🇦🇺 Australia’s Landmark Tax Reforms: What You Need to Know

A comprehensive package targeting housing affordability and intergenerational fairness—including restrictions on negative gearing, a reduced CGT discount, and a minimum trust tax—will take effect from July 2026 and July 2027.

The Australian federal government has announced sweeping tax reforms in the May 2026 budget, designed to reshape the tax treatment of investment properties. The changes have ignited fierce debate among political parties, industry groups, and economists over their potential impact on housing supply, rental prices, and home ownership rates.

Key Tax Changes Announced

Capital Gains Tax (CGT) Discount

The current 50% CGT discount for assets held longer than 12 months will be replaced. From July 1, 2027, investors will be taxed on capital gains after applying an inflation indexation adjustment, with a minimum tax rate of 30% applied to the real gain. The government states its objective is to tax only genuine profit above inflation, moving away from the model introduced in 1999.

Assets purchased before July 1, 2027, will be subject to partial grandfathering. The old rules will apply to gains accrued up to that date, while subsequent gains will be taxed under the new indexation system. Taxpayers can choose between using a valuation as of July 1, 2027, or a time-based apportionment.

Negative Gearing

From May 12, 2026, negative gearing will be restricted to newly built homes only. Investors will no longer be able to deduct rental losses from their other taxable income (e.g., salary and wages) for established properties. For properties purchased after this date, rental losses can only be used to offset rental income or be carried forward to future years. Existing investment properties purchased before the budget announcement are fully grandfathered.

Trusts and Testamentary Trusts

The government announced a 30% minimum tax rate on income distributed from discretionary trusts, effective from July 1, 2028, designed to align the taxation of investment income more closely with wage income.

Following significant criticism and labeling of the measure as a "death tax," the government revised its proposal. "Genuine" testamentary trusts (created through a will for estate planning), where beneficiaries are limited to individuals and tax-exempt entities like charities, will be exempt from the minimum 30% tax. Existing testamentary trusts established before July 2028 are also exempt.

Government Rationale

Treasurer Jim Chalmers and Prime Minister Anthony Albanese have stated the reforms aim to correct tax system distortions that privilege investment in established housing over other forms of economic activity and wage income. The government has cited intergenerational fairness, arguing the current system primarily benefits older, wealthier Australians at the expense of younger people trying to enter the housing market.

Treasury estimates the changes could increase home ownership by 1 percentage point by the 2030s, adding approximately 75,000 owner-occupied homes to the market. The tax package is projected to raise $77.2 billion over a decade.

Political Reactions

Coalition

The Coalition has strongly opposed the reforms. Shadow Treasurer Tim Wilson and Opposition Leader Angus Taylor have accused the government of breaking a core election promise and described the measures as a "tax grab" that will harm investors and increase rents. The Coalition has pledged to reverse the changes if elected. Shadow Treasurer Tim Wilson also characterized the initial trust tax proposal as a "death tax."

Greens

The Greens have advocated for more extensive reforms, including a full phase-out of negative gearing and the abolition of the CGT discount. They have indicated they will push for no grandfathering of new rules in exchange for their parliamentary support for the legislation.

Independent MPs

Independent MP Allegra Spender introduced a rival proposal to reduce the CGT discount to 30% as part of a broader revenue-neutral reform package that would fund income tax cuts. Other independents, like David Pocock, have raised concerns about unintended consequences in the legislation's technical details, such as the impact on joint ownership upon death or divorce (the "widows tax"), which the government subsequently addressed.

Expert and Economic Analysis

Economic and industry experts hold differing views on the likely impact:

• Housing Supply and Prices: Treasury and some economists predict changes will primarily affect property turnover and ownership mix, shifting stock from investors to owner-occupiers. JP Morgan forecasts a 1-3% decline in property prices. Modeling commissioned by property industry groups, however, estimates a reduction in new dwelling starts by tens of thousands, with a potential 2.4% increase in rents by 2029-30.

• Rental Market: The Finance Brokers Association and property figures have argued the reforms will reduce rental supply and increase rents. Other experts, such as economist Chris Richardson, contend that a distinction for new builds is an improvement over the current system and that reduced investor demand for established homes will not lead to long-term rent increases.

• Investor Sentiment: A Property Investment Professionals of Australia survey found that 35% of investors would cease property investment if the CGT discount were reduced to 25%.

• Exemptions and Grandfathering: The significant grandfathering provisions have led economists and analysts to suggest the immediate impact will be minor. Peter Tulip from the Centre for Independent Studies stated the effect on house prices would be "tiny," potentially a 1-2% reduction.

Broader Context and Additional Measures

• Foreign Buyers: The NSW government has removed the foreign purchaser duty surcharge for eligible build-to-rent and retirement living developments, aiming to increase investment in new housing supply.

• Pension Asset Test: The budget did not include a promised change to include the family home in the Age Pension asset test, a reform that some housing economists say would have a more significant impact on housing equity.

• Migration: The Coalition has proposed a policy to cap net overseas migration to one person per new home built annually, linking population growth to housing supply.

Timeline

• May 2026: Budget announcement; negative gearing restrictions on established properties apply from May 12.
• July 1, 2027: New CGT regime takes effect; negative gearing rules fully apply to new purchases.
• July 1, 2028: Minimum 30% tax on discretionary trusts takes effect.