Investment Property in 2026: Negative Gearing and CGT Changes Explained
As at July 2026, the biggest shift for Australian property investors in a generation is now law of the land in announcement form: from 1 July 2027, negative gearing will be limited for established residential properties purchased after 7:30pm AEST on 12 May 2026, and the 50% CGT discount will be replaced with cost base indexation plus a 30% minimum tax on net capital gains. Existing owners are grandfathered and eligible new builds are exempt, so the decision of what to buy — and when — matters more than it has in decades.
What changed for property investors in the 2026 Federal Budget?
The 2026–27 Federal Budget, handed down on 12 May 2026, announced two linked reforms that reshape the tax treatment of residential property investment in Australia. First, negative gearing of established residential investment properties will be limited from 1 July 2027 for properties purchased after 7:30pm AEST on 12 May 2026, according to Federal Budget papers. Second, from 1 July 2027 the 50% capital gains tax discount will be replaced with cost base indexation and a 30% minimum tax rate on net capital gains for assets held longer than 12 months, per the Australian Taxation Office's new legislation guidance.
Two carve-outs soften the blow. Properties already held at the announcement time are grandfathered under the old rules, and eligible new builds remain exempt from both changes — investors in new residential property may still access negative gearing and can choose between the existing CGT discount or the new regime on disposal, according to the Treasury fact sheet released with the Budget. The stated goal is to steer investor money toward building new housing stock rather than bidding up established homes.
How do the negative gearing changes work?
Under the current rules, an investor whose rental costs (interest, rates, maintenance, property management) exceed rental income can deduct that loss against salary or other personal income. Under the new rules taking effect 1 July 2027, losses on affected established properties will be quarantined: they can only be offset against residential rental income or future capital gains from rental properties, not against wages, per the ATO guidance published in 2026.
The practical effect depends heavily on your situation. Analysis published around the May 2026 Budget suggested the removal of negative gearing is roughly equivalent, in immediate cash-flow terms, to a 90–155 basis point increase in investor mortgage rates for highly leveraged, low-yield properties. Investors on high marginal tax rates with big loans and modest rents feel it most; investors holding cash-flow-positive or near-neutral properties may notice little difference. This shifts the maths toward higher-yield properties and new builds — something worth discussing with both your accountant and a mortgage broker before committing.
What is happening to the capital gains tax discount?
From 1 July 2027, the 50% CGT discount for assets held more than 12 months will be replaced by cost base indexation (adjusting your purchase price for inflation) combined with a 30% minimum tax on net capital gains, according to the ATO's tax reform guidance current as at July 2026. Transitional arrangements mean gains arising before 1 July 2027 remain subject to the current discount rules.
For long-held properties in a low-inflation environment, indexation may be less generous than the flat 50% discount. For new builds, investors keep a choice between the old discount and the new regime at sale, which preserves flexibility. The detail here is genuinely complex, and legislation can change between announcement and passage — always confirm the current state of the rules with the ATO or a registered tax agent before acting.
What are investment property loan rates in July 2026?
The RBA cash rate sits at 4.35% as at July 2026, held since 17 June 2026, with the next board meeting scheduled for 11 August 2026. Against that backdrop, the lowest advertised variable investment loan rates start from around 5.85% p.a. at 80% LVR, according to comparison site Finder in July 2026, while RBA data puts the average outstanding variable investment rate near 5.7% p.a. — slightly above the 5.5% average for owner-occupiers.
Investor rates typically sit 0.25% to 0.60% above owner-occupier rates at the same lender for the same product and LVR. That premium varies widely between lenders, which is exactly where comparison earns its keep. As a mortgage broker serving Melbourne's western suburbs, Brokio compares investment loan options across 40+ lenders — and because rate, offset features, interest-only terms and LVR tiers all interact with the new tax settings, the cheapest headline rate is not automatically the best structure. Try the repayment calculator to see how different rates change your holding costs.
Is Melbourne's west still worth a look for investors?
The rental market that sits underneath any investment decision remains tight. Melbourne's residential vacancy rate was 1.4% in February 2026, up only slightly from the historic low of 1.0% in mid-2024, and well below the 3% level generally considered balanced. In many western suburbs — including Point Cook, Tarneit, Truganina and Werribee — vacancy has been reported below 1%, supported by strong population growth. Metropolitan Melbourne's median weekly rent was $580 in the September quarter 2025, per Victorian government rental data.
The new-build exemption could also play to the west's strengths: growth corridors around Williams Landing, Tarneit and Truganina have a deeper pipeline of new housing than established inner suburbs, and new builds retain access to both negative gearing and the CGT discount choice. None of this guarantees capital growth or rental returns — markets move — but it does mean the west's combination of yields, stock and tenant demand is worth modelling carefully rather than dismissing.
What should existing and would-be investors do now?
If you already owned an investment property before 7:30pm AEST on 12 May 2026, the grandfathering means your negative gearing and CGT treatment continue under the old rules — though gains realised after 1 July 2027 involve transition detail worth checking with your accountant. Refinancing an existing investment loan is unaffected by the changes and may still be worthwhile if your rate has drifted above the market average.
If you are considering buying, the established-versus-new-build question now carries a tax dimension it never had before, on top of the usual considerations of location, yield and loan structure. A sensible sequence: model the cash flow under the new rules with your accountant, then get a realistic borrowing assessment. Lenders assess investment applications on rental income (usually shaded), your existing commitments and a serviceability buffer above the actual rate, and approval is always subject to the lender's normal credit assessment. Brokio can run that assessment across multiple lenders at no cost to you on most home loans, as we are paid by the lender.
Frequently asked questions
Do the negative gearing changes affect properties I already own?
No. Properties held at 7:30pm AEST on 12 May 2026 are grandfathered, so existing owners can continue negative gearing under the current rules, according to the 2026–27 Federal Budget papers. Gains realised from 1 July 2027 are subject to transitional CGT arrangements, so confirm specifics with a registered tax agent.
Are new builds exempt from the 2026 tax changes?
Yes. Eligible new builds remain exempt from the negative gearing limits, and investors in new residential property can choose between the existing 50% CGT discount and the new indexation regime on disposal, per Treasury's Budget fact sheet. Eligibility criteria apply, so check the current definition of an eligible new build with the ATO before purchasing.
What interest rate will I pay on an investment loan in 2026?
As at July 2026, advertised variable investment rates start from around 5.85% p.a. at 80% LVR, and RBA data shows the average outstanding variable investment rate near 5.7% p.a. Your actual rate depends on your deposit, loan structure and the lender's credit assessment, and rates can change at any time.
Can I still borrow for an investment property in Melbourne's western suburbs?
Typically yes, subject to the lender's normal credit assessment and approval. Lenders count a shaded portion of expected rent toward your income and test repayments with a serviceability buffer. A broker such as Brokio can compare how different lenders treat rental income and existing debts, which may affect how much you could borrow.
Important information
This article is general information only, current as at July 2026, and does not take your personal objectives, financial situation or needs into account. It is not personal financial, credit, tax or legal advice. The negative gearing and capital gains tax changes described were announced in the 2026–27 Federal Budget and details may change as legislation is finalised — confirm current rules via the ATO (ato.gov.au) or a registered tax agent before making decisions. Interest rates, scheme rules and lending criteria can change at any time. Any loan is subject to the lender's normal credit assessment and approval, and eligibility criteria apply. Consider seeking independent professional advice for your situation.