Australia Changes Capital Gains Tax and Negative Gearing Rules in Federal Budget

The Australian government has introduced tax changes in the 2026 federal budget that alter capital gains tax treatment and negative gearing for property investors. Instead of the current 50 percent discount on profits from investments held more than one year, the system will return to a pre-1999 model in which the discount is based on inflation.

Negative gearing will no longer be available to new investors purchasing established homes, though it remains permitted for those buying newly built properties to encourage additional housing supply. The government is also introducing a minimum 30 percent tax rate on income from discretionary trusts.

These measures follow analysis showing that since the turn of the century the top 1 percent of earners have received an average tax benefit exceeding $730,000 from the combination of the capital gains tax discount, negative gearing and discretionary trust arrangements.

The next 1 percent of high earners received an average benefit of $152,000 over the same period while the median taxpayer received $12,400. The budget papers indicate the new rules will reduce these concessions going forward. Existing investors are protected from the changes through grandfathering provisions.

Economists had argued that avoiding grandfathering could have freed up additional budget room for tax relief for workers.

6 percent of first home buyers since 2019 had been investors, according to Australian Bureau of Statistics figures. Many of these used a rent-vesting strategy that combined negative gearing with the expectation of capital gains. The new rules remove that pathway for future first home buyer investors purchasing established homes.

Officials stated that directing such investors toward newly built homes would still allow negative gearing while supporting housing supply goals. One official said the changes would result in another 75,000 Australians, primarily younger people, entering the housing market.

Opposition figures have vowed to repeal the tax changes if returned to government, arguing the measures will limit younger Australians' ability to build wealth. The reforms have been described in budget documents as the most substantial tax package since the turn of the century.

Former senior public servants have called the steps a meaningful contribution toward addressing housing pressures over time, though not a complete solution.