Federal Budget 2026: what property investors need to know about depreciation and CGT

Current as of May 2026. Proposed changes are subject to legislation passing parliament.

The 2026-27 Federal Budget has proposed some of the most significant changes to property investment tax rules in years. If you own a residential investment property, two things are changing from 1 July 2027: how rental losses interact with your income, and how capital gains are calculated when you sell. Here is what the proposals mean, and why getting your records in order now is worth doing.

What is changing with negative gearing?

Under current rules, if an investment property runs at a loss, that loss can offset your salary or other income. Less taxable income, less tax. Simple.

From 1 July 2027, that changes for established residential properties purchased after 7:30 pm AEST on 12 May 2026. Rental losses on those properties would only be deductible against other residential property income or residential capital gains. Any excess is carried forward to future years.

Properties already owned before that cut-off stay under the existing rules. New builds also remain favourably treated – losses on new residential properties can still be offset against other income. The numbers below show how the same property performs under each set of rules.

Current rules

Item	Amount
Salary income	$120,000
Rental income	$30,000
Expenses (interest, rates, insurance, etc.)	-$35,000
Depreciation deductions	-$8,000
Net rental loss	-$13,000
Taxable income after rental loss	$107,000

Proposed rules (from 1 July 2027)

Item	Amount
Salary income	$120,000
Rental income	$30,000
Expenses (interest, rates, insurance, etc.)	-$35,000
Depreciation deductions	-$8,000
Net rental loss	-$13,000
Amount deductible against salary	$0
Loss carried forward	$13,000

The deduction is not removed. It is deferred. But for investors who have relied on negative gearing to reduce their annual tax bill, this is a real shift in how and when that benefit is realised.

Why a depreciation schedule still matters

A tax depreciation schedule, prepared by a qualified quantity surveyor, documents the annual decline in value of your building and its fixtures. That documentation underpins your deductions – and it stays relevant under the new rules.

For properties not affected by the changes (grandfathered properties, new builds, commercial properties, or those held in an SMSF), depreciation continues to reduce taxable income directly.

For established properties bought after 12 May 2026, the deductions are still valid – they may just be carried forward rather than used immediately. And carried-forward losses can also be applied against capital gains when you sell. A properly maintained depreciation schedule means none of that value is left on the table.

What is changing with CGT?

Currently, investors who hold an asset for more than 12 months can apply a 50% discount to their capital gain. From 1 July 2027, that discount is proposed to be replaced by cost base indexation for individuals, trusts, and partnerships.

Under indexation, the cost base is adjusted for inflation. Only the gain above inflation is taxable. A 30% minimum tax rate on capital gains also applies — though that 30% is on the taxable gain, not the sale price.

Over the long term, where property grows well ahead of inflation, more of the gain becomes exposed to tax than under the old 50% discount.

Example: $500,000 property sold for $1,000,000 after 10 years

	Old rules (50% discount)	New rules (indexation)
Nominal gain	$500,000	$500,000
Taxable gain	$250,000	$342,230*
Tax payable (at 47%)	$117,500	$160,848
Effective rate on total gain	23.5%	32.2%

*Assumes 2.78% annual inflation applied to the cost base over 10 years.

Under the 50% discount, exactly half the gain was always taxable. Under indexation, strong long-term growth means a larger portion of the gain is exposed to tax the longer you hold. The gap between an indexed cost base and actual market value tends to widen over time in a growing market.

Why a CGT valuation is going to matter more

For properties owned before 1 July 2027 and sold after that date, gains will be split across two periods. The 50% discount applies to gains up to 1 July 2027. Indexation applies from that date forward, using the property’s value at the transition as the new cost base.

That transition value needs to be established. The Australian Taxation Office (ATO) requires that market valuations used for tax purposes be objective and supportable – a formal CGT valuation report provides that.

A CGT valuation is also relevant when a property moves from a main residence to an investment property, when it is transferred between related parties, or when an SMSF holds property that needs to be valued for compliance purposes.

What to do before July 2027

Two things are worth addressing well before the transition date.

First, if you own a residential investment property and do not have a current depreciation schedule, get one. The deductions it identifies are yours regardless of which set of rules you end up under, and the documentation becomes more important when losses need to be carried forward.

Second, if you own a property bought before 12 May 2026 and plan to sell after 1 July 2027, talk to your accountant about a CGT valuation at the transition date. Without it, working out the gain split between old and new rules becomes harder to support.

The LINK Advisors team works with property investors across all stages of ownership. If you want to understand how the proposed changes apply to your situation, we are happy to work through it with you.

❓Frequently asked questions

Is my existing property affected?

Properties owned before 7:30 pm AEST on 12 May 2026 are grandfathered for negative gearing purposes. The CGT changes apply to gains accruing after 1 July 2027, regardless of when you purchased.

Do I still need a depreciation schedule under the new rules?

Yes. Depreciation deductions remain valid for all property types. For established properties subject to the new negative gearing rules, losses can still be carried forward and applied against future residential income or capital gains — so the documentation becomes more useful, not less.

When should I get a CGT valuation?

If you own property bought before 1 July 2027 and expect to sell after that date, a valuation at or near the transition date establishes the value used as the new cost base under indexation. Leaving it too long can make that figure harder to support.

What about new builds?

New residential properties remain favourably treated under the proposed rules. Negative gearing losses can still offset other income, and investors can choose between the old or new CGT method — whichever produces the better outcome.