MQ REALTY | MARKET INTELLIGENCE
2026 FEDERAL BUDGET
PROPERTY MARKET EDITION
Delivered by Treasurer Jim Chalmers | 12 May 2026 | MQ Realty Research Team
Budget Overview: The Most Ambitious Property Tax Reform in Decades
Treasurer Jim Chalmers handed down the 2026–27 Federal Budget on 12 May 2026 — describing it as “the most important and ambitious budget in decades.” For the property market, the changes are transformational: the most significant overhaul of negative gearing and capital gains tax (CGT) rules since 1999.
The core message from Canberra is clear: the government will no longer subsidise investors buying existing homes. Tax incentives will flow only to those who build new supply.
For property investors, developers, and buyers — these changes create both risk and opportunity. The window to act under the current rules is now open. It closes on 1 July 2027.
Key Budget Changes at a Glance
| Policy Area | What Changes | Effective Date |
| Negative Gearing | Restricted to NEW BUILDS only. Losses on established properties cannot offset wages/salary income. | 1 July 2027 |
| Capital Gains Tax Discount | 50% CGT discount replaced by CPI-indexed cost base + 30% minimum tax on real gains. | 1 July 2027 (gains after this date) |
| Grandfathering | All properties owned or under contract BEFORE 7:30pm AEST 12 May 2026 are fully exempt — existing rules apply forever. | Immediate (Budget night) |
| Transitional Period | Properties bought between Budget night and 30 June 2027: full negative gearing until 1 July 2027, then carry-forward losses only. | Now until 30 June 2027 |
| New Build Definition | Includes: off-the-plan apartments, vacant land + construction, knock-down/rebuilds adding dwellings. Subsequent resale loses new-build status. | 1 July 2027 |
| Established Property (post July 2027) | Rental losses can offset other residential property income but NOT wages. Unused losses carry forward. | 1 July 2027 |
| Discretionary Trusts | New 30% minimum tax on trust income introduced. | 1 July 2028 |
| Infrastructure for Housing | $2 billion for roads, utilities and services to support 65,000 new homes over a decade. | Immediate |
| Income Tax — Workers | Second marginal tax rate drops from 16% to 15%; new $250 permanent tax offset; $1,000 instant work deduction. | 1 July 2026 |
Understanding the CGT Change: What It Actually Means
Under the old rules, investors who held a property for more than 12 months received a flat 50% reduction on their taxable capital gain. It was simple but, as Treasury argued, arbitrary — it didn’t separate genuine growth from inflation.
The new system replaces this with CPI (inflation-adjusted) cost base indexation, alongside a 30% minimum tax rate on real gains:
- If your property grew in line with inflation only — you pay little or no extra tax compared to before.
- If your property grew significantly above inflation — you will pay more tax than under the old 50% discount.
- For new builds, investors get a choice: use the 50% discount OR the new indexation model, whichever gives the better outcome at time of sale.
- Properties already owned before Budget night (12 May 2026) are fully grandfathered — existing rules apply for all gains.
- Pre-1985 assets (previously CGT-exempt) will now be subject to CGT on gains accruing after 1 July 2027 — a significant change for long-held family properties.
| IMPORTANT NOTE FOR INVESTORS:
For assets owned at 1 July 2027, gains will be split — the portion before that date uses the 50% discount; gains after use the new rules. Investors will need a property valuation as at 1 July 2027 (formal valuation or ATO formula). Speak to your accountant now to plan ahead. |
Winners & Losers: Who Does This Budget Affect?
✅ WINNERS
| Who | Why They Win |
| First Home Buyers | More established properties will come to market as some investors exit. Less competition at auctions from negatively-geared investors chasing tax breaks. Treasury projects 75,000 more owner-occupiers over the next decade. |
| Developers & Builders | Demand for new builds will surge as negative gearing remains available only for new construction. Off-the-plan and house-and-land projects become highly attractive. |
| New Build Investors (acting now or post-July 2027) | Full negative gearing retained. Plus dual CGT choice at time of sale — whichever method gives the better result. Best of both worlds. |
| Investors Grandfathered (pre-Budget night) | Completely exempt. Existing tax treatment locked in permanently regardless of future changes. |
| Workers on Average Incomes | Tax rate cut + $250 offset + $1,000 work deduction = up to $2,816 extra per year by 2027–28. |
| Affordable Housing Investors | Investments supporting government housing programs are exempt from the negative gearing restrictions. |
| Property in Growth Corridors | Infrastructure investment of $2 billion to support 65,000 new homes will boost land values and rental demand in serviced areas. |
❌ LOSERS
| Who | Why They Are Affected |
| Established Property Investors (buying after 1 July 2027) | Rental losses cannot be deducted against salary/wages. Loss carry-forward only. Significantly reduces tax efficiency of holding negatively-geared established property. |
| High-Income Investors in Established Housing | 83% of CGT discount benefits went to top 10% earners. The new minimum 30% tax on real capital gains directly targets this group. |
| Discretionary Trust Structures | New 30% minimum tax from July 2028 impacts family trusts commonly used in property investment and intergenerational wealth transfer. |
| Pre-1985 Property Holders | Assets previously CGT-exempt will now attract CGT on gains from 1 July 2027 — a surprise hit for long-held family investment properties. |
| Rental Property Owners in High-Value Markets | Reduced investor demand for established properties could soften prices modestly in premium markets (Treasury models ~2% lower price growth over 2–3 years). |
| Investors Mid-Contract (after Budget night) | Properties contracted after 7:30pm on 12 May 2026 but settling before 30 June 2027 are in the transitional zone. Losses offset wages until July 2027; after that, carry-forward only. |
Why New Builds & Off-the-Plan Are Now the Smart Investment
The 2026 Budget has fundamentally changed the investment landscape — but it has also created an undeniable window of advantage for investors who buy new. Here is why new builds and off-the-plan properties are now the strongest tax-advantaged investment vehicle in Australian residential property.
- Negative Gearing Fully Preserved — Only For New Builds
From 1 July 2027, negative gearing survives for one asset class only: new residential construction. This is deliberate government policy — your tax break is now tied to building supply, not buying existing homes.
- Rental losses on a new build can still be fully offset against your wage and salary income.
- If you earn $150,000 per year and your investment property runs a $20,000 annual loss, you still save approximately $9,400 in income tax.
- This advantage is completely removed for established properties purchased after 1 July 2027.
- Dual CGT Choice — A Unique Privilege for New Build Investors
Only investors who buy new builds get this benefit: at the time of sale, you choose whichever CGT method is more favourable — the old 50% discount OR the new CPI indexation model.
- You don’t have to choose at purchase. You choose at sale, with full hindsight.
- This means new build investors are protected against adverse CGT outcomes regardless of market conditions at the time they sell.
- No other investor category has this dual-choice privilege.
- Depreciation Deductions — A Powerful Hidden Benefit
New properties attract the highest levels of tax depreciation available to property investors:
- Division 43 (building allowance): claim 2.5% of the construction cost per year for 40 years.
- Division 40 (plant and equipment): claim depreciation on new fixtures and fittings — appliances, carpet, blinds, air conditioning, and more.
- On a $600,000 new build, depreciation deductions can reach $10,000–$18,000 per year in the early years — creating legitimate tax deductions even when the property is cash flow positive.
- Established properties have limited or zero plant and equipment depreciation for investors (rules changed in 2017).
- Off-the-Plan: Lock In Today’s Price, Take Delivery After July 2027
Buying off-the-plan now provides a strategic timing advantage:
- You sign contracts today — before or during the transitional period — securing current pricing in a market expected to rise as new build demand increases.
- Settlement typically occurs at completion: 12–36 months ahead. Your property is delivered with full new-build tax status.
- You benefit from any capital growth during the construction period before you pay stamp duty (calculated at contract price, not market price at settlement — in most states).
- FIRB-approved: foreign investors and Australian residents equally benefit from the tax treatment.
- Government Is Channelling Demand Into New Builds — Supply Will Tighten
With $2 billion in infrastructure funding targeting 65,000 new homes and negative gearing redirected exclusively to new supply, the government has made its intention clear: drive capital into new construction. This means:
- Increased investor demand for new builds will compete against a constrained pipeline of available stock.
- The premium for new vs established may widen further, protecting new build values.
- Rental demand for new homes will remain strong, supported by population growth and ongoing housing undersupply.
| KEY TIMELINE — WHEN DO THESE RULES START?
Budget night (12 May 2026): The line in the sand is drawn. 1 July 2026: Income tax rate cuts and new $250 offset take effect. 1 July 2027: Negative gearing restricted to new builds only. CGT 50% discount replaced with indexation + 30% minimum tax for established properties. 1 July 2028: 30% minimum tax on discretionary trusts begins. INVESTOR ACTION WINDOW: You have until 30 June 2027 to purchase a new build under transitional arrangements. From 1 July 2027 onwards, ONLY new builds retain full negative gearing permanently. |
Frequently Asked Questions
Q: I already own investment properties. Do these changes affect me?
A: No — if you owned or had a contract exchanged on those properties before 7:30pm AEST on 12 May 2026, your properties are fully grandfathered. Existing negative gearing rules and the 50% CGT discount continue to apply for the life of your ownership. Nothing changes for existing investors.
Q: If I buy a new build now, what tax benefits do I actually keep?
A: Purchasing a new build or off-the-plan property gives you: (1) full negative gearing — losses offset against your salary income permanently; (2) dual CGT choice at time of sale — 50% discount or CPI indexation, whichever is better; (3) maximum depreciation deductions on building and fixtures; (4) all future capital gains taxed under the most favourable method available. In short, a new build purchased today or after July 2027 retains the full suite of investor tax benefits — while established properties progressively lose them.
MQ Realty’s Perspective: What Smart Investors Should Do Now
The 2026 Budget does not end property investment — it redirects it. The tax system is now explicitly pointing investors toward new construction. At MQ Realty, our advice is straightforward:
- If you are considering investment property, act before 1 July 2027 to preserve full negative gearing — especially on new builds or off-the-plan projects in high-growth corridors.
- If you already hold established investment properties (grandfathered), your position is secure. No changes apply.
- If you are a first home buyer, the competitive landscape in the established market will gradually improve as investor demand shifts to new supply.
- If you are exploring off-the-plan, now is the time to engage. Sydney’s new apartment and townhouse pipeline is attracting increased investor interest across areas including Parramatta, Ryde, Norwest, and the Sydney fringe.
- Speak to your accountant and a buyer’s agent to assess your depreciation schedule, borrowing capacity, and tax position before the July 2027 deadline.
Disclaimer
This article is prepared by MQ Realty for general information purposes only as at 13 May 2026. It summarises announced Federal Budget measures and does not constitute financial, tax, or legal advice. Budget measures are subject to parliamentary passage and may be amended. All investors should seek independent financial and tax advice tailored to their personal circumstances before making any investment decisions. MQ Realty does not guarantee the accuracy or completeness of information sourced from government budget papers and publicly available commentary.
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