The Australian Government is proposing changes to Australia’s tax law on negative gearing and capital gains tax (CGT) arrangements. Under the reforms, negative gearing benefits for residential property investments will be restricted to newly built residential properties. TFP Tax Accountants is trying to outline the new plans on CGT cost-base indexation and introduce a 30% minimum tax rate on capital gains. The government notes that since 1999, housing prices have increased at more than twice the rate of average full-time earnings. At the same time, the rate of home ownership among people aged 25 to 34 fell by seven percentage points between 2001 and 2021.

Our tax accountants/tax advisors are able to demonstrate clarification of the new reform point-wise as below:

From 1 July 2027, the proposed measures will:

• Restrict negative gearing on residential property investments to new builds.
• Replace the current 50% CGT discount for individuals, trusts, and partnerships with cost-base indexation.
• Introduce a 30% minimum tax rate on capital gains.

The government says these reforms will help create a more balanced tax system, reduce pressure on wage earners and first-home buyers, and encourage investment in new residential housing.

Impact on Existing Property Investments

The proposed changes are expected to have a limited effect on existing property investments. Residential properties acquired before 7:30 pm AEST on 12 May 2026 will be protected from the new negative gearing restrictions. The proposed CGT changes will only apply to capital gains that accrue from 1 July 2027 onwards.

Rental Losses Carry Forward or Utilise with Others:

Under the current tax rules, rental property losses can generally be used to reduce other taxable income, such as salary and wages. This can provide tax benefits to investors who borrow money to purchase residential properties.  From 1 July 2027, losses from residential investment properties purchased on or after 7:30 pm AEST on 12 May 2026 will generally only be deductible against income from other residential properties, including capital gains.

If an investor has more eligible rental losses than residential property income in a particular year, the unused losses can be carried forward and used to reduce eligible residential property income in future years. This means investors will not lose the benefit of legitimate deductions. For example, allowable expenses such as property maintenance costs may still be claimed against residential property income in future years.

The proposed rules will generally apply to individuals, partnerships, companies, and most trusts. However, widely held trusts, including most managed investment trusts, and superannuation funds, including SMSFs, will generally be excluded from these changes.

Cost Base Indexation

The current 50% CGT discount was introduced in 1999. Under this system, eligible taxpayers can generally reduce their taxable capital gain by 50%, rather than adjusting the original cost of the asset for inflation. However, a fixed 50% discount does not necessarily reflect the actual impact of inflation over the period an asset is held. Depending on the level of investment growth and the period of ownership, taxpayers may receive either more or less tax relief than the inflation component of the gain would justify.

The proposed reforms would return to a CPI-based cost base indexation system. This approach is intended to better reflect the inflation component of an asset’s capital growth and encourage investment decisions to be based on genuine economic considerations rather than tax benefits. Under the proposed system, the cost base would be adjusted using the Consumer Price Index (CPI), broadly similar to the indexation arrangements that applied between 1985 and 1999. TFP Tax Accountants are expected to provide further guidance and calculation tools to assist taxpayers in determining the indexed cost base from the ATO.

The proposed changes would apply to CGT assets, including property and shares, held by individuals, partnerships, and trusts for at least 12 months. Applying the same approach across different types of CGT assets is intended to create a more consistent and broadly asset-neutral tax system while allowing for specific exemptions where appropriate.

Minimum Tax on Capital Gains

From 1 July 2027, a minimum tax rate of 30% will apply to real capital gains that accrue from that date. However, the tax will only become payable when the capital gain is actually realized, such as when an asset is sold. The minimum tax will generally have no additional impact on taxpayers whose capital gains are already taxed at a rate of 30% or higher.

The proposed measure is intended to reduce the tax advantage of delaying the sale of an asset until a year when the taxpayer has a lower marginal tax rate. It aims to ensure that capital gains are taxed at a rate that is more consistent with the taxpayer’s tax rate during their working years and broadly comparable to the tax rate paid by most workers. People receiving means-tested government income support, such as the Age Pension or JobSeeker, will be exempt from the 30% minimum tax if they receive any eligible payment during the financial year in which they realize the capital gain.

Transitional Rules for Negative Gearing

The proposed negative gearing changes will include transitional arrangements to protect certain existing investments. New residential properties will continue to qualify for negative gearing both before and after 1 July 2027.

For established residential properties:

• Properties already held at the time of the announcement, including properties under contract but not yet settled, will continue to qualify for negative gearing in future years until they are sold.
• Properties purchased between the announcement date and 30 June 2027 may continue to be negatively geared until 30 June 2027 but will no longer qualify from 1 July 2027.
• Established residential properties purchased from 1 July 2027 will not qualify for negative gearing.
• These transitional rules are intended to protect investors who had already made investment decisions based on the existing tax arrangements.

Transitional Rules for Capital Gains Tax

For eligible CGT assets other than new residential properties:

• Assets purchased and sold before 1 July 2027 will remain subject to the existing CGT rules.
• Assets purchased after 1 July 2027 will be subject entirely to the new CGT arrangements.
• Assets purchased before 1 July 2027 but sold after that date will be subject to the existing rules for gains accumulated up to 30 June 2027, while gains arising from 1 July 2027 onwards will be calculated under the new rules.

For these transitional assets, the existing 50% CGT discount will apply to the increase in value between the original cost base and the asset’s value at 1 July 2027.

For any further growth after 1 July 2027, the new cost-base indexation and 30% minimum tax rules will apply, using the asset’s 1 July 2027 value as the starting cost base.

Determining the Asset’s 1 July 2027 Value

Taxpayers will need to determine the value of the asset as of 1 July 2027, when the asset is eventually sold.

They will generally have two options:

1. Obtain a valuation of the asset as at 1 July 2027. For assets such as listed shares, quoted market prices may be used; or
2. Use a prescribed calculation method to estimate the 1 July 2027 value based on the asset’s historical growth rate.

Our Tax Agents //tax accountants are expected to provide guidance and tools to help taxpayers calculate this value from the ATO. These transitional rules will also apply to legacy CGT assets, including assets acquired before 1985. Any gains relating to the period before 1 July 2027 on pre-CGT assets will continue to remain exempt.

New Build Exemption

Investors who purchase eligible new residential properties will have a choice when the property is eventually sold. They can use either:

• the existing 50% CGT discount, or
• the new cost-base indexation and minimum tax arrangements.

New-build investors will also continue to benefit from negative gearing. This means that if the property generates a rental loss, the investor can continue to use that loss to reduce other taxable income, including salary and wages.

To qualify as a new build, the property must genuinely contribute to additional housing supply. This may include:

• A new dwelling constructed on vacant land; or
• Replacing an existing property with a greater number of new dwellings.

A simple knock-down rebuild or substantial renovation that does not increase the number of dwellings will generally not qualify.

A new-build property must not have previously been sold, except where it was initially owned by the builder and remained unoccupied for no more than 12 months.

Importantly, if the property is later sold to another purchaser, the subsequent owner will not receive the new-build exemption for negative gearing or the 50% CGT discount. This is similar to the treatment of certain new-build stamp duty concessions in some states.

Other Exemptions

The main residence exemption will continue to apply, meaning an eligible family home will remain generally exempt from CGT.

The existing four small business CGT concessions will also remain unchanged.

The existing 60% CGT discount for qualifying affordable housing investments will be retained to continue encouraging investment in affordable housing.

The government also intends to consult with the technology and start-up sector about how the proposed CGT changes may interact with incentives for investment in early-stage and start-up businesses. The negative gearing changes will apply only to residential property. Commercial property and other investments, such as shares, will continue under the existing arrangements.

Additional exemptions from the negative gearing restrictions may also be available to private investors who participate in government housing programs, including arrangements that provide affordable housing.

At TFP Tax Return Services, we specialize in individual and business tax returns and management, handling everything from simple to complex cases such as negative gearing, property investment, capital gains on shares and investment property, and property development. Our experienced Tax Agent, Tax Accountant, or Tax Advisor is just a call away to assist with your tax matters.

We’re here to help—get started by filling out your enquiry form at https://tfptax.com.au/contact-us.