Federal Budget 2026: What the Proposed Tax Changes Mean for Existing Landlords

The 2026 federal budget has proposed some of the most significant changes to property investment taxation in decades. If you own an investment property, you’re likely wondering what these reforms mean for you — and whether you need to act.

This article outlines what has been proposed, what the key risks and implications are, and what questions are worth raising with your accountant or financial planner. It is not financial or tax advice.

Key Points to Be Aware Of:

1. Grandfathering provisions exist for existing landlords — properties owned before 7:30 PM AEST on 12 May 2026 are expected to remain under current negative gearing rules. 
2. A CGT valuation baseline at 1 July 2027 may matter significantly. Under the proposed changes, only gains accrued after that date will be subject to new rules. Without a documented property value at that point, calculating the split accurately when you eventually sell becomes more difficult.
3. Discretionary trusts face a separate proposed reform from 2028 — a 30% minimum tax on trust income — that could substantially change the tax effectiveness of these structures for property investors.

Table Of Contents:

What the Budget Has Proposed

The 2026 federal budget has announced proposed changes to two areas of property investment taxation. Both are proposed to take effect from 1 July 2027, and neither has yet been legislated. The detail and final form of both measures may change before they become law.

Negative gearing: Under the proposed reform, investors who purchase established residential properties after Budget night — 12 May 2026 — would no longer be able to offset rental losses against salary or wage income beyond 1 July 2027. Losses would instead be limited to offsetting against residential rental income or future capital gains from residential property. Unused losses could still be carried forward for future use.

The proposed reform is not expected to apply to new residential builds, which are proposed to continue under the existing treatment.

Capital gains tax: The existing 50% CGT discount — currently available on assets held for more than 12 months — is proposed to be replaced with an inflation-indexed cost base method, subject to a minimum effective tax rate of 30% on gains. Importantly, only gains accrued after 1 July 2027 would be affected under the proposed model. Eligible new-build investments may also retain a choice between the existing 50% discount and the new indexed method.

These remain proposed changes only. It would be unwise to restructure, sell, or make major decisions based purely on budget announcements before the legislation is enacted and professional advice is obtained.

Grandfathering Provisions for Existing Investors

Properties acquired before 7:30 PM AEST on 12 May 2026 are generally expected to remain eligible for negative gearing under the existing rules — meaning losses can continue to be offset against salary, wages, and other income.

There is currently no proposed end date on this grandfathering. However, the detail of how it applies — including what happens in the event of refinancing, renovation, changes in ownership structure, or other modifications — is not yet fully clear from the budget announcement alone.

Risk to be aware of: Certain actions taken after the Budget date — such as changing the ownership structure of a property, refinancing in certain ways, renting out the family home, or adding a co-owner — may affect grandfathering eligibility depending on how the legislation is ultimately drafted. This is an area of genuine uncertainty at this stage.

It is important not to assume grandfathering applies automatically without understanding the specific conditions that the legislation will set. Investors should discuss their individual circumstances with a qualified accountant before taking any action that could affect their position.

The CGT Transitional Date and Why Documentation Matters

Under the proposed CGT changes, gains accrued before 1 July 2027 would remain subject to the existing 50% discount treatment. Gains accrued after that date would fall under the new indexed method with a 30% minimum effective rate.

This means the apportionment of a future capital gain — how much is pre- and post-2027 — will likely depend on establishing an accurate property value at or around that transition date.

Risk to be aware of: If a clear, documented valuation is not obtained before or around 1 July 2027, it may be harder to demonstrate the correct pre/post split when the property is eventually sold. In the absence of clear documentation, the ATO’s own apportionment methodology — which may not produce the most favourable calculation — could apply by default.

Whether and how a valuation should be obtained, by whom, and in what format the ATO will accept for this purpose, are questions for your accountant or tax adviser. This is not a step to take without professional guidance.

New Builds: What the Tax Concessions Actually Cover

The budget proposes that new residential builds will remain eligible for negative gearing under the current rules. Eligible new-build investors may also be able to choose between the existing 50% CGT discount or the new indexed method — whichever produces the better outcome for them.

These concessions have attracted significant marketing attention. Several risks are worth understanding before treating them as straightforward opportunities.

Risk to be aware of — first owner only: The proposed tax concessions for new builds apply to the first owner of the property. A subsequent purchaser buying that same property on the secondary market would be buying established property under the new, more restrictive rules — with ring-fenced losses and no access to the 50% CGT discount.

This has direct implications for resale. The pool of investors willing and able to purchase the property on the same tax terms shrinks considerably once it has been sold once. How that affects future resale values and buyer demand is a question worth raising with an independent property adviser before purchasing.

Risk to be aware of — supply concentration: The budget’s design explicitly encourages new construction activity. A significant increase in new-build supply in certain markets — particularly apartments in growth corridors — could affect rental yields and capital growth in those locations. Investors considering new builds should assess the supply pipeline in their specific target area.

Risk to be aware of — legislation not yet passed: The specific conditions defining an “eligible new build” for the purposes of these concessions have not yet been legislated. What qualifies, and what documentation will be required, is not yet confirmed.

The Proposed Trust Tax: What It Could Mean for Property Held in a Discretionary Trust

This is a separate proposed reform with a later effective date — 1 July 2028 — but one that warrants early attention for landlords who hold investment property in a discretionary trust.

Under the proposal, discretionary trusts would be subject to a 30% minimum tax on trust income. The trustee would pay 30% on the trust’s income. Beneficiaries would still be required to declare their share of income in their own tax returns and would receive a non-refundable tax credit for the tax already paid at the trust level.

Risk to be aware of — lost credits: If a beneficiary’s marginal tax rate is below 30%, the excess credit is non-refundable and is simply lost. Under the current system, distributing income to lower-rate beneficiaries is a common strategy for reducing a family’s overall tax liability. Under the proposed model, this advantage is significantly reduced.

Risk to be aware of — higher-rate beneficiaries: If a beneficiary’s marginal rate is above 30%, additional tax would still be payable on top of the minimum tax already paid at the trust level.

Risk to be aware of — corporate beneficiaries (“bucket companies”): Under the proposal, corporate beneficiaries would generally not receive the tax credit for the minimum tax paid by the trust. This largely removes the effectiveness of distributing trust income to a corporate entity at a 25–30% company tax rate — a structure commonly known as a “bucket company” arrangement.

Risk to be aware of — complexity of restructuring: If the legislation proceeds as proposed, investors who currently hold property in a discretionary trust may need to consider whether their structure remains appropriate. Trust restructuring is not straightforward — it can involve stamp duty implications, CGT events, legal costs, and complex timing decisions.

The 2028 proposed date provides some lead time, but trust restructuring is complex enough that early engagement with an accountant or specialist tax adviser is worth considering. Your adviser can assess whether any action is warranted and what the implications of various options might be.

What These Changes May Mean for Rents in Established Areas

The government’s stated policy objective is to increase housing supply and ease rental affordability pressures. Whether the proposed reforms achieve that outcome — particularly in established inner-city markets — is a question economists and market analysts have different views on.

One dynamic worth noting: in established suburbs, the majority of properties sold by investors will be purchased by owner-occupiers rather than by other investors — removing them from the rental pool rather than adding to it.

If investor exits increase in volume as a result of these reforms, rental availability in established areas may tighten rather than ease — an outcome that appears inconsistent with the government’s stated supply objectives, at least in the short to medium term in already-constrained markets like inner Sydney. Several market commentators have raised this concern.

Conditions vary by location and market segment. Landlords with questions about the likely impact on their specific property and local rental market should speak with a property manager or independent market analyst familiar with their area.

Comparison: Proposed Changes at a Glance

Measure	Who Is Affected	Proposed From	Key Risk or Consideration
Negative gearing — established property	New purchasers after 12 May 2026	1 July 2027	Losses ring-fenced; no offset against wages
Negative gearing — grandfathering	Pre-budget owners	No end date proposed	Ownership changes may affect eligibility — seek advice
CGT — existing owners	All current owners	Gains post-1 July 2027	Documentation of 2027 property value may affect future CGT calculations
CGT — new builds	First owners of eligible new residential builds	1 July 2027	Concession applies to first owner only; conditions not yet legislated
Trust minimum tax	Discretionary trusts	1 July 2028	Income-splitting and bucket company strategies significantly reduced

All measures are proposed only and have not yet been legislated. Final form and conditions may differ.

Key Questions to Raise With Your Accountant or Financial Planner

Given the scope and complexity of these proposed reforms, the following are questions worth raising with a qualified professional — ideally before the legislation is enacted, while options remain open.

• Does grandfathering apply to my specific property and ownership structure, and are there actions I might take that could put it at risk?
• What is the appropriate way to document my property’s value ahead of the 1 July 2027 CGT transitional date, and what format will the ATO likely require?
• If I hold property in a discretionary trust, how would the proposed 30% minimum tax affect my current distribution strategy and overall tax position?
• What are the costs, risks and timing implications of restructuring my trust or ownership entity — and is it worth considering before the legislation is finalised?
• If I am considering purchasing an additional property, how do the proposed changes affect the after-tax return profile of established versus new-build stock?
• What does my cash flow position look like if rental losses become ring-fenced in the future, even if grandfathering currently applies?
• Are there aspects of my current structure or arrangements that could be inadvertently affected by how the final legislation is drafted?

These questions do not have universal answers. Each investor’s position depends on their income, ownership structure, portfolio, borrowings, and long-term objectives. Tailored advice from a qualified accountant, tax adviser, or financial planner is essential before making any decision.

Preferental manages investment properties across inner Sydney. Our role is to make sure your property is well-managed, well-tenanted, and performing to its potential — whatever the tax environment looks like. For questions about the tax and financial implications of these reforms, your accountant or financial planner is the right starting point.

This article is general in nature and does not constitute financial, tax or legal advice. The proposed changes described have not yet been legislated and may change in their final form. Always seek tailored advice from a qualified professional before making investment or restructuring decisions.