2026 Budget property tax: CGT, Division 296 & negative gearing

The 2026-27 Federal Budget brought the biggest property tax changes in a generation. It limited negative gearing on residential property to new builds, replaced the 50% capital gains tax discount with cost base indexation and a 30% minimum tax rate, and confirmed the new Division 296 tax on large super balances. This article explains what changed, when each measure starts, what is grandfathered, and why property valuations matter more than ever in the transition. It is general information on significant and evolving tax law, so confirm the current rules and your own position with a qualified adviser.

The changes were announced in the 2026-27 Budget on 12 May 2026 and, for negative gearing and capital gains tax, have since been legislated. Most start on 1 July 2027, which gives investors a window to understand where they stand.

Key takeaways

• Negative gearing on residential property is being limited to new builds, from 1 July 2027, for properties acquired after the Budget announcement.
• The 50% capital gains tax discount is being replaced with cost base indexation and a 30% minimum tax rate on capital gains, from 1 July 2027.
• Property held at the announcement is generally grandfathered, and CGT changes apply to gains that accrue after 1 July 2027.
• Division 296 adds an extra tax on superannuation earnings for balances above $3 million, from 1 July 2026.
• A market valuation at the transition dates is central to working out cost bases and grandfathered positions, so valuations matter more than ever.

What the 2026 Budget changed for property

The 2026-27 Budget reshaped three parts of the tax system for property at once: negative gearing, the capital gains tax discount, and superannuation tax through Division 296.

Taken together, the measures shift the tax treatment of investment property, particularly established residential property, and change how future capital gains are taxed. The Government framed them as measures to boost home ownership.

Because the changes are staged, with most starting on 1 July 2027, there is a transition period. Understanding the detail, and your own position, is what turns uncertainty into a plan.

Negative gearing: limited to new builds

The headline change is to negative gearing. From 1 July 2027, negative gearing on residential property is being limited to new builds.

In practice, that means the ability to deduct a rental property's net losses against other income is being narrowed for established residential property acquired after the announcement. Investment in new builds retains the more favourable treatment, which is the point: to channel investment toward new housing supply.

Existing arrangements are protected. Residential property held at the time of the announcement, at 7:30pm AEST on 12 May 2026, is generally grandfathered, so the change targets future acquisitions rather than existing investors.

Capital gains tax: the discount is changing

The second major change is to the capital gains tax discount. The long-standing 50% CGT discount for individuals, trusts and partnerships is being replaced.

From 1 July 2027, it is being replaced with cost base indexation and a 30% minimum tax rate on capital gains. In broad terms, cost base indexation lifts the cost base of an asset in line with inflation, so you are taxed on the real gain rather than the nominal gain, while the 30% minimum rate sets a floor on how lightly a capital gain can be taxed.

Importantly, the CGT changes apply to gains that accrue after 1 July 2027. Gains that accrued before that date are dealt with under the existing rules, which makes the value of an asset at the transition a significant figure.

Division 296: the super balance tax

The third piece is Division 296, the new tax on the earnings of very large superannuation balances, which starts on 1 July 2026.

Division 296 adds an extra 15% tax on earnings attributable to a total superannuation balance above $3 million, with a further tier above $10 million, and both thresholds are indexed. The revamped measure applies to realised earnings and no longer taxes unrealised gains.

For SMSFs that hold property, Division 296 makes the annual market valuation part of your tax position, because it feeds the total superannuation balance the tax is measured against. Our Division 296 guide covers this in detail.

What is grandfathered, and who is affected

Grandfathering is central to how these changes land, so it is worth being clear.

For negative gearing, residential property held at the announcement is generally protected, and the new-build limitation is aimed at future acquisitions of established property.

For capital gains tax, the shift applies to gains accruing after 1 July 2027, so value built up before then is treated under the old rules. This is why establishing the market value of an asset around the transition matters.

The upshot is that existing investors are less affected than the headlines suggest, while future decisions, and the evidence you keep about current values, matter a great deal.

The key dates

Timing drives everything here. These are the dates that matter.

Because legislation and administrative detail can still be refined, confirm the current position before acting on any date.

The old rules versus the new rules

The clearest way to see the shift is to compare the treatment before and after the changes.

The Division 296 super tax sits alongside these, starting a year earlier on 1 July 2026.

What cost base indexation means

Cost base indexation is not new to the Australian system; a version of it applied before the 50% discount was introduced in 1999. It lifts the cost base of an asset in line with inflation over the time you hold it.

The effect is that you are taxed on the real gain, the increase above inflation, rather than the full nominal gain. For a long-held property in a low-inflation period, that can be less generous than the old 50% discount; in higher-inflation periods, indexation does more work.

What the 30% minimum tax rate means

Alongside indexation, a 30% minimum tax rate applies to capital gains. In simple terms, it sets a floor on how lightly a capital gain can be taxed, regardless of your marginal rate.

The combination of indexation and a minimum rate is the mechanism replacing the flat 50% discount. How it affects you depends on your income, how long you hold, and inflation over the period, which is why individual advice matters.

Impact by investor type

The changes land differently depending on where you sit.

• Existing investors. Property held at the announcement is generally grandfathered for negative gearing, so day-to-day treatment is largely unchanged, though future gains interact with the CGT changes.
• New investors in established property. The negative gearing limitation applies, so the after-tax cost of holding an established rental changes.
• New-build investors. New builds retain more favourable negative gearing treatment, the policy's intended incentive.
• SMSF members with large balances. Division 296 adds a further consideration from 1 July 2026.

Will these changes go ahead?

The negative gearing and capital gains tax measures were announced in the 2026-27 Budget and have since been legislated through the Government's tax reform Acts. Division 296 is also proceeding, with its own commencement.

That said, tax law can be amended, and administrative detail is still being settled. Treat the specifics here as general information and confirm the current position before acting.

What it means for property investors

The practical effect depends on what you own and what you plan to do.

If you hold established residential property acquired before the announcement, your negative gearing position is generally grandfathered. If you are planning a new purchase, the tax treatment now differs between new builds and established property.

On capital gains, the move from a flat 50% discount to indexation plus a 30% minimum rate changes the maths on selling, and the value of your asset at the 1 July 2027 transition becomes an important reference point for future gains.

For anyone with a large superannuation balance, Division 296 adds a further layer from 1 July 2026.

Why property valuations matter now

This is where the changes connect directly to valuations. Several of the measures turn on the market value of a property at a particular date.

For capital gains tax, because the new rules apply to gains accruing after 1 July 2027, a defensible market value around that transition helps establish how much of a future gain is taxed under the old rules versus the new ones. For Division 296, the annual 30 June valuation feeds your total superannuation balance. And for grandfathering generally, good records of current value support your position if it is ever questioned.

A retrospective or dated valuation, backed by comparable sales evidence, is the tool for pinning down value at these key dates. It is far easier to obtain a supportable valuation close to the date than to reconstruct one years later.

What property investors should do now

You do not need to make rushed decisions, but a few steps put you in a strong position.

• Understand your position. Know whether your existing properties are grandfathered and how the CGT change affects your plans.
• Keep evidence of current values. A supportable valuation around the transition dates protects your cost base position.
• Factor the changes into new purchases. The tax treatment of new builds and established property now differs.
• Review your SMSF. If you have a large balance, consider Division 296 and your 30 June valuations.
• Get advice. These are significant changes; a qualified adviser can model your specific situation.

Common misconceptions

The headlines have caused some confusion. A few points to keep straight.

• "Negative gearing is abolished." It is being limited to new builds for future acquisitions, not abolished, and existing holdings are generally grandfathered.
• "CGT is doubling." The 50% discount is being replaced with indexation plus a 30% minimum rate, which is a different mechanism, not a simple doubling.
• "It all starts immediately." Most measures start on 1 July 2027; Division 296 starts on 1 July 2026.
• "My existing property loses its treatment." Property held at the announcement is generally grandfathered.

How Valato helps in the transition

Valato provides independent, evidence-based property valuations across Australia, including current and retrospective valuations dated to a specific point in time.

For investors navigating these changes, that means a defensible market value at a transition date, backed by comparable sales, to support your cost base and grandfathered position. Compare the valuation options or order a valuation to lock in a supportable figure.

The bottom line

The 2026-27 Budget limited negative gearing to new builds, replaced the 50% CGT discount with indexation and a 30% minimum rate, and confirmed Division 296, with most changes starting on 1 July 2027 and grandfathering protecting existing holdings. For property investors, the practical takeaway is to understand your position and keep supportable evidence of value at the transition dates. Because this is significant and still-settling tax law, confirm the current rules and your own circumstances with a qualified professional.

Frequently asked questions

General information only: This article is general in nature and does not take into account your individual circumstances. It should not be relied on as tax, financial or legal advice. These are significant and evolving tax changes; confirm the current rules and your own position with a qualified professional before making decisions about your property, tax position or investment strategy.