Federal Budget 2026 — Property Investor Guide
Australian Budget 2026: Negative Gearing, CGT & Depreciation for Property Investors
The 2026 Federal Budget, delivered 12 May 2026, introduced two reforms that are now law (first-stage). Negative gearing ring-fencing applies to established residential property acquired after Budget night (12 May 2026), effective 1 July 2027. Separately, a new CGT model applies from 1 July 2027 to affected assets held across that date — regardless of purchase date — with the pre-1 July 2027 gain treated under existing rules and the gain from 1 July 2027 under the new model. Existing holdings are grandfathered (now law). New residential builds retain full deductibility. Division 40 and Division 43 depreciation are unchanged. Only the Tranche 2 calculation mechanics for apportioning gains across the transition remain in Treasury consultation (Treasury Exposure Draft — not yet final). 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 acquired after 12 May 2026 are ring-fenced — they cannot be offset against wages or salary income immediately. Instead, losses carry forward to be used against future rental income. Properties held before 12 May 2026 are grandfathered under existing rules — this is now law.
Existing owners (pre-Budget)
Grandfathered — current negative gearing treatment continues under the enacted rules. 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 first-stage rules are now law. The detailed mechanics for how carried-forward losses interact with a later capital gain follow the Treasury Exposure Draft (Tranche 2) and are not yet final.
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: you pay tax on the real gain (nominal gain minus inflation), with a minimum 30% rate. This is a transition date, not an acquisition-date test — for affected assets held across 1 July 2027, the gain attributable to the period before 1 July 2027 keeps existing treatment (including the 50% discount where eligible), and the gain from 1 July 2027 uses the new model. A 1 July 2027 market value may be relevant, and an alternative statutory apportionment method may be available. New residential builds can elect whichever model (50% discount or indexation) produces the lower tax outcome at sale.
The first-stage CGT reforms are now law. The apportionment methodology across the transition follows the Treasury Exposure Draft (Tranche 2) and is not yet final. General information only — not tax advice. Confirm with a registered tax adviser. Estimate your position with the CGT calculator at /calculators/cgt.
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 for negative gearing: established residential property held before this date is grandfathered (now law)
- 1 July 2027 — Negative gearing ring-fencing and the new CGT model commence (now law)
- 1 July 2028 — Discretionary trust minimum tax (30%) begins (legislated, with detailed rules in Tranche 2 consultation)
Disclaimer: This information is general in nature. The first-stage 2026 reforms are now law; only the Tranche 2 apportionment methodology remains in Treasury consultation (Treasury Exposure Draft — not yet final). It is not tax advice. Final outcomes depend on 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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