CGT and Negative Gearing Reform — What the New Tax Law Means for Investors

What the law covers

The Tax Reform No. 1 Act 2026 does not contain any measures dealing specifically with the taxation of trusts. What it does cover is two significant changes to how investment income is taxed in Australia: changes to how negative gearing losses can be used, and changes to the capital gains tax discount on assets held for more than 12 months. Both changes apply from 1 July 2027.

Negative gearing — what is changing

Negative gearing allows investors who borrow to buy income-producing assets — most commonly residential rental properties — to deduct any net loss against their other income. From the 2027–28 income year, this concession is restricted to newly built or new-to-market residential properties. Existing investments held at 7:30pm on 12 May 2026 are grandfathered, meaning those arrangements are not affected. Only new residential investment property acquired after that time falls under the new rules.

The change applies to residential property only — commercial property, shares and other asset classes are not affected.

Capital gains tax — what is changing

The law also changes the capital gains discount that currently applies to individuals, trusts and partnerships. Under the existing rules, if you hold an asset for more than 12 months, only 50% of the capital gain is included in your assessable income. From 1 July 2027 this discount is replaced with inflation indexing of the asset’s cost base, combined with a minimum effective tax rate of 30% on the resulting gain. Under indexation, you are taxed only on the gain above inflation, rather than on half of the total gain.

Importantly, the new treatment is keyed to when the gain accrues, not when the asset was bought. It applies to gains accruing from 1 July 2027 — including gains on assets you already hold. For an asset held across that date, the 50% discount continues to apply to the portion of the gain accruing up to 1 July 2027, and indexation applies to the portion accruing afterwards. The change affects all capital assets, not just property — shares, managed funds and other investments are caught as well.

Where the law stands

The Tax Reform No. 1 Bill 2026 passed both houses of Parliament on 25 June 2026 and received Royal Assent on 26 June 2026. It is now law. The negative gearing and CGT measures, however, do not commence until 1 July 2027. Until then, the existing 50% CGT discount and the current negative gearing rules remain fully in place.

What this means for decisions made now

Although the measures do not take effect until 1 July 2027, the timing of investment decisions already matters. Residential investment property acquired after 7:30pm on 12 May 2026 is not protected by the negative gearing grandfathering provisions. And because the new CGT treatment applies to gains accruing from 1 July 2027 on assets you already own, growth that builds up between now and then is still assessed under the current 50% discount, while later growth will be taxed under indexation and the 30% floor.

If you hold existing investments or are considering new acquisitions, it is worth reviewing your position with your accountant in light of these changes well before they start.

Capital gains and investment tax decisions made today can have long-term consequences. Contact us to discuss how the reforms may affect your investment strategy.