Australia's Biggest
Property Tax Shake-Up
in 25 Years

Just days ago, at 7:30pm AEST on 12 May 2026, the Australian Government dropped what may be the most consequential property tax announcement since the introduction of the 50 per cent capital gains tax discount back in 1999. If you own investment property, are thinking of buying one, or are a first home buyer hoping to break into the market — this affects you.

The reforms, announced as part of the 2026–27 Federal Budget, target two pillars of Australia's property investment landscape: negative gearing and the capital gains tax (CGT) discount. The changes don't kick in until 1 July 2027, but they begin to apply — in some cases — from the moment they were announced.

What Is Negative Gearing, and What's Changing?

Negative gearing occurs when the costs of owning an investment property — mortgage interest, maintenance, management fees — exceed the rental income it generates. Under current rules, that net loss can be deducted against your salary or wages, reducing your overall taxable income. It's a popular strategy among Australian property investors, particularly those on higher incomes.

From 1 July 2027, that's changing for most established properties. Losses from residential investment properties purchased after the announcement will only be deductible against income from other residential properties — not your salary. If you have excess losses, you can carry them forward and use them in future years against property income. But the ability to use property losses to reduce your wage income will be gone for new purchases of existing stock.

Critically, if you already hold an investment property — or had a contract exchanged before 7:30pm on 12 May 2026 — you are fully grandfathered. Nothing changes for you under the negative gearing rules. You can continue using your rental losses to offset your other income for as long as you hold that property.

ABOVE: The reforms are designed to improve housing affordability and access for first home buyers over the coming decade.

The Capital Gains Tax Overhaul

This is the bigger structural shift. Currently, if you sell an asset you've held for more than 12 months, you only pay tax on half the capital gain — a 50 per cent discount introduced in 1999. The Government argues this discount doesn't accurately reflect inflation and provides a windfall for high-return investors while offering poor value to low-return ones.

From 1 July 2027, the 50 per cent discount is replaced with two new mechanisms:

1. Cost Base Indexation

Rather than simply halving your gain, the new system adjusts your original purchase price (cost base) upward by inflation — measured by the Consumer Price Index (CPI). This means you only pay tax on the real, above-inflation portion of your gain. For investors in lower-growth assets, this is potentially better than the current 50 per cent discount. For high-growth assets, it will generally mean more tax.

2. A 30% Minimum Capital Gains Tax Rate

A floor tax rate of 30 per cent will apply to real capital gains accruing from 1 July 2027. This primarily affects retirees or people in low-income years who might otherwise realise gains at a very low marginal rate. People on Age Pension or JobSeeker in the year they sell an asset are exempt from this minimum tax.

Try It Yourself: CGT Comparison Calculator

Enter your own numbers below to see how the proposed 2027 rules compare to the current 50% CGT discount for your situation.

The Transitional Rules You Need to Know

For assets you already own, the CGT changes are split at 1 July 2027. Gains accrued before that date are still taxed under the old 50 per cent discount. Only gains accruing after that date are subject to the new indexation and minimum tax rules. You'll use ATO tools (which will be made available) to determine your property's value as at 1 July 2027 — either through a formal valuation, or a Treasury-approved apportionment formula.

This means that for a property you bought in 2020 and sell in 2030, you'll essentially have a two-tranche calculation: the old rules for the pre-2027 gain, and the new rules for everything after.

ABOVE: Property investors will need professional advice to navigate the transitional CGT arrangements applying from 1 July 2027.

What About New Builds?

The Government has deliberately carved out newly constructed properties as a policy lever to drive housing supply. If you invest in a genuine new build — a property on vacant land, or a development that increases the number of dwellings on a site — you retain full negative gearing access and can choose between the old 50 per cent CGT discount or the new indexation arrangements when you sell.

What doesn't count as a new build: extensions to existing properties, a knock-down rebuild that replaces one house with one house, or a granny flat on an already-established property. The rules are specific — the dwelling must genuinely add to housing supply.

What Does This Mean for the Market?

Treasury modelling projects around 75,000 additional owner-occupiers entering the market over the next decade as investor demand moderates. House price growth is forecast to slow by roughly 2 per cent over a couple of years — a meaningful but not dramatic correction. Rent increases are projected to be less than $2 per week for the median renter, with supply measures in the broader Budget package intended to offset any upward pressure over time.

The OECD, for its part, has long recommended reducing or eliminating Australia's CGT discount and phasing out negative gearing — calling it necessary to improve the tax system's efficiency. Australia is moving broadly in line with how most OECD nations treat capital gains.

Why This Matters for the Brisbane Inner West

The inner west is not a one-size-fits-all market. A renovated Queenslander in Toowong behaves very differently from a 1970s unit in Taringa, which behaves differently again from a newer apartment near the University of Queensland or the train line. That distinction matters enormously here, because policy changes rarely hit every property type equally — and this one is no exception.

For established houses, particularly the scarce family homes in tightly held inner-west streets, buyer demand will likely continue to be led heavily by owner-occupiers. These are buyers motivated by lifestyle, school catchments, proximity to the CBD and long-term plans for their family — not by whether a tax deduction is available this financial year. That underlying demand doesn't evaporate because a Budget measure changes the rules for investors.

For units and townhouses — especially those with stronger investor appeal — the picture may be more nuanced. Investors may become more selective, particularly when comparing an established property against a new build where negative gearing and the CGT discount still fully apply. That doesn't automatically mean values fall. What it means is that buyers will scrutinise cash flow, rental yield, body corporate costs, depreciation schedules, future resale potential, and land content with considerably more care than they might have before. Shocking development, really: people may actually need to think before buying property.

My Take: The Fundamentals Haven't Changed

These reforms are significant. But they are not the only force shaping the Brisbane inner-west property market — and I'd argue they're not even the dominant one right now.

Interest rates, supply constraints, population growth, rental demand, construction costs, school zones, infrastructure investment and lifestyle preferences will all continue to matter. They always have. The inner west has delivered five years of strong growth — with the last couple of years particularly intense — and owner-occupiers who rode that wave have realised genuinely significant capital gains. And as is simply human nature: once you've made gains, you want more. If you can afford to reach for the next property, you will.

What's also worth noting is that the conditions underpinning that growth haven't disappeared. Stock levels in the inner west have remained constrained, with investors holding their properties more tightly than in previous cycles. If anything, that dynamic could make genuinely great properties stand out even more when they do come to market — particularly as buyer pools shift and some segments become more discerning.

My job as an agent has always been to make a property stand out from the crowd and find the buyer who is prepared to pay an above-market price to secure it. That doesn't change with this legislation. The best properties — well-presented, well-located, with a compelling story — will always attract competition. Tax policy shapes the edges of that dynamic, but it doesn't define it.

For sellers, buyers and investors in the inner west: be deliberate, be informed, and get good advice. The market is maturing into something that rewards preparation more than it ever has.

So What Should You Do?

First and foremost: don't panic, and don't rush. The grandfathering provisions are generous. If you own property today, your existing arrangements are protected. If you were already under contract before Budget night, you're also covered.

What this does demand, however, is that anyone with investment property — or thinking about buying — gets professional advice tailored to their specific situation. The interaction between the transitional CGT rules, your marginal tax rate, your property's growth trajectory, and whether new builds suit your investment goals is genuinely complex. A good accountant or financial adviser will be worth every dollar in this environment.

⚠️ Disclaimer: This blog post is for general informational purposes only and does not constitute financial, tax, or legal advice. The reforms described are proposed Budget measures and subject to legislation being passed. Please consult a qualified financial adviser or accountant regarding your personal circumstances.