The 2026-27 Federal Budget announced some of the most significant proposed property tax reforms in decades. 

Described as the most substantial tax reform package in over a quarter of a century, the measures are designed to improve housing affordability, increase supply and rebalance the tax system in favour of owner-occupiers and first home buyers. 

Here’s a breakdown of the key property-related measures announced on 12 May 2026 that buyers, sellers and investors should be aware of. 

Negative gearing restrictions

One of the most significant proposals relates to negative gearing. It states that from 1 July 2027 investors who purchased established residential investment properties after 7:30 pm on 12 May 2026 will no longer be able to offset rental losses against salary or other personal income. Instead, losses can be offset against future residential property income or capital gains. 

Two exemptions apply:

• Properties owned before Budget night will be grandfathered under the current rules. 

• Newly-built residential properties that genuinely add to housing supply, will remain eligible for negative gearing concessions. This includes homes built on vacant land or developments that increase dwelling numbers. Knock-down rebuilds or properties with substantial renovations that do not increase supply will not be eligible. 

Negative gearing changes will not apply to commercial property. 

Capital Gains Tax changes

The Budget also proposes major changes to Capital Gains Tax (CGT) from 1 July 2027.

The current 50% CGT discount for assets held longer than 12 months would be replaced with an inflation-based cost indexation model, similar to the method used before 1999. A new minimum 30% tax rate on capital gains would also apply.

The reforms would apply to most CGT assets held by individuals, trusts and partnerships, including residential investment properties. Gains accrued before 1 July 2027 will still be assessed under the current rules. Gains made after that date will fall under the new regime. 

However, several important concessions and exclusions will remain:

• the main residence exemption will continue
• small business CGT concessions will remain unchanged
• superannuation funds will retain the existing one-third CGT discount
• affordable housing concessions will remain in place
• investors who purchase qualifying new builds will retain the option to choose between the 50% CGT discount and the new indexation method when selling, whichever provides the more favourable tax outcome

Foreign investment ban on property purchases extended 

The temporary ban on foreign purchases of established residential dwellings has been extended to 30 June 2029. 

Foreign persons, including temporary residents and foreign-owned companies, cannot purchase an established dwelling in Australia unless a limited exception applies, such as investments that significantly increase housing supply. 

This can affect conveyancing requirements, Foreign Investment Review Board (FIRB) approvals and contract conditions in property transactions involving overseas buyers. 

Permanent residents and New Zealand citizens continue to be exempt. 

Self-managed superannuation funds exempt from new rules

Self-managed superannuation funds (SMSFs) are largely exempt from the proposed negative gearing and CGT changes.

This means SMSFs will continue to receive existing tax concessions, including the one-third CGT discount for eligible assets held longer than 12 months. For some investors, an SMSF may become a more attractive structure to buy and hold a long-term property investment. 

Why legal advice matters

Many of these measures are still proposals and may change before legislation is finalised. If implemented, they could affect investment planning, transaction timing, ownership arrangements and compliance requirements for some property buyers and investors.

Property transactions involving trusts, SMSFs, foreign purchasers or investment properties may require particularly careful consideration, especially where tax consequences, FIRB requirements or long-term succession planning are involved.

If you are buying, selling or investing in property and are uncertain about how these changes may affect your position, an experienced property lawyer can work alongside your accountant or financial adviser to help you understand the legal implications and avoid costly mistakes.

For expert legal guidance on buying, selling or investing in property in NSW, contact Outwest Legal. Book a consultation with one of our property law professionals who can help you understand how changing property laws may affect your transaction or investment decisions.