposed to remain excluded.
Capital Gain Tax
Australia’s property tax system will be reshaped by directing stronger tax incentives towards new housing supply
The key proposed changes include:
- Negative gearing benefits for residential property investments would be limited to qualifying new builds.
- The existing 50% Capital Gains Tax (CGT) discount for individuals, trusts and partnerships would be replaced by cost base indexation, together with a 30% minimum tax rate on capital gains.
Importantly, existing investments would receive transitional protection. Residential properties owned before 7:30pm AEST on 12 May 2026 would not be affected by the negative gearing changes, while CGT reforms would only apply to capital growth generated after 1 July 2027.
Therefore, if you already owned an investment property before the 2026 Federal Budget announcement, it may be important to obtain a professional property valuation before 1 July 2027 to help establish an accurate cost base and potentially avoid paying more tax than necessary in the future.
Trusts
Since 2001-02, discretionary trust numbers have more than doubled, compared to company growth of around 70%. In 2022–23, discretionary trusts distributed $142.4 billion in income, with annual income growth averaging 7.8% since 2011-12.
Trust structures have long been used by Australian families and investors for asset protection, succession planning, and income distribution flexibility.
The Federal Government is introducing a 30% minimum tax on discretionary trusts from 1 July 2028. Beneficiaries will still need to declare their trust income in their tax returns, but beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee.
Importantly, Trust structures may still provide long term value for asset protection and estate planning purposes, but investors may increasingly need to consider both investment selection and ownership structure as part of future wealth planning.
