Federal Budget 2026-27: what tonight's announcement actually means for Australian landlords

This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.

Treasurer Jim Chalmers stood up in the House of Representatives at 7:30pm tonight, 12 May 2026, and confirmed what three weeks of leaks had pointed at. Negative gearing for residential property will be limited to new builds. The 50% CGT discount is gone, replaced by indexation plus a 30% minimum tax rate. Both changes take effect from 1 July 2027.

Chalmers described the package as "the most important and ambitious in decades". The Coalition treasury spokesperson Tim Wilson called it "broken promises, higher taxes, lower living standards and fewer homes". The lobbying war that ran through April is over. What matters now is what these measures actually do to your portfolio, what is grandfathered, what is not, and what to do between now and 1 July 2027.

We covered the lead-up in the budget preview. What landed tonight is materially close to what Treasury was modelling, but with one important softening: the grandfathering question is settled, and it landed in investors' favour. Existing holdings stay on existing rules.

The Two Tax Changes That Matter

There are two changes property investors need to read line by line. Everything else in tonight's budget is secondary to these.

Negative Gearing Limited to New Builds, From 1 July 2027

From 1 July 2027, residential property losses can only be deducted against your salary or wage income if the property is a new build. For any established property purchased after 7:30pm tonight, losses are quarantined. You can use them against rental income from that property or other rental properties, and you can carry them forward to offset capital gains at sale, but you cannot deduct them against your day job.

The mechanics in the Treasury budget paper on tax reform make three things clear.

• Existing arrangements are unchanged for any property you owned on 12 May 2026. Grandfathering applies on a "held on budget night" basis. If you settled before tonight, you are inside the existing rules indefinitely, including across future sales of those specific properties.
• New builds purchased after tonight retain full negative gearing. The policy intent is to push capital towards additions to supply rather than competition for the existing stock.
• Properties tied to government housing programs, including affordable housing, are also exempt. That includes National Housing Accord, build-to-rent affordable tenancies, and similar arrangements.

The Conversation, in its budget night analysis, notes the carry-forward provision is the real cushion here. A landlord buying an established property in late 2027 still gets the deductions, they just sit on the balance sheet until offsettable rental income or a capital gain arrives.

CGT Discount Replaced by Indexation Plus 30% Minimum, From 1 July 2027

The 50% CGT discount for individuals, trusts and partnerships disappears for residential property gains realised after 1 July 2027. It is replaced by cost base indexation (the method used between 1985 and 1999) plus a minimum tax rate of 30% on the indexed gain.

Cost base indexation adjusts your purchase price upwards for CPI inflation. The intent, in the government's own words, is to "restore the taxation of real gains". Inflation that simply preserves purchasing power is no longer taxed. Genuine real-terms wealth creation is.

For new builds acquired after budget night, investors can elect between the existing 50% discount and the new indexation method at the point of sale, whichever produces the better tax outcome on that property.

Grandfathering on CGT works the same way as negative gearing. If you owned the property on 12 May 2026, the existing 50% discount applies to any future sale, regardless of when you sell.

The two changes are co-timed. Together, the SBS five-minute guide reports the package raises $1.35 billion in 2028-29, rising to $2.28 billion in 2029-30. Treasury modelling cited in tonight's papers suggests median dwelling prices grow about 2 percentage points slower annually under the reforms, which translates to roughly $19,000 less price growth per year on a median dwelling.

What This Does to Your After-Tax Cash Flow

The grandfathering is the headline win for existing investors. For most readers of this blog, owning one to five established properties, today does not change your tax position on your current holdings. Negative gearing continues. The 50% CGT discount applies to your future sale of those properties.

Where it matters is the next purchase decision. Take a typical example we ran through in the preview: a $700,000 Brisbane apartment earning $30,000 in rent with $42,000 in deductible costs, producing a $12,000 paper loss. The numbers shift like this depending on what you do next.

• Property bought before 12 May 2026. No change. At a 37% marginal rate, the $12,000 loss returns $4,440 in tax. Net cash cost: $7,560 a year. CGT on a future sale calculated at the 50% discount.
• New build bought after 12 May 2026. No change to negative gearing on the loss. Election available at sale between 50% discount and indexation plus 30% minimum, whichever is better.
• Established property bought after 12 May 2026, post 1 July 2027. The $12,000 loss is quarantined. The $4,440 salary offset goes away in the year incurred. The loss carries forward and remains useful against future rental profit or sale gains, but the immediate cash flow benefit is gone. CGT on a future sale: indexed cost base plus 30% minimum.

That is the choice you are now making on every post-tonight acquisition: do you buy a new build and keep the salary offset, or buy established and accept the quarantining? It is not strictly a worse deal on established, because the carry forward remains. It is a deferred deal.

Calculate Your Own Position

Negative gearing maths is sensitive to your marginal rate, loan balance, rent and deductible costs. Run the numbers on each property you hold and any property you are considering.

For the sale side, the capital gains tax calculator lets you model both the existing 50% discount path and a post-1 July 2027 indexation path on the same property, so you can see the dollar gap. For pure holding cost without the tax benefit, the cash flow calculator shows what a property actually costs to hold before any tax offset.

Worker Tax Relief and the $1,000 Instant Deduction

Two changes in tonight's budget cut into the personal income tax side of your return, which matters for landlords running rental losses against salary.

The Working Australians Tax Offset. From the 2027-28 income year, more than 13 million Australian workers will receive a permanent $250 tax offset. It is in addition to the previously legislated tax cuts. Treasury says combined cumulative relief by 2028-29 reaches up to $2,816 a year for an eligible worker.

The $1,000 instant tax deduction. From the 2026-27 income year (this current year), you can claim a flat $1,000 work-related deduction without needing receipts. It does not replace your rental property expense deductions. Rental claims still need to be substantiated against actual costs. The flat deduction is a simplification for the salary side of the return only.

For a typical landlord earning $120,000 in salary plus rental income, this lifts the deductible expense floor by $1,000 without any extra record-keeping. The ATO's guide to work-related expenses walks through the existing substantiation rules that the new flat deduction sits alongside.

Discretionary Trusts: 30% Minimum From 1 July 2028

The third tax structural piece announced tonight applies to discretionary trusts. From 1 July 2028, a minimum 30% tax rate applies to trust distributions, payable by the trustee. Treasury estimates this affects roughly one million family and small business trusts.

Fixed trusts, special disability trusts and charitable trusts are exempted. A rollover relief window extends through 30 June 2030 to allow restructuring without triggering CGT or stamp duty events.

For landlords holding investment property through a discretionary trust to stream rental income or future gains to lower-income beneficiaries, this is the change worth talking to your accountant about before mid-2028. The streaming benefit at lower marginal rates is the central reason most landlord trusts exist. The 30% floor compresses or eliminates that benefit depending on your structure.

Housing Supply: $2 Billion for 65,000 Homes

The supply-side announcements tonight will not lift values in the short term but matter for the longer rental story.

The headline measure is $2 billion in enabling infrastructure (roads, pipes, power) delivered through councils to unlock around 65,000 additional homes over the next decade. Treasury frames this as the "missing piece" between land that has been zoned and dwellings that can actually be built.

Total housing investment, including HAFF, Housing Australia, social and affordable spending and the new infrastructure money, now sits at $47 billion across the forward estimates. That is a record federal commitment, though delivery timelines are long and most of the 65,000 dwellings will not arrive before 2030.

For landlords, the supply story matters for two reasons. First, it sets the rental vacancy trajectory. The SQM Research data we covered last week shows national vacancy at 1.0%, deep inside the acute shortage band. A meaningful supply response would loosen that gradually. Second, the new build incentive in the negative gearing change is designed to channel investor capital into adding stock rather than competing for existing housing. Whether it actually shifts behaviour at scale will not be clear until 2028.

First Home Buyers and Foreign Investors

Two pieces aimed at the demand side were also confirmed.

5% deposits for all first home buyers. The no-cap, no-income-test First Home Guarantee remains. Combined with tonight's tax changes, Treasury projects an additional 75,000 Australians moving into ownership over the decade compared with the no-reform counterfactual.

Foreign buyer ban extended. The ban on foreign investors buying established dwellings is extended through 30 June 2029. The ATO's guide to the foreign purchase ban sets out the existing rules. The extension is a continuation rather than a new measure. New build purchases by foreign investors remain permitted, subject to FIRB approval.

The competitive effect for domestic landlords is modest. Foreign buyers of established homes were already constrained. The extension removes a 2027 reset risk that some had built into their planning.

Small Business: Instant Asset Write-Off Made Permanent

For landlords running their rental activity through a small business entity, or holding property in a structure with associated small business turnover under $10 million, the $20,000 instant asset write-off is now permanent from 1 July 2026. That ends the year-by-year extension dance and gives genuine certainty for capital expenditure planning.

The threshold applies per asset, not per business. Air conditioning units, dishwashers, hot water systems and similar capital items each costing less than $20,000 ex-GST can be expensed immediately rather than depreciated over their effective life. For rental property held inside an eligible entity, this is a real planning lever for replacing major items.

The pure depreciation regime (Division 40 plant and equipment, Division 43 capital works) is otherwise unchanged tonight. The full landlord depreciation guide remains the how to calculate depreciation post, and you can model your own claim with the calculator below.

Economic Forecasts: The Backdrop

Treasury's forecasts in tonight's budget paint a softer growth picture and a sticker inflation profile than the December update.

• GDP growth: 1.75% this financial year (2025-26), recovering to 2.25% in 2026-27.
• Inflation: Peaking at 5% mid-2026 before easing. Treasury's central case assumes oil at US$100 per barrel through to mid-2026, then drifting to US$80 by June 2027.
• Unemployment: Stable under the base scenario, no recession in the central forecast.
• Migration: Permanent intake held at 185,000 places, with over 70% allocated to skilled categories.

The worst-case scenario modelled by Treasury, where the Middle East conflict pushes oil to US$200 per barrel, has unemployment rising and inflation exceeding 7%. That is a sensitivity rather than a forecast, but it is in the papers.

For landlords, the soft growth plus high inflation forecast is the central backdrop for the RBA decision we covered last Tuesday. The cash rate moved to 4.35% on 5 May. Tonight's inflation forecast is not inconsistent with another hike later this year, despite CBA and ANZ calling May as the peak. NAB and Westpac will be reading these forecasts closely.

What Actually Changes for You This Week

If you owned property at 7:30pm tonight, your immediate tax position is unchanged. The grandfathering does what it says. You do not need to take any defensive action this week.

What you do need to think about between now and 1 July 2027 falls into four buckets.

1. Audit your existing holdings against the grandfathering boundary. Confirm settlement dates for each property are on or before 12 May 2026. Cross-check that your records (contract dates, settlement statements, title transfer dates) line up cleanly. A handful of landlords with off-the-plan or staged settlements straddling tonight will need legal advice on which side of the boundary they fall.

2. Reassess the case for any planned next purchase. If you were planning to buy an established investment property between now and 1 July 2027, you have a window where the existing rules still apply, including on negative gearing. Whether to use that window depends on the specific opportunity, your overall serviceability under the recent rate rises, and whether the property is the right one regardless of tax. Do not let the budget drive a purchase that did not make sense yesterday.

3. Reframe the new-build investment case. From 1 July 2027, new builds are the only path to a salary offset on losses. The build-to-rent and house-and-land markets are likely to be repriced over the coming year to reflect this. That repricing could compress the gross yield on new builds, but the tax-adjusted return remains the key comparison. Run both new and established scenarios with and without the salary offset before committing.

4. Talk to your accountant about trust structures, well ahead of 1 July 2028. If you hold property through a discretionary trust, the new 30% minimum applies in 14 months. Rollover relief is available until 30 June 2030 to restructure without CGT or duty triggers. That is generous, but the decision to restructure (or not) needs to be modelled properly before the deadline. Bookings with property-savvy accountants will tighten through the back end of 2026 and 2027.

For tracking the cash flow position on each property, including the after-tax numbers under both the current rules and a post-1 July 2027 sensitivity, you want every income line, deductible expense and interest charge captured cleanly per property. The EOFY landlord checklist is the right reference point for the substantiation side. Propkt does the property-by-property aggregation in real time so the numbers are sitting there when you need them.

The Bottom Line

The 2026-27 budget is the largest restructuring of property investment tax in Australia since the introduction of the 50% CGT discount in 1999. The grandfathering of existing holdings is generous, and the two-year lead time before commencement gives the market space to adjust. For most existing landlords on this site, the changes do not bite immediately.

What does change is the calculation on every new purchase from tonight onwards. Established property after 1 July 2027 is a structurally different investment than it was at 6:30pm. New builds carry a tax preference they did not have before. Trust structures need a 14-month restructure window. The CGT calculation at any future sale of a post-12 May 2026 acquisition is fundamentally different.

This post is general information only and not tax advice. Every investor situation is different, and the specific consequences of any of these reforms depend on your marginal rate, portfolio composition, loan structure, and acquisition dates. A registered tax agent is the only person qualified to advise on your specific position. The detail in the budget papers will continue to be unpacked over the coming days, including by Treasury's own explanatory factsheets.

Frequently Asked Questions

What did the 2026-27 federal budget change for property investors?

From 1 July 2027, negative gearing for residential property will be limited to new builds. The 50% CGT discount is replaced with cost base indexation and a 30% minimum tax rate on capital gains. Properties owned on 12 May 2026 are grandfathered under the current rules. Existing investors are not affected unless they buy another established property after budget night.

Is my existing rental property grandfathered?

Yes. Any property you owned on 12 May 2026 is exempt. Negative gearing and the 50% CGT discount continue to apply to those holdings under the existing rules. The new restrictions only bite on established properties purchased after budget night. Investments supporting government housing programs, including affordable housing, are also exempt.

When do the negative gearing and CGT changes start?

Both changes commence on 1 July 2027, giving the market more than a year to adjust. Revenue gains do not start flowing into the budget until 2028-29, when Treasury expects $1.35 billion, rising to $2.28 billion in 2029-30.

What is the 30% minimum tax on capital gains?

From 1 July 2027 the 50% CGT discount is replaced by cost base indexation, which adjusts the purchase cost for inflation so only real gains are taxed. A minimum effective tax rate of 30% applies to those gains. Investors who buy new builds after budget night can elect to use the current 50% discount or the new indexation method when they sell.

If I buy an established investment property after 12 May 2026, can I still negatively gear it?

Only against rental income, not your salary. From 1 July 2027, losses on established properties bought after budget night are quarantined. You can carry forward unused losses to offset future rental income or capital gains at sale, but you cannot deduct them against wages.

What did the budget do for renters and first home buyers?

The Albanese government's no-cap, no-income-test 5% deposit scheme remains in place. Tonight's budget added $2 billion in enabling infrastructure to unlock around 65,000 additional homes over the next decade, on top of $47 billion total housing investment. The ban on foreign purchases of established dwellings was extended through to 30 June 2029.

What is the $1,000 instant tax deduction?

From the 2026-27 income year, individuals can claim a flat $1,000 instant work-related deduction without receipts. It does not replace your rental expense deductions. Rental property claims still need to be substantiated in the usual way, but the flat deduction simplifies the personal-income side of your return.

Sources and Further Reading

• Budget 2026-27 Tax Reform
• Treasurer Jim Chalmers' Budget Speech, 12 May 2026
• SBS News: Federal Budget 2026 winners and losers
• SBS News: Five minute guide to the 2026 budget
• The Conversation: A budget with a bundle of reforms
• ATO: Banning foreign purchases of established dwellings
• Propkt: Pre-budget preview, 18 April 2026
• Propkt: RBA May 5 rate decision
• Propkt: Cotality April HVI

When tax rules change at this scale, the value of having every income line and deductible expense pinned to the right property compounds. Propkt tracks rental income, deductible expenses and depreciation per property across your portfolio, so when you sit down with your accountant after 1 July 2027, your grandfathered properties, your post-budget acquisitions, and your trust holdings are already cleanly separated. Start tracking for free.