After many years of insisting it wouldn’t happen, the Albanese Government’s decision to dismantle negative gearing and wind back capital gains tax concessions will do little to create so-called “generational equity” or address the underlying issue of housing supply.

With negative gearing only put on the tax reform agenda just weeks before the Budget[i], the Treasurer’s announcement offered little insight into how slashing negative gearing will materially help aspiring first homeowners or improve affordability.

Negative gearing for existing arrangements will remain unchanged. This is called grandfathering. It will apply to all properties held before Budget night on 12 May. Investors who buy new builds will still be able to deduct losses from other income.

The support for new builds seems misguided, as the Government has consistently missed housing targets under the National Housing Accord due to lack of tradies and rising material costs. More demand for new builds will only worsen capacity constraints and costs.

From 1 July 2027, losses related to existing residential investment properties purchased from 7:30 pm AEST 12 May 2026 will only be deductible against other income from residential properties, including capital gains[ii].

The budget also confirmed that the Government will replace the 50% CGT discount with an inflation-based discount and introduce a minimum 30% tax on gains from 1 July 2027.

Again, in combination, the Treasurer says these changes will only create a mere 7,500 new homeowners per annum over the next decade across Australia[iii].

Tax sting for retirees

A particularly galling aspect of the introduction of the minimum 30% tax is that it will reduce the benefit of taxpayers deferring capital gains realisations to years when their marginal tax rates are lower[iv]. This has long been a legitimate tax planning strategy for older landlords transitioning into retirement.

Moreover, this change increasingly resembles a “tax sting” for Australians who planned responsibly for retirement because it effectively subjects their real estate gains to a tax rate much closer to what they faced during their working lives[v].

Budget changes could leave landlords selling into a thinner market

It is a flawed theory that if there are fewer investors in the future, aspiring first-home buyers will immediately step in to fill the void. Besides, when the time comes to sell an investment property under the new rules introduced on Budget night, landlords will be selling into a smaller buyer pool – because by dismantling the existing investment property tax regime, there will inevitably be fewer investors in the market.

And of course, a smaller investor pool could ultimately weigh on future property values.

This is close to a perfect storm for the residential real estate market. The changes will further encourage first-home buyers, who are already supported by incentives such as 5% deposit schemes, while simultaneously disadvantaging property investors.

Finally, who says history doesn’t repeat? The last time Labor abolished negative gearing in 1985 - under arguably one of the party’s greatest PMs Bob Hawke – rents surged in several capital cities and the policy was reversed just two years later. There is little evidence to suggest history will be any kinder to Labor and that the rental outcome will be any different this time.

In the wake of the latest Federal Budget, landlords and property investors have plenty to consider. For guidance on how the changes to capital gains tax and negative gearing may impact your circumstances, speak with your accountant first, then your local Raine & Horne Property Manager.

[i] https://www.realestate.com.au/news/housing-crisis-to-worsen-experts-warn-over-cgt-negative-gearing/

[ii] https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf

[iii] https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/speeches/2026-27-budget-speech-parliament-house-canberra

[iv] https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf

[v] https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf