The 2026–27 Federal Budget proposed two significant changes for residential property investors, both from 1 July 2027: tighter negative gearing rules and a new way of calculating capital gains tax (CGT). Here's what it could mean — and why a tax depreciation schedule may matter more than ever.
What's proposed
- Negative gearing limited to new builds. Rental losses on affected established properties could no longer be deducted against salary or other non-property income.
- CGT overhaul. The 50% CGT discount would be replaced with cost base indexation, plus a 30% minimum tax rate on capital gains.
What's protected
Properties held before 7:30 pm AEST on 12 May 2026 (including those under contract at that time) are expected to be grandfathered — the current negative gearing rules would continue to apply until the property is sold. If you already owned your investment property before Budget night, your arrangements should be unchanged.
How negative gearing would change
Currently, a net rental loss can reduce your salary and other income, lowering your tax. Under the proposal, for an affected established property that loss would be "quarantined" — usable only against residential property income or gains, with any excess carried forward to future years.
The key point: the deduction isn't removed. What changes is when you can use it — potentially deferred to a future year rather than offset against salary immediately.
How CGT would change
The 50% discount would be replaced by cost base indexation, which only protects against inflation — not real market growth. Over a long holding period, more of a property's gain could become taxable than under the current rules. For properties owned before but sold after 1 July 2027, the gain would be split, with the value at that date becoming a new reference point you may need to substantiate.
Why depreciation still matters
Restricting negative gearing doesn't make depreciation less useful — quite the opposite. Depreciation deductions can still:
- Reduce taxable income for grandfathered properties, new builds, commercial properties and SMSF-held properties
- Offset current and future residential rental income and capital gains
- Be carried forward to apply against future residential income or gains
In every case, the deduction only counts if it's properly identified and documented. As qualified Quantity Surveyors, Melbourne Tax Depreciation prepares ATO-compliant schedules that capture your deductions in the correct income years — whether you hold the property or sell it.
Whatever the final legislation looks like, accurate depreciation records support the right tax outcome. To discuss how these proposed changes might affect your property, get in touch with Melbourne Tax Depreciation.
Disclaimer: The measures described above were announced in the 2026–27 Federal Budget and are not yet law. They remain subject to the legislative process and may change before being finalised. This article is general information only and is not tax, legal or financial advice. Please seek advice specific to your circumstances.