Proposed Property Tax Changes Ahead of Budget Night

With the May 2026 Federal Budget approaching, property investors are watching closely for possible changes to property tax rules.

The main areas being discussed are the capital gains tax discount and negative gearing. At this stage, the final details have not yet been released, but there has been public discussion that Treasury has been looking at different reform options.

Under the current rules, individuals and trusts can generally apply a 50% discount to capital gains on assets held for more than 12 months. If this discount is reduced or removed, a larger portion of the capital gain may become taxable.

Supporters of reform argue that the current rules favour investors over owner-occupiers and add pressure to housing affordability. A Senate committee report released in March 2026 also raised concerns that the CGT discount, together with negative gearing, has benefited higher-income taxpayers and encouraged more investor activity in housing.

Negative gearing debate

Negative gearing is also being discussed, although the details are still unclear.

Some options mentioned in public commentary include capping losses, limiting the number of properties that can use the concession, restricting the benefit to new builds, or tightening the rules in another way.

If negative gearing rules are changed, investors may have less ability to offset rental losses against salary or other income. This could reduce investor demand, but it may also affect rental supply and rents if fewer investors are willing or able to hold property.

What investors are watching

The biggest question is how any changes would apply.

The government may decide that any new rules only apply to future purchases, while existing properties are protected under transitional rules. This is often called grandfathering.

In simple terms, grandfathering means the old rules continue to apply to properties already owned before the change, while the new rules apply to future purchases.

Another possible approach is that any future capital gain could be split between the period before and after the rule change. For example, the old rules may apply to the gain built up before the change date, and the new rules may only apply to the gain after that date.

If this happens, property owners may need to know the market value of their property at the date the rules change. This may involve getting a professional valuation supported by comparable sales and market evidence.

This is why keeping good records will be important.

Likely market effects

Most commentary suggests that even if tax changes are announced, the direct impact on house prices may be moderate rather than dramatic.

The bigger impact may be on investor behaviour. Some investors may pause new purchases, review their portfolios, or decide to sell earlier than planned.

For renters, the outcome is less certain. If investor demand reduces, this could ease pressure in some parts of the market. However, if fewer investors provide rental properties or fewer new projects are built, rental supply could tighten and put pressure on rents.

What to watch on Budget night

The key things to watch are:

1. whether the CGT discount is reduced or changed
2. whether negative gearing is capped or narrowed
3. whether any changes are grandfathered for existing property owners

These details will matter more than the headline announcement itself.

For now, the message from pre-Budget discussion is simple: property tax reform is no longer just speculation, and investors should be prepared for possible changes that may affect the economics of residential property.

Pre-Budget considerations

Investors may wish to review their cash flow under tighter tax rules, consider possible CGT outcomes for planned sales, and think about whether valuations may be needed for properties they are already considering selling.

However, rushing to sell may create more costs and risks than any potential tax saving. Anyone considering a sale should seek advice before signing a contract, especially as the final rules, timing and any grandfathering arrangements have not yet been confirmed.

If you are thinking about selling or reviewing your investment property plans, please contact Peter Anderson on 07 3203 6001 or email peter@andersonfamilyrealestate.com. We are happy to help you understand your options before making any decisions.

Sources: Senate Committee, CPA Australia, RSM Australia, Grant Thornton, Allegra Spender’s office and other public pre-Budget commentary.

Disclaimer: This article is general information only and does not constitute tax, legal or financial advice. Property owners should seek advice from their accountant, solicitor or financial adviser before making any decisions.