The Australian federal budget for 2026 has placed housing at the forefront, with significant reforms to negative gearing, the capital gains tax (CGT) discount, and the taxation of trusts. Treasurer Jim Chalmers described these measures as "the most significant tax reform package in more than a quarter of a century."
Key Changes in the 2026 Budget
The Labor government’s plan aims to rebalance the tax system away from taxing incomes and toward taxing assets. According to Chalmers, the reforms are designed to create a fairer system for workers, first home buyers, and future generations, addressing the disconnect between house prices and incomes.
Negative Gearing Reform
Negative gearing, which allows property investors to deduct losses from rental income against their taxable income, will be phased out for new investments. Properties purchased after 7:30 PM on budget night will no longer be eligible for negative gearing from July 1, 2027, except for new builds and certain government housing programs. Existing investments remain unaffected, and Treasury expects the benefits to phase out over about a decade as properties are sold.
Capital Gains Tax Changes
The 50% CGT discount for assets held more than 12 months will be replaced from July 1, 2027, with a cost-base indexation system. This means only gains above inflation will be taxed, similar to the pre-1999 model. Additionally, a minimum 30% tax on capital gains will be introduced to prevent investors from timing sales to reduce tax. Investors building new residential properties can choose between the old discount and the new system.
Trust Taxation Reforms
A new 30% minimum tax on discretionary trusts will take effect from July 1, 2028, exempting fixed trusts, superannuation funds, special disability trusts, deceased estates, charitable trusts, and some farming income. These changes are expected to raise $4.5 billion over five years.
Impact on Housing and Affordability
Treasury modelling estimates that the tax changes will reduce property price growth by about $19,000 or 2% for a couple of years. Combined with reduced investor demand, the reforms could help an additional 75,000 Australians become homeowners over the next decade. However, the budget also forecasts 35,000 fewer homes will be built over the next ten years as investors shift away. The impact on rents is expected to be minimal, adding only $2 per week to median rents.
Criticism and Support
The Coalition and property lobby groups argue that scaling back tax breaks will reduce supply and worsen affordability, particularly for renters. In contrast, Labor contends that the current system has distorted the market, favouring investors over owner-occupiers. Since 2020, investors’ share of new home loans has risen from below 30% to over 40%, while owner-occupier levels have fallen.
Broader Context and Equity
House prices have surged over 400% since 1999, more than double the pace of wage growth, creating a severe affordability crisis. While the government acknowledges that the primary issue is housing supply, it argues that tax settings have exacerbated demand. The reforms are designed to level the playing field, though existing investors retain their advantages, potentially locking in inequality between generations.
The budget also includes measures to raise $3.6 billion over four years from the negative gearing and CGT changes, and $4.5 billion over five years from trust reforms. These funds will be directed toward housing and other priorities.
