Federal Budget 2026 — Property Investor Guide
Australian Budget 2026: Negative Gearing, CGT & Depreciation for Property Investors
The 2026 Federal Budget, delivered 12 May 2026, introduces negative gearing ring-fencing and a new CGT model for established residential properties purchased after Budget night, commencing 1 July 2027. New residential builds retain full deductibility. Division 40 and Division 43 depreciation are unchanged. This guide explains what changes, what stays the same, and how to calculate your position.
Negative Gearing Impact: What Changes and When
From 1 July 2027, rental losses on established residential properties purchased after 12 May 2026 will be ring-fenced — they cannot be offset against wages or salary income immediately. Instead, losses carry forward to be used against future rental income. Properties purchased before 12 May 2026 are expected to be grandfathered under existing rules, subject to final legislation.
Existing owners (pre-Budget)
Likely grandfathered — current negative gearing treatment expected to continue. Review depreciation as your highest-impact, zero-risk lever.
New residential builds
Full deductibility retained — losses offset wages. At sale, elect old 50% CGT discount or new inflation-adjusted model, whichever is lower.
Established (post-Budget)
Losses ring-fenced from 1 Jul 2027. Cannot offset wages immediately. Losses carry forward to future rental income. Depreciation reduces the ring-fenced loss.
Commercial property
Not the primary target of these residential housing reforms. Depreciation, Div 40, Div 43 and fitout planning remain unchanged.
New Residential vs Established Property: Side-by-Side
| Factor | 🏗️ New residential | 🏘️ Established (post-Budget) |
|---|---|---|
| Negative gearing | Fully deductible against wages — no ring-fencing | Ring-fenced from 1 Jul 2027 — cannot offset wages |
| Depreciation | Full Div 40 + Div 43 on new assets and structure | Div 40 and Div 43 still apply — existing entitlements unchanged |
| Div 40 opportunity | Highest claims — all new plant, appliances, fittings | Existing Div 40 claims continue; scrapping benefit on renovation |
| Loss treatment | Immediate offset against all income including wages | Carried forward — offset against future rental income |
| Policy support | Explicitly supported — Budget aims to grow supply | Reform target — subject to ring-fencing from 1 Jul 2027 |
| Investor message | Build or buy new for strongest deduction position | Hold existing (grandfathered) or plan for ring-fencing impact |
Depreciation Still Matters
The Budget does not remove tax depreciation. Division 40 and Division 43 remain important for residential investors, new builds, renovations and commercial property owners. What changes for some residential investors is whether a rental loss creates an immediate tax benefit or is carried forward for later use.
Division 40 — Plant & Equipment
Removable assets depreciated over their effective life: appliances, carpet, air conditioning, hot water systems, blinds and plant. When assets are removed, replaced or scrapped, a balancing adjustment may accelerate the remaining deduction.
Division 43 — Capital Works
The building structure and fixed improvements depreciated at 2.5% over 40 years: walls, roofing, concrete, plumbing, driveways and structural works. Capital works deductions can interact with the CGT cost base on sale.
Carried-Forward Losses: What the Budget Actually Says
Unused losses may be carried forward for future years and used against residential property income. The treatment of carried-forward losses against a later capital gain should be confirmed once draft legislation is released. This information is based on announced Budget settings, not final legislation.
Residential Changes. Commercial Remains Different.
The announced negative gearing and CGT reforms mainly target residential investment property. Commercial property is not the main target of these residential housing reforms. For commercial investors, depreciation, fitout deductions, Division 40, Division 43, balancing adjustments and refurbishment planning remain important — not affected by these Budget measures.
Renovating? Review Depreciation Before You Remove Anything.
Removing or replacing assets before obtaining a depreciation schedule can mean missing significant deductions. This applies to kitchen replacements, bathroom renovations, carpet removal, air conditioning replacement, commercial fitout removal and partial demolition before rebuild.
Review depreciation before renovatingCapital Gains Tax — What Actually Changes
From 1 July 2027, the existing 50% flat CGT discount is replaced by an inflation-adjusted model for newly acquired assets: you pay tax on the real gain (nominal gain minus inflation), with a minimum 30% rate. New residential investors can elect whichever model produces the lower tax outcome at sale. Grandfathering applies to gains accrued before 1 July 2027.
General information only — not tax advice. Confirm with a registered tax adviser.
Not sure which rule applies to your property?
Use the Koste interactive tool to check your likely rule category, estimate annual cash flow, taxable rental position and any carried-forward losses based on your actual numbers.
Critical Dates for Property Investors
- 12 May 2026 — Budget night. Key cut-off: properties contracted before this date are expected to be grandfathered
- 1 July 2027 — Proposed negative gearing ring-fencing and new CGT model commence
- 1 July 2028 — Proposed discretionary trust minimum tax (30%) begins
Disclaimer: This information is general in nature and based on announced Budget settings. It is not tax advice. Final outcomes depend on legislation, ownership structure, property details and personal circumstances. Speak with a registered tax adviser.
Analysis by Koste Chartered Quantity Surveyors · 1300 669 400 · info@koste.ai
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