I Held an Investment Property Before Budget Night. What Does the 2026 Federal Budget Mean for Me?
If you owned an investment property before 7:30pm AEST on Tuesday, 12 May 2026, the 2026 Federal Budget changes are less severe than many headlines suggest. Existing residential investment properties are expected to be grandfathered for negative gearing, meaning current owners should be able to continue deducting rental losses against other income while they continue to hold the property. However, the proposed capital gains tax changes are different. From 1 July 2027, future gains may be calculated under the new CGT rules, which could affect long-term sale decisions, valuations, refinancing strategy and investment planning.
Key points for existing property investors
- Existing investment properties are grandfathered for negative gearing. If you held the property before 7:30pm AEST on 12 May 2026, you should be able to continue negatively gearing that property while you continue to own it.
- The negative gearing exemption does not automatically transfer to the next buyer. If the property is sold, a future buyer will be subject to the new rules unless another exemption applies.
- CGT is changing from 1 July 2027. The current 50% CGT discount is proposed to be replaced with cost-base indexation and a 30% minimum tax on real capital gains for individuals, trusts and partnerships.
- Gains before 1 July 2027 are expected to be preserved under the current CGT treatment. For assets already owned before 1 July 2027, gains before that date are treated under current rules, while gains after that date are treated under the new rules.
- The family home remains exempt from CGT. The main residence exemption is not proposed to change.
- Super funds, including SMSFs, are excluded from these CGT and negative gearing changes. This is important for investors holding property through a complying superannuation fund.
- Small business CGT concessions are expected to remain unchanged. This is relevant for business owners who may also hold property or business assets.
- Do not make a rushed sale decision based on headlines. For many existing investors, the lending, cash flow and tax position needs to be reviewed before deciding whether to sell, hold, refinance or restructure.
What changed for existing property investors?
The 2026 Federal Budget announced significant changes to the tax treatment of residential investment property and capital gains.
For existing property investors, the most important distinction is between:
- negative gearing on a property already held before Budget night; and
- capital gains tax on future gains after 1 July 2027.
These are separate issues.
A property investor may be protected from the negative gearing changes, but still affected by the CGT changes on future capital growth.
Negative gearing for properties held before Budget night
Under the announced measures, residential investment properties held before 7:30pm AEST on 12 May 2026 will be allowed to continue using the current negative gearing treatment while the owner continues to hold that property.
This means that if the property makes a rental loss, the investor should still be able to offset that loss against other taxable income, such as salary and wages, subject to the usual tax rules.
For existing investors, this is a major grandfathering provision.
It means the Government has not retrospectively removed negative gearing from people who had already purchased investment properties under the existing tax framework.
Who this helps
This is most relevant for investors who:
- already owned an investment property before Budget night;
- exchanged a contract before Budget night, even if settlement had not yet occurred;
- have a negatively geared property;
- intend to hold the property beyond 1 July 2027;
- rely on negative gearing as part of their annual cash flow planning; or
- are considering whether to hold, sell or refinance before the rules commence.
What happens if you sell?
The protection applies to the existing owner and the property while it is held.
If the property is sold, the next buyer does not appear to inherit the same negative gearing treatment. A future buyer of an established residential property will generally be subject to the new rules unless the property qualifies as a new build or another exemption applies.
This could make some established investment properties less attractive to future investors, depending on rental yield, borrowing costs and the buyer’s tax position.
Capital gains tax changes for existing investors
The CGT changes are more complex.
From 1 July 2027, the Government proposes to replace the current 50% CGT discount with cost-base indexation for individuals, trusts and partnerships. A 30% minimum tax rate will also apply to real capital gains accruing from 1 July 2027, although no tax is payable until the asset is sold.
In practical terms, this means the tax treatment of a future sale may be split into two periods:
1. Gain before 1 July 2027
For assets already held before 1 July 2027, the gain up to that date is expected to be calculated under the current rules.
This means the existing 50% CGT discount should still apply to the eligible gain made up to 1 July 2027.
2. Gain after 1 July 2027
For growth after 1 July 2027, the new rules are expected to apply.
This means the cost base will be adjusted for inflation, and tax will apply to the real gain above inflation. A 30% minimum tax rate may apply to the real capital gain.
Why valuations may matter
The Budget material indicates that for assets owned before 1 July 2027 and sold after that date, taxpayers may be able to determine the asset’s value at 1 July 2027 either through a valuation or a specified apportionment formula. The ATO is expected to provide tools to help estimate this value.
This raises a practical issue for property investors.
A higher supported valuation as at 1 July 2027 may reduce the portion of future growth exposed to the new CGT rules. However, valuations need to be properly supported, credible and consistent with ATO requirements.
This is an area where investors should seek tax advice before relying on any valuation approach.
Who is impacted?
Existing property investors
Existing property investors are protected from the negative gearing changes while they continue to hold the property, but may be affected by the new CGT treatment on future gains after 1 July 2027.
Future buyers of established investment properties
Future buyers of established residential investment properties are likely to be more affected than current owners. From 1 July 2027, they generally will not be able to offset rental losses against salary and wage income. Losses may instead be carried forward and used against future residential property income or capital gains.
Investors buying new residential property
Investors buying eligible new builds are treated more favourably. They may continue to access negative gearing and may be able to choose between the existing 50% CGT discount and the new indexation method when they sell.
First home buyers
First home buyers may benefit if investor demand for established dwellings softens. However, they may face increased competition in new dwellings if investors shift demand toward new builds.
Investors using SMSFs
Complying superannuation funds, including SMSFs, are excluded from the proposed negative gearing and CGT changes.
This does not automatically mean an SMSF structure is better. It simply means the proposed changes do not apply in the same way. SMSF borrowing remains highly specialised and should be considered with licensed financial, tax and lending advice.
Our opinion: what this is likely to do
The practical impact will not be the same for every investor.
For many existing investors, the negative gearing change may be less dramatic than the headlines suggest because existing properties are grandfathered. The bigger issue is likely to be future CGT planning, valuation evidence, holding strategy and whether the property still makes sense on its own merits.
Our view is that the changes may lead to several market behaviours:
1. Some investors may sell before 1 July 2027
Not because they lose negative gearing, but because they may want to simplify their position before the CGT changes commence or before future buyers reassess established investment properties.
2. Established investment properties may attract less investor competition
If future buyers cannot negatively gear established properties in the same way, some may redirect their attention to new builds, commercial property, SMSFs or non-property assets.
3. New builds may become more attractive to investors
Because eligible new builds retain negative gearing and offer more favourable CGT treatment, investor demand may shift toward new dwellings.
4. First home buyers may see a window of opportunity
If some investors sell established property and fewer investors compete for established stock, first home buyers may have a better opportunity in parts of the market. This will not be uniform. Property is local, and the impact will vary by suburb, price point and dwelling type.
5. Lenders may need to reassess servicing policy
A major practical question is how lenders will treat future negative gearing benefits in borrowing capacity calculators, especially for established residential investment properties purchased after Budget night or after 1 July 2027.
This could affect how much some investors can borrow.
What has not changed?
Based on the announced measures:
- owner-occupied homes remain exempt from CGT under the main residence exemption;
- existing investment properties held before Budget night remain grandfathered for negative gearing while held;
- super funds, including SMSFs, are excluded from the proposed CGT and negative gearing changes;
- small business CGT concessions are expected to remain unchanged;
- commercial property and non-property assets are not affected by the negative gearing restriction, which is aimed at residential property;
- cars and motorcycles remain outside normal CGT treatment for personal-use assets.
The Government factsheet also confirms that the main residence exemption, small business CGT concessions and the affordable housing CGT discount are intended to remain.
Worked example: existing property held before Budget night
Scenario
Sarah purchased an established investment property in 2020 for $750,000.
She owned the property before 7:30pm AEST on 12 May 2026.
The property is negatively geared by $12,000 per year.
Sarah is considering whether to hold the property beyond 1 July 2027 and potentially sell it in 2030.
For simplicity, assume:
- property value at 1 July 2027: $950,000
- sale price in 2030: $1,100,000
- inflation after 1 July 2027: 2.5% per year
- Sarah’s marginal tax rate is above 30%
- selling costs and other cost-base adjustments are ignored for simplicity
Before the Budget changes
Under the old rules, Sarah would generally expect:
- rental losses to be deductible against other income;
- the full capital gain to be eligible for the 50% CGT discount if the asset was held for more than 12 months;
- no distinction between growth before and after 1 July 2027.
Approximate CGT outcome under old rules
Purchase price: $750,000
Sale price: $1,100,000
Gross capital gain: $350,000
50% CGT discount: $175,000
Taxable capital gain: $175,000
After the Budget changes
Because Sarah held the property before Budget night, she should be able to continue negatively gearing the property while she owns it.
However, the CGT calculation changes for gains after 1 July 2027.
The gain is effectively split into two parts.
Part 1: Gain before 1 July 2027
Purchase price: $750,000
Value at 1 July 2027: $950,000
Gain before 1 July 2027: $200,000
50% CGT discount: $100,000
Taxable gain for this period: $100,000
Part 2: Gain after 1 July 2027
Value at 1 July 2027: $950,000
Sale price in 2030: $1,100,000
Nominal gain after 1 July 2027: $150,000
Under indexation, Sarah’s 1 July 2027 value is adjusted for inflation. If inflation averages 2.5% per year for three years, the indexed cost base may be approximately $1,023,000.
Sale price: $1,100,000
Indexed cost base: $1,023,000
Real taxable gain after indexation: approximately $77,000
Total taxable gain under new approach
Taxable gain before 1 July 2027: $100,000
Taxable real gain after 1 July 2027: approximately $77,000
Total taxable capital gain: approximately $177,000
What this example shows
In this example, Sarah’s taxable capital gain is broadly similar to the old 50% discount outcome.
However, the result can change significantly depending on:
- the property’s value at 1 July 2027;
- the future sale price;
- inflation;
- the investor’s marginal tax rate;
- whether the investor is subject to the 30% minimum tax;
- holding period;
- cost-base adjustments;
- selling costs; and
- whether the property produces strong growth above inflation.
The higher the real growth after 1 July 2027, the more important the new CGT rules become.
What should existing investors do now?
Existing investors should avoid panic decisions. But they should not ignore the changes.
The practical next steps are:
- Review your current loan structure
Check whether your interest rate, repayment type, offset structure and lender still suit your long-term strategy. - Assess whether the property still works after tax, debt and cash flow
A property that only works because of tax benefits may need closer review. - Consider whether a 1 July 2027 valuation may be important
Investors may need credible valuation evidence to support the split between pre-change and post-change gains. - Speak with your accountant before making tax decisions
These rules are complex and have not yet been legislated. - Speak with a broker before refinancing, selling or buying again
Your lending position may change depending on debt levels, income, rental income, lender policy and future servicing treatment.
How Evolve Lending & Finance can help
Evolve Lending & Finance does not provide tax, legal or financial planning advice.
What we can do is help investors understand the lending side of the decision.
That includes reviewing:
- your current investment loan structure;
- whether your existing lender is still competitive;
- your interest rate and repayment position;
- available equity;
- borrowing capacity;
- refinance options;
- whether fixed, variable, interest-only or principal-and-interest lending is more appropriate;
- the impact of holding, selling or buying again; and
- how lenders may view your position.
For investors, the key question is not simply whether the Budget changes are good or bad.
The better question is:
Does your current lending structure still support your investment strategy under the new rules?
Held an investment property before Budget night?
The proposed changes may not affect every investor in the same way. Before making a decision based on headlines, it is worth reviewing your current loan structure, cash flow, equity position and future borrowing strategy.
Or call Evolve Lending & Finance to speak with a broker about your current position.
Related Budget guides
- I may buy an investment property after Budget night
Understand how the new rules may affect future investors buying established or new residential property. - I am a first home buyer
Learn how the changes may affect competition, borrowing strategy and property opportunities. - I hold investment assets other than property
See how the CGT changes may affect shares, business assets and other investments. - Speak with a broker
Review your borrowing position before selling, buying or refinancing.
Disclaimer
This article is general information only and does not take into account your personal objectives, financial situation or needs. Evolve Lending & Finance is not a tax adviser, financial planner or legal adviser. You should seek advice from a qualified accountant, financial planner or solicitor before making decisions about tax, investments, property ownership or asset sales. The Budget measures discussed are based on announcements made in the 2026 Federal Budget and may be subject to legislation, clarification and further guidance.
