Federal Budget 2026 - Published: 13 May 2026
Last night, Treasurer Jim Chalmers handed down what he called the most ambitious tax reform in 26 years, and for NSW property investors, it's one of the most significant federal budgets in living memory.
The headlines are dominated by negative gearing and capital gains tax, but the full picture is more than the coverage suggests. Here's what you actually need to know.
Negative Gearing — Limited to New Builds from 1 July 2027
From 1 July 2027, negative gearing deductions for residential property will be restricted to new builds only. If you purchase an established property after Budget night (7:30pm AEST, 12 May 2026), you'll still be able to deduct losses — but only against rental income from residential properties, not against your wages or other income. Unused losses can be carried forward to future years.
Critically, properties already held as of last night are fully grandfathered. If you owned investment property before the announcement, your existing arrangements remain completely unchanged until you sell.
Capital Gains Tax — The 50% Discount is Being Replaced
The current 50% CGT discount for individuals, trusts and partnerships is being overhauled from 1 July 2027. It will be replaced with:
- Cost base indexation — meaning your cost base is adjusted for inflation, so you only pay tax on your real capital gain, not gains inflated by the CPI.
- A minimum tax rate of 30% on the resulting gain.
The government frames this as "restoring the original intent" of CGT arrangements, noting that the 50% discount was introduced in 1999 when interest rates and inflation were very different. For gains arising before 1 July 2027, the 50% discount continues to apply in full.
One important carve-out: investors who buy new homes will be able to choose between the old 50% discount arrangement or the new indexation model when they eventually sell — whichever is more advantageous.
Pre-1985 assets, which were previously exempt from CGT, will also begin being taxed at the inflation-adjusted rate from 1 July 2027.
Main residence exemptions and superannuation tax arrangements are not affected.
The Opportunity in New Builds & Owning Land
The budget is explicitly designed to redirect investor activity toward new housing supply, and for those willing to adapt their strategy, there are genuine advantages.
Investors in new builds retain full negative gearing against all income, plus the flexibility to choose between the 50% CGT discount or the new cost-base indexation model when they sell. That optionality is valuable, particularly in a market where inflation has been elevated.
This matters especially in NSW, where the state and federal governments have committed significant infrastructure investment:
- $3.1 billion to build 100,000 new homes nationally
- $2 billion for critical housing infrastructure
- $28 billion+ in enabling infrastructure committed for Western Sydney alone
Seek advice tailored to your situation. The interaction between your income, your existing portfolio, your holding structure and these new rules is complex. General commentary — including this article — is not a substitute for personal financial and tax advice.
This article is general information only and does not constitute financial, tax or legal advice. Please consult a qualified professional before making investment decisions.