Key Highlights

  • Explains proposed changes to negative gearing and capital gains tax arrangements.
  • Outlines transitional rules for existing and future property investments.
  • Details new build exemptions and cost base indexation framework.
  • Summarises policy impacts, implementation dates and taxpayer treatment.

Australia's proposed reforms to negative gearing and capital gains tax introduce significant changes to the taxation of residential property investments and capital gains. The proposed measures focus on supporting home ownership, encouraging investment in new housing supply and reshaping certain tax settings. Alongside the proposed reforms, transitional arrangements are intended to preserve existing treatment for many current investments while setting out new rules that would apply from future implementation dates. Understanding these proposed changes can help explain how the new framework is designed to operate.

What Are the Proposed Changes?

Under the proposal, from 1 July 2027, negative gearing for residential property investments would be limited to new residential builds. At the same time, the current 50 per cent capital gains tax (CGT) discount for eligible individuals, trusts and partnerships would be replaced with cost base indexation together with a 30 per cent minimum tax on capital gains.

The proposal also includes grandfathering provisions. Residential properties held before 7:30 pm AEST on 12 May 2026 would remain exempt from the proposed negative gearing changes. For capital gains tax, only gains accruing after 1 July 2027 would be subject to the proposed new arrangements.

How Negative Gearing Would Work Under the Proposal

Currently, rental losses may reduce other forms of taxable income. Under the proposed rules, rental losses relating to eligible existing residential investment properties purchased after the announcement would instead only be deductible against income from residential properties, including future capital gains.

Where investors generate excess rental losses, those losses could be carried forward and applied against future residential property income. This approach would allow deductions to remain available when sufficient property income is generated.

The proposed changes would generally apply to individuals, partnerships, companies and most trusts. Widely held trusts, including most managed investment trusts, together with superannuation funds, including self-managed super funds, would remain excluded.

Cost Base Indexation and Capital Gains Tax

The proposal replaces the current CGT discount with Consumer Price Index (CPI) cost base indexation for eligible assets held for at least 12 months. Instead of reducing taxable capital gains by a fixed percentage, the asset's cost base would be adjusted using inflation before calculating the taxable gain.

Alongside indexation, a 30 per cent minimum tax on capital gains accruing from 1 July 2027 is proposed. The minimum tax would not apply where capital gains are already taxed at rates of at least 30 per cent. Certain recipients of means-tested income support payments would also be exempt under the proposed framework.

New Build Exemptions and Transitional Arrangements

Eligible new residential builds would continue to receive access to negative gearing under the proposal. Investors purchasing qualifying new builds could also choose between the existing 50 per cent CGT discount or the proposed cost base indexation and minimum tax when selling the property.

Eligible new builds include residential dwellings constructed on vacant land and developments that replace existing buildings with a greater number of dwellings. Renovations or knock-down rebuilds that do not increase housing supply would not qualify.

The proposal also includes transitional arrangements for both negative gearing and capital gains tax. Existing investments meeting the eligibility criteria would continue to receive current treatment, while assets owned before 1 July 2027 would apply current arrangements to gains accrued before that date and the proposed framework to gains accruing afterwards.

Policy Objectives and Expected Outcomes

According to the proposal, the reforms are intended to support home ownership, improve the efficiency of the tax system and encourage investment in new housing supply. The document states that transitional arrangements are designed to minimise market disruption by reducing incentives for investors to buy or sell assets before key implementation dates.

The proposal also explains that examples have been provided to illustrate how the new arrangements could apply to different investment scenarios, including existing property owners, new property investors, share investments, varying investment returns and the operation of the proposed minimum capital gains tax.

Q1. When would the proposed reforms begin?

The proposed negative gearing and capital gains tax reforms are scheduled to commence from 1 July 2027, subject to the implementation framework outlined in the proposal.

Q2. Which properties would continue to qualify for negative gearing?

Under the proposal, eligible new residential builds would continue to qualify, while existing properties would be subject to the transitional arrangements.

Q3. What would replace the current 50 per cent CGT discount?

The proposal replaces the discount with cost base indexation and introduces a 30 per cent minimum tax on eligible capital gains.

Q4. Would existing property owners be covered by transitional arrangements?

Yes. The proposal includes transitional arrangements designed to preserve existing treatment for qualifying investments while applying the new framework to gains accruing after 1 July 2027.