The 2026 Budget Just Changed Property Investing: Negative Gearing, CGT and Trust Tax Explained

2026 Australian Federal Budget: What the CGT, Negative Gearing and Trust Tax Changes Mean for Property Investors

For Australian property investors, the 2026 Australian Federal Budget was not just another boring Canberra budget exercise. It was a line in the sand. A thick line that demands urgent attention.

The Government has announced major changes to negative gearing, capital gains tax, and discretionary family trusts. The three areas that have shaped Australian property investment for decades. These reforms are aimed at making the tax system “fairer”, improving home ownership, and reducing some of the tax advantages enjoyed by higher-income investors.

Now, before everyone starts panic-selling investment properties like toilet paper in 2020, let’s be clear. It is a good thing. This is not the end of property investing. But it is probably the end of lazy property investing.

The old model of buying an average established property, running it at a loss, using negative gearing to soften the pain, then relying on capital growth and the 50% CGT discount to save the day. That lazy-investment strategy is now dead. It is dead dangerous, and should be avoided.

And for many family trust structures, especially those using bucket companies or low-income beneficiaries, the tax game has changed too.

This article will breakdown these changea and explain it in layman's term. So, let’s start unpacking it properly.

First, what actually changed?

The 2026 Federal Budget announced three big tax reforms affecting investors:

1. Negative gearing will be restricted for established residential property.

2. The 50% CGT discount will be replaced with indexation and a 30% minimum tax on capital gains.

3. Discretionary trusts will face a 30% minimum tax from 1 July 2028.

These are major headline changes. But the details matter. The devil is always in the details. And in tax, the details are where the little devils wear suits. But in this case, it might not be as bad as everyone has anticipated.

1. Negative gearing: what is changing?

Negative gearing is when the costs of holding an investment property — such as interest, council rates, insurance, repairs and other deductible expenses — exceed the rental income.

For years, property investors have been able to offset that loss against other income, such as salary or business income.

Example:

Sarah earns $180,000 per year as a doctor. She owns an investment property that receives $35,000 in rent, but her interest and expenses total $50,000. That means the property makes a $15,000 tax loss.

Under the current rules, Sarah can usually deduct that $15,000 loss against her salary income, reducing her taxable income. That is the classic negative gearing benefit.

But under the new Budget changes, this will no longer work in the same way for many future purchases of established residential properties.

What happens to existing investment properties?

Existing investors are mostly protected. Properties already owned before Budget night, 12 May 2026, or contracted before the relevant cut-off, are expected to be grandfathered. That means existing negatively geared properties should generally continue under the old rules. The Budget materials state that the reform is aimed at limiting the benefits of negative gearing to new residential properties going forward, rather than retrospectively attacking existing holdings.

That is important, because if the Government had applied this retrospectively, it would have caused a proper investor stampede. Not a correctionm, but a crash.

So if you already own an investment property, the first message is: do not panic. It is time to review your position, but do not sell blindly.

What happens to future established-property investors?

For established residential properties acquired after the relevant Budget cut-off and subject to the new rules, losses will generally no longer be deductible against salary or unrelated income.

Instead, the losses may be quarantined and used against:

• rental income from residential property;

• future residential property gains;

• or carried forward.

In plain English, the loss does not necessarily disappear. But the immediate tax benefit is reduced. Losses are still retained to be used to offset future profit/income from the investment. Let’s look at this example:

Human example: David buys an established townhouse

David is a high-income engineer earning $220,000 per year. He buys an established townhouse in Melbourne as an investment, after budget night (12 May 2026). The property receives $42,000 per year in rent.

But after loan interest, council rates, insurance, maintenance and other costs, the property costs him $60,000 per year to hold. So David has an annual property loss of $18,000.

Under the old system, he may have been able to use that $18,000 loss to reduce his taxable salary income to $202,000, thereby reducing his personal income tax.

Under the new system, if the property is caught by the new rules, that loss may not reduce his salary tax bill immediately. Instead, he will need to carry the loss forward or use it against future property income or property gains. So David still owns the asset, still gets the rent, still gets any capital growth.

But the tax system no longer give him an almost instant tax benefit for holding a loss-making established property. That is the change.

Although negative gearing still exist, the fact that you can only offset this loss against future investment income means you need to be able to financially maintain the loss for many more years, and hope the property eventually either appreciates enough or turns positively geared and generates sufficient income to cover the loss. In the current Melbourne and Australia market, most metropolitan properties may never become positively geared for the first 10, 20 or 30 years. Factor this into your feasibility studies. It can bite you very hard, if your financial circumstances does not support this.

New builds are treated differently

The Budget clearly favours investment into new residential housing. The Government wants investors to help create housing supply, not just compete with first-home buyers for existing homes.

So, under the announced changes, negative gearing benefits are expected to remain available for eligible new residential properties.

That means a new apartment, townhouse, house-and-land package, or newly constructed dwelling may receive more favourable treatment than an established property. This is the shift in policy. The Government is effectively saying:

Whether that works perfectly in the real world is another question.

Because as experienced investors and buyers know, not all new builds are good investments. Most are beautifully marketed financial landmines. This is the reason why most new builds takes more than 3 times as long to sell.

2. CGT: the 50% discount is being replaced

Capital gains tax (CGT) is the tax paid when you sell an asset for more than its cost base. This is also being changed with budget 2026.

For many years, Australian individuals and trusts have generally been eligible for a 50% CGT discount if they held the asset for more than 12 months.

Example:

You buy an investment property for $900,000. Years later, you sell it and make a taxable capital gain of $400,000. Under the current 50% CGT discount rules, only $200,000 of that gain is included in your taxable income.

That has been a powerful tax benefit for long-term property investors, but the 2026 Budget proposes to change that. The announced budget reform replaces the 50% CGT discount on established properties with a system based on cost base indexation, along with a 30% minimum tax on net capital gains. Buyers of new builds will have the option to choose either the new indexation method or the old "50% discount" method, depending on which benefits them.

In simple terms, instead of automatically discounting half the gain, the cost base would be adjusted for inflation, and tax would apply to the real gain.

Example: Mei sells an investment property

Mei bought an investment property for $800,000. Many years later, she sells it for $1.4 million. Ignoring buying and selling costs, that looks like a $600,000 capital gain.

Under the old CGT discount system, Mei may only include $300,000 in her taxable income, because of the 50% discount.

Under the proposed indexation model, the original cost base may be adjusted for inflation. So if inflation-adjusted cost base becomes, say, $1 million, then the taxable real gain may be closer to $400,000. The exact result depends on inflation, ownership period, costs and the final legislation.

But the big picture is this:

The old system rewarded long-term asset growth with a simple 50% discount. The new system appears to be more focused on taxing real gains, which sounds fair, while making sure capital gains do not fall below a minimum tax rate.

For some investors, especially those who hold assets during high-inflation periods, indexation may not be terrible. For others, especially high-growth property investors, losing the 50% discount could hurt. Ie, the properties that underperforms will be better off, while the better performer will be slapped with higher taxes.

What Types of Properties are Considered New Builds?

A property is considered a new build if it genuinely adds to the housing supply, under 12 months old and it has never been sold. Ie, your new apartments, new townhouse, new house in new estates would usually qualify.

A heavily renovated established property, and knock down rebuild would not, because they do not add to housing supply. This is in line with the definition of new build for FIRB purchases.

Will this apply to the family home?

No. The main residence exemption remains the big protected beast in Australian tax for now. There had been speculations the family home might be affected, but it is being spared in this budget.

Your principal place of residence is still generally exempt from CGT, subject to the usual rules and exceptions. "Generally" because there could be instances where some CGT might be applicable.

3. Trust tax changes: family trusts just got less attractive

This is the one many business owners and investors need to pay attention to.

The Budget announced a 30% minimum tax on discretionary trusts from 1 July 2028. This is aimed at family trusts and similar discretionary trust structures. The tax will be paid by the trustee. Beneficiaries still declare their trust income, but non-corporate beneficiaries may receive non-refundable credits for tax paid by the trustee. Corporate beneficiaries are treated differently, which is where bucket company strategies may become less attractive.

This is not just a small tweak. It is a directed to addressing the income splitting loophole.

How family trusts often work now

A discretionary trust gives the trustee flexibility to distribute income to different beneficiaries.

For example, a family trust might distribute income to:

• a spouse on a lower income;

• adult children;

• retired parents;

• a bucket company;

• or other eligible beneficiaries.

For too long, accountants are recommending the discretionary trust structure to legally distribute income in a tax-effective way.

Example:

A family trust earns $120,000 in net income. Instead of distributing it all to one high-income person on the top marginal tax rate, the trustee distributes income across several lower-tax beneficiaries. This can reduce the family group’s overall tax bill.

That has been one of the key attractions of family trusts, but he Budget change removed that benefit.

Human example: the Chen family trust

The Chen family has a discretionary trust that owns a positively geared investment property and receives some business income. The trust earns $100,000 in taxable income.

Previously, the trustee might distribute income to adult family members with lower taxable income, reducing the overall family tax outcome.

Under the proposed new system, the trust income will be subject to at least 30% tax. So if income is distributed to beneficiaries who would otherwise pay less than 30%, the trust structure may no longer deliver the same tax advantage. The trust can still operate, and income can still be distributed. But the tax benefit of sending income to very low-tax beneficiaries is reduced.

In other words, the family trust is not dead. But one of its favourite party tricks has been taken away.

4. What about bucket companies?

This is where things get spicy.

A bucket company is commonly used to receive trust distributions and cap tax at the corporate tax rate, instead of pushing all income to individuals on higher marginal tax rates. In many structures, the trust distributes income to a company beneficiary. The company pays tax at the corporate rate, and the funds may then be dealt with under company, trust and Division 7A rules. Used properly, this can be a legitimate tax planning tool, but it can be a complex accounting nightmare.

The Budget materials indicate that corporate beneficiaries will not receive the same credit treatment as non-corporate beneficiaries under the discretionary trust minimum tax rules. The intention is to stop people using corporate beneficiaries to sidestep the new minimum tax.

So for those using a family trust and bucket company strategy, do not panic. Panic leads to selling the wrong assets. But this needs urgent modelling. Book some time with your tax accountant to understand how (if any) this impact your structure. And if it does, your accountant will be the best person to restructure your trust to save you tax, legal fees and future headaches.

5. Do these changes mean family trusts are useless?

No, not necessary. That would be too simplistic. Family trusts may still be useful for:

• asset protection;

• estate planning;

• business succession;

• holding long-term family assets;

• separating business and investment risk;

• distributing income where tax outcomes still make sense;

• managing family investment structures.

But if your trust exists mainly to spray income to low-tax beneficiaries or bucket companies, the benefit may be reduced. A trust is a legal structure, useful for the above purposes. The income distribution advantge might be a tax loophole which too many investors and accountants are exploiting. That loophole has now been reduced or removed.

6. What does this mean for property investors?

This Budget does not destroy property investing. But it changes the discipline. For too many years, sales agents are selling overpriced apartments, townhouses have it easy. It will now be a lot more difficult to justify investing in a bad performer simply because the investor can offset their personal income taxes. This "strategy" now looks weaker, and investor interest in these properties will likely crash overnight..

Going forward, investors will need to care more about:

• asset quality;

• land value;

• scarcity;

• rental demand;

• owner-occupier appeal;

• suburb fundamentals;

• yield;

• holding costs;

• debt structure;

• exit strategy;

• and tax structure.

In other words, selection of the property asset is now critical.

Established property investors

Established homes in strong Melbourne suburbs are not suddenly bad investments. A quality established property with scarce land, strong school zoning, transport access, lifestyle appeal and owner-occupier demand can still be an excellent long-term asset.

Investors can no longer lazily rely on negative gearing and CGT discounts to paper over a poor purchase. That means buying mistakes will hurt more. Overpaying for compromised properties stock can now crash your investment portfolio.

You can no longer lazy-buy based on the sales team promist of tax benefits. It will hurt more. The market could use fewer spreadsheet heroes buying junk because “the accountant said it’s deductible.”

New-build investors

What about new builds, you might ask? On the surface, new builds may become more attractive from a tax perspective. But investors need to be very careful. A new build is not automatically a good investment.

Many new apartments and house-and-land packages are sold with:

• inflated developer margins;

• weak land component;

• high body corporate fees;

• poor resale appeal;

• generic design;

• oversupply risk;

• rental guarantee gimmicks;

• and glossy brochures that deserve an acting award.

The budget is about shifting investor choices, making investing in new properties more attractive. But they do not turn a bad asset into a good one.

Why isn't a new build always attractive? What can go wrong?

One obvious impact is when you sell, the new build which you buy immediately becomes an 'established" property. The negative gearing tax incentives which you enjoy IS NOT applicable to the new owner. Investor will take this into consideration before making their offer. If your new-build does not have the right fundamentals, poor locations, oversupplied unit in a block a 500, offers are not going to be good, and you can expect higher losses than it is today.

The incoming owner no longer has the negative gearing tax incentive to justify overpaying for it.

Buying the right new build in the right location, with genuine scarcity and strong demand, is more important now.

7. What does this mean for Melbourne property buyers?

For Melbourne buyers, especially investors, the impact will vary by asset type.

Blue-chip and family-home suburbs

Established houses in strong owner-occupier suburbs may remain resilient. These are typically areas with:

• quality school zones;

• strong household incomes;

• limited supply;

• good transport;

• village lifestyle;

• family appeal;

• land scarcity.

These markets are not driven purely by investors. They are driven by people who want to (not have to) live there. Even if some investors pull back, genuine owner-occupiers grade properties can still support demand.

Investor-heavy apartment markets

Most investor-heavy apartment markets may be more exposed. If the tax advantages reduce, investors no longer have the negative gearing incentive to justify the investment, and they will become more selective.

Properties with weak rental yield, limited growth prospects and high holding costs may struggle. Lazy investor who had bought without understanding the demand/supply dynamics and market fundamentals will be getting a rude shock when they sell. Most apartments are average stock at best, and cluey investor will avoid them.

Middle-ring family homes

Melbourne’s middle-ring family homes may remain attractive where land, schools, transport and lifestyle fundamentals are strong. But as above, price discipline becomes more important. If tax benefits are lowered or removed, investors can no longer justify overpaying and hope the tax system softens the damage. Demand will be weaker.

8. What should investors do now?

Don't panic. Panic will only cause regrets. It is too late for any changes now. The line in the sand has been drawn. And that is 12 May 2026.

But you should not do nothing either. It is time for a structured portfolio review. Here are some pointers you can use. Remember, these are generic guidelines, and does not consider your individual goals and circumstances. Engage a proper portfolio review by a licenced independent buyers advocates to understand the market, and get an independent assessment of your property potential.

Step 1: Review your existing properties

Ask:

• Are they positively or negatively geared?

• Are they grandfathered under the old rules?

• What is the current after-tax holding cost?

• What is the future after-tax holding cost?

• What is the likely long-term capital growth?

• Is the asset still worth holding without generous tax support?

• What will future buyers pay for your property?

• Would you buy the same property again today?

That last question is brutal but useful. If the answer is no, you need to ask why you still own it.

Step 2: Review future purchase strategy

Going forward, investors need to model purchases under the new rules. Yes, this applies to both investors of established properties and New-builds. It is now more than a question of “Can I afford the deposit?” You need to also consider if you CAN AFFORD TO HOLD IT.

Ask:

• What is the after-tax cash flow?

• What happens if interest rates stay higher for longer?

• What happens if rent does not rise as expected?

• What happens if the CGT outcome is less favourable?

• Is the asset strong enough without tax sugar?

If the deal only works because of tax benefits, you probably should not buy it.

Step 3: Review trust structures

If you use a discretionary trust, speak to your accountant. Especially if your trust:

• distributes to low-income adult beneficiaries;

• distributes to a bucket company;

• holds investment properties;

• runs business income;

• has unpaid present entitlements;

• has inter-entity loans;

• has carried-forward losses;

• or is part of a broader family group structure.

The Budget includes three years of rollover relief from 1 July 2027 for certain restructures, but restructuring should not be done lightly. Changing structures can trigger stamp duties, tax, lending, legal and asset protection consequences. Yes, changing may move you from the current grandfathered tax system to the new tax system.

This is not a “copy a template from Google” job. Neither is it a "ChatGPT" job. You do not want to be the person to save $2,000 on advice and create a $200,000 problem.

9. Will property prices fall because of this?

This is the million dollar question. Property prices probably will fall in some segments, not all. Do not expect a simple Australia-wide crash just because negative gearing and CGT rules are changing.

Property prices are influenced by many factors:

• interest rates;

• wages;

• migration;

• housing supply;

• lending policy;

• employment;

• construction costs;

• buyer confidence;

• local amenity;

• school zones;

• scarcity;

• rental demand.

Tax is important, but it is not the only driver. The major CGT changes only applies when you sell.

The Budget will reduce some investor demand for established properties, especially from highly leveraged investors, and investors of poor performing properties. Some analysis suggests the Government expects more homes to shift from investors to owner-occupiers over time. But what most investors will sell are the third rate properties, with poor fundamentals and demand.

But in tightly held Melbourne suburbs where families compete for quality homes, demand may remain strong. So, do not expect properties in the inner 30km ring to crash. Suburbs right up to Glen Waverley, Wheelers Hill, Rowville, Wantirna, etc, are seeing strong demand. And strong demand is expected to remain, as there are other potentials.

The bigger impact may be on poor-quality investment stock. Where properties are perpetually in an oversupplied situation, the Tarneits, Meltons, Clydes, Pakenhams..

And frankly, that stock deserved a wake-up call anyway. Expensive houses with good fundamentals will appreciate more, while the poor performing suburbs will continue to lag. Rental crisis in inner ring suburbs will continue to soar, as investment properties are sold to home buyers, reducing rental stock. Rents in the current oversupplied new estates will continue to lag and may crash, as investors, attracted by negative gearing, start turning to these locations. This will worsen the oversupplied situation, and likely lead to poorer rental yields.

10. The real lesson: buy quality, not tax deductions

This Budget is a wake up call on lazy investing. Tax benefits is no longer a valid reason you invest in properties. If a sales or marketing agent is still spruiking tax benefit (even for new builds), RUN!

You now need proper investment advice, not from the sales and marketing agents, but from independent property advisors. And yes, many charge between $1000-$2000 for the review and advice. Be wary of free advice. If its free, you are the product being sold.

A strong property investment should have:

• a good location;

• strong demand;

• scarcity;

• quality land component;

• rental appeal;

• long-term resale appeal;

• sensible cash flow;

• and a clear reason why someone else will want it in the future.

That is what creates real wealth. Do not invest simply for tax benefits, negative gearing, CGT discounts.

Why these Budget Changes Are Good

To be honest, these budget changes is actually a good thing. Property investing is not dead. But lazy tax-led investing is.

The disciplined investors who survive and thrive from here will be the ones who buy better, model properly, structure carefully. In other words, the boring disciplined investors who look at numbers and do their research are the ones who will be smiling.

And when developers finally realise their sales and marketing agents can no longer use "negative gearing" as the sole reason to sell properties, they will start build properties that buyers want to live in, at sensible prices.

Final thoughts

The 2026 Federal Budget is a major shift for Australian property investors.

• Negative gearing is being redirected toward new housing supply.

• The CGT discount is being replaced with a different model.

• Discretionary trusts are being pushed toward a minimum 30% tax outcome.

And this means:

• For existing investors, this is a review moment.

• For future investors, it is a strategy reset.

• For family trust users, it is time to speak to your accountant before making any big moves.

But the core rule remains unchanged:

The difference now is that investors may have less tax cushioning when they get it wrong. And in a market like Melbourne, where the gap between a great asset and a dud can be massive, proper due diligence matters more than ever.

The new tax system may forgive fewer mistakes. The market certainly won’t.

Also read: Top 5 myths of the 2026 Budget Changes https://www.conciergebuyersadvocates.com.au/post/2026-budget-property-investing-myths-negative-gearing-cgt-trusts

Disclaimer

This article is general information only and should not be relied upon as tax, legal or financial advice. Property investors should seek advice from a qualified accountant, tax adviser, solicitor, financial adviser or licensed property adviser before making decisions based on the 2026 Federal Budget announcements.