Tuesday night's federal budget put a 7:30pm cutoff on the old negative gearing and capital gains tax rules. From 1 July 2027, negative gearing will be limited to new builds, the 50% CGT discount is being replaced with cost base indexation, and a 30% minimum tax rate on capital gains kicks in. If you already own investment property as of 12 May 2026, you're grandfathered.
Key Takeaways
- Grandfathering applies to residential investment properties held or under contract as of 7:30pm AEST on 12 May 2026.
- From 1 July 2027, negative gearing on new purchases of existing residential property only offsets against other property income, not salary.
- The 50% CGT discount is being replaced with cost base indexation plus a 30% minimum tax rate on capital gains.
- New builds keep negative gearing and let investors choose the old or new CGT method, making them materially more attractive.
- Legislation is not yet passed, but the 7:30pm cutoff means the timing point is locked in regardless of which details survive parliament.
Quick Answer
Tuesday night's federal budget put a 7:30pm cutoff on the old negative gearing and capital gains tax rules. From 1 July 2027, negative gearing will be limited to new builds, the 50% CGT discount is being replaced with cost base indexation, and a 30% minimum tax rate on capital gains kicks in. If you already own investment property as of 12 May 2026, you're grandfathered.
What actually changed at 7:30pm on Tuesday
The Treasurer drew a line in the sand at 7:30pm AEST on 12 May 2026. Anything you owned or had under contract before that moment plays by the old rules for as long as you hold it.
Anything you buy after that moment, if it's an existing residential property, sits in a new tax regime from 1 July 2027. The losses you generate from interest, depreciation and maintenance can only be offset against income from other residential properties, not your salary. Excess losses carry forward, but they won't reduce your marginal tax bill until the property turns a profit or you sell.
New builds are the exception. They keep negative gearing in full. That's the carrot designed to push investor capital towards new supply rather than bidding up existing stock.
The CGT change is the bigger one for high-income earners
Negative gearing got the headlines but the CGT change does more of the heavy lifting on after-tax returns. From 1 July 2027, the 50% CGT discount on residential property is replaced with cost base indexation (the method that ran from 1985 to 1999), plus a 30% minimum tax rate on the indexed gain.
In plain terms, you can no longer halve your capital gain. Instead, you adjust the cost base for inflation, then pay tax on the real gain at your marginal rate, with a floor of 30%.
For a registrar selling a property in 2035 for $1.6m that was bought for $800,000, the old rules might have taxed roughly $400,000 (50% of the $800,000 gain) at a 45% marginal rate, costing about $180,000. Under the new method, with inflation indexation pulling the cost base up to maybe $1,050,000, the taxable gain becomes $550,000. At a 45% marginal rate that's $247,500 in tax.
For high-income medical professionals, the floor matters less than the loss of the 50% halving. That discount has been a quietly enormous tax-free uplift for decades and it's going away on assets bought from now.
Grandfathering is doing a lot of work, so check your timing
If you settled before 7:30pm Tuesday, or you're under contract awaiting settlement, you're inside the grandfather window. The old rules apply for the life of your ownership of that property.
That's a meaningful protection. Sell a grandfathered property in 2035 and you still get the 50% CGT discount. Renovate it, refinance it, switch from interest-only to principal-and-interest, and the negative gearing rules don't change.
But two practical things. First, the rules apply at the property level, not the portfolio level. Buy a new investment property after 12 May 2026 and that property is under the new regime even if your existing two are grandfathered.
Second, the under-contract carve-out is a narrow window. If you're mid-negotiation or just signed a contract over the weekend before the budget, you're inside the protection. If you walked away from a deal in April and were planning to re-enter in June, you're outside it.
For doctors holding via trust or SMSF, the grandfather rules apply at the entity level. If your trust held the property at 7:30pm Tuesday, the trust keeps the old rules. Transfer the property between entities later and it triggers a CGT event under the new regime.
What we're telling clients this week
A few things are clear and a few aren't.
What's clear. If you're already an investor, the old rules keep working for your existing holdings. Don't panic-sell to lock in the 50% discount, because you keep it.
If you're considering a first investment property and you're a high-income earner using negative gearing as part of the strategy, the maths now points harder towards new builds. Off-the-plan apartments and house-and-land packages keep the old framework. Established properties don't.
If you're planning a 2027-onwards acquisition strategy, model the deals under both methods. Indexation can actually be friendlier than the 50% discount on long-held assets when inflation is high. For shorter holds under 5 years, the old rules were almost always better.
What's not clear. Whether any of this passes parliament in its current form. The Senate maths is tight and the Coalition has signalled it will fight the CGT change. The 7:30pm grandfather provision will likely hold even if other details get amended. Treat the framework as your base case, not the law.
Key Takeaways
- Grandfathering applies to residential investment properties held or under contract as of 7:30pm AEST on 12 May 2026.
- From 1 July 2027, negative gearing on new purchases of existing residential property only offsets against other property income, not salary.
- The 50% CGT discount is being replaced with cost base indexation plus a 30% minimum tax rate on capital gains.
- New builds keep negative gearing and let investors choose the old or new CGT method, making them materially more attractive.
- Legislation is not yet passed, but the 7:30pm cutoff means the timing point is locked in regardless of which details survive parliament.
Talk to Voyage Financial
If you're a medical professional partway through an investment property strategy, or you've been thinking about your first one, the maths just shifted under your feet. We can walk through how the new rules affect your specific borrowing capacity, lender choice, and structure (trust vs personal name vs SMSF). Quick call, no pitch, just the numbers for your situation.
