The Biggest Property Tax Shift in Decades

OPPORTUNITIES MOST PEOPLE MISSED

Following Treasurer Jim Chalmers’ Federal Budget announcement on 12 May 2026, the Government has confirmed major changes to housing tax settings that represent the most significant shift since 1999.

While headlines have focused on what investors are losing, the real story lies in the opportunities these reforms have created - particularly for those who know where to look.

Although many people are unhappy with the proposed changes and vocal about what they’re losing, there are some genuine positives to extract from these reforms - opportunities for those prepared to act while others are still processing what just happened.

What are the proposed changes (and what they mean for you)

The centrepiece of these reforms is a complete overhaul of negative gearing and capital gains tax arrangements.

From 1 July 2027 (yes - NEXT YEAR), negative gearing will be abolished for investors purchasing established properties. However, it remains fully available for brand new builds:

• houses

• apartments

• townhouses

• anything that hasn’t been lived in before

Existing properties owned before 7:30pm on 12 May 2026 are completely grandfathered, meaning current investors keep all their existing benefits.

The capital gains tax framework is being reformed simultaneously.

The current 50% CGT discount will be replaced with an indexation based model that only taxes your real capital gain after accounting for inflation, plus a minimum effective tax rate of 30%.

For investors buying new residential builds, there’s a choice:

1. use either the old 50% discount or

2. the new indexation method, whatever delivers a better outcome.

The opportunity everyone’s talking around (and few are grasping)

Here’s the strategic advantage that many are missing… Brand new properties may offer investors the best of both worlds:

• full negative gearing deductions against all income sources, AND

• the flexibility to choose between two CGT calculation methods.

Think about that for a moment.

You’re gaining maximum tax efficiency on the holding costs through negative gearing, while also able to choose the CGT approach that works better when you sell.

In a high inflation environment, indexation could deliver far greater outcomes than a flat 50% discount. This dual optionality is unprecedented and creates a genuine tax arbitrage opportunity.

For first home buyers, the implications are equally profound and different.

With investors redirected toward new builds, competition for established homes that represent the vast majority of affordable entry points is expected to ease considerably.

Some estimates suggest approximately 75,000 individuals who previously struggled to enter the market are expected to benefit from reduced investor competition.

What you can still do (and what you may have already missed)

If you bought an investment property before Budget night, your existing arrangement may be grandfathered. Your property retains full negative gearing rights indefinitely and any capital gains up to 1 July 2027 qualify for the old 50% discount.

Gains after that date receive split treatment:

• the old discount for pre-July 2027 growth, and

• indexation for everything after.

If you’re considering an established property investment after Budget night, understand the reality:

• you can still claim rental losses until 30 June 2027, however

• from 1 July 2027, those losses can only offset income from other residential properties - not your salary or business income.

Critically, though, you can carry forward unused losses to offset future residential property income, including capital gains when you eventually sell.

This means the deduction isn’t lost - it’s delayed.

For new build investors, nothing changes in terms of negative gearing access. You can still deduct losses against all income sources, exactly as before. And you retain the CGT flexibility mentioned earlier.

The first home buyer sweeteners you might have overlooked

Beyond the expected reduced investor competition, first home buyers have access to the expanded 5% Deposit Scheme that removed place caps (number of spots available each year) and income limits (previous limits removed) from 1 October 2025.

Property price caps increased

Scheme	Location	Previous cap	Current cap	Increase
NSW	Sydney & regional centres	$900,000	$1,500,000	$600,000
NSW	Other areas	$750,000	$800,000	$50,000
VIC	Melbourne & Geelong	$800,000	$950,000	$150,000
VIC	Other areas	$650,000	$650,000	No change
QLD	Brisbane, Gold Coast, Sunshine Coast	$700,000	$1,000,000	$300,000
QLD	Other areas	$550,000	$700,000	$150,000
WA	Perth	$600,000	$850,000	$250,000
WA	Other areas	$450,000	$600,000	$150,000
SA	Adelaide	$600,000	$900,000	$300,000
SA	Other areas	$450,000	$500,000	$50,000
TAS	Hobart	$600,000	$700,000	$100,000
TAS	Other areas	$450,000	$550,000	$100,000
ACT	All areas	-	$1,000,000	-
NT	Darwin	-	$750,000	From 1 July 2026
NT	Rest of NT	-	$600,000	-

This means you can now purchase with just a 5% deposit without paying Lenders Mortgage Insurance, provided the property price is within the cap for your specific location and you meet the scheme’s eligibility criteria.

For someone buying a $650,000 property in Logan or Moreton Bay (two of Australia’s most active first home buyer regions), that’s the difference between requiring $130,000 (20% deposit) and $32,500 (5% deposit) - a $97,500 barrier that’s been removed.

There’s also the new $1,000 instant tax deduction available from the 2026-27 financial year. This applies to all workers. You don’t need receipts for work related expenses up to $1,000, it’s now automatic.

What the numbers actually reveal (beyond the headlines)

The Government expects these property tax reforms to generate $4.5 billion over the forward estimates period, with revenue growing over time to help fund tax relief for workers.

That revenue is designed to help to fund the tax relief measures mentioned above, however the reforms are expected to have different effects across investor and owner occupier groups.

The timing advantage for new builds

What’s less discussed is the timing advantage for new builds. Under current construction timeframes, if you sign a contract today for a house and land package with a 12- 18 month build time, you could settle in late 2027 or early 2028.

By then, the new tax arrangements are expected to be in full effect, established property investors are predicted to have largely exited the market and you may be entering with the tax settings that may be available under the proposed changes at a time when others are sitting on the sidelines.

The strategic play most investors are missing

For illustrative purposes, below is a scenario worth exploring…

An investor purchasing a house and land package today faces a choice between acting immediately or waiting 3-6 months to see how the market adjusts to the new tax settings. Those who wait might identify builders with proven track records in growth corridors receiving infrastructure investment, and time their contract signing so settlement occurs in early 2028 when competition has stabilised.

Investors taking this approach could potentially benefit from:

• Lower purchase prices as the market adjusts,

• Full access to negative gearing,

• Two potential capital gains tax calculation methods if available under the final rules,

• Infrastructure driven capital growth from Government investment, and

• Improved timing when the tax advantages are fully operational.

For first home buyers, the dynamics differ considerably. With investor competition now redirected towards new builds, the established property market may present better value and reduced competition - exactly what these Budget reforms were designed to create.

Alternatively, if an investor identifies a genuinely undervalued opportunity today in an area with strong fundamentals, locking it in now before the new build rush intensifies could be equally strategic, provided their chosen builder can deliver on time.

The opportunities are there, however only for those who understand what’s actually changed, not just what’s been taken away.

Note: These proposed changes require passage through Parliament before becoming law. While they appear likely to proceed, details may shift during the legislative process. This article was fact checked at the time of writing.

If you'd like help with assessing your personal and financial situation, as well as comparing the loans in the market to see if you're truly getting the right deal for you, then call Bob Malpass now on 0431 862 136, email bob@westhomeloans.com.au