What lies ahead for property investors?

Property investors are entering a very different landscape this financial year. A series of changes, including the tax reforms announced in the May Federal Budget, stricter ATO rules around claiming deductions for holiday homes, and the government’s decision to abolish the ability to purchase residential property through self-managed super funds (SMSFs), are reshaping the way many investors will approach property.

While there’s no need for alarm, these reforms do represent a meaningful shift. They highlight the importance of taking a more considered approach, with careful planning and detailed modelling of how your investment portfolio and cash flow could be impacted in the years ahead.

New Capital Gains Tax (CGT) rules

Major reforms to the CGT rules are set to take effect from 1 July 2027. Under the new framework, property investment assets held for more than 12 months will no longer be eligible for the 50 per cent CGT discount. Instead, this will be replaced with cost-based indexation, with gains adjusted for inflation before CGT is applied. ⁱ

In addition, a minimum 30 per cent tax rate will be introduced for net capital gains from 1 July 2027. This will apply to individuals, partnerships and companies, with the changes extending to discretionary trusts from 1 July 2028.

Any capital gains realised on an investment property held for more than 12 months and sold before 1 July 2027 will continue to be taxed under the existing 50 per cent CGT discount rules. Gains realised after this date will instead be subject to the new minimum 30 per cent tax framework.

With the window to take advantage of the current 50 per cent discount closing on 30 June 2027, property investors considering the sale of a rental property should seek professional advice. Understanding how these changes could affect your overall tax position is essential to making informed decisions and protecting your long-term investment outcomes.

Negative gearing changes

One of the more controversial changes announced in the Federal Budget is the move to limit negative gearing for residential property investments to new builds. ⁱⁱ

Properties held prior to budget night (12 May 2026) will be exempt from these changes. However, the ability to use negative gearing for taxpayers purchasing established properties will be significantly restricted. For commercial property, the current negative gearing rules will remain unchanged.

From 1 July 2027, investors who purchase an existing residential property will only be able to offset investment losses against other income derived from residential properties, including any capital gains. Any excess losses can be carried forward and applied against residential property income in future years.

These changes will apply to individuals, partnerships, companies and most trusts. However, widely held trusts and superannuation funds (including SMSFs) will be excluded.

New rules for holiday homes

If the Budget changes weren’t already enough to challenge property investors, the ATO has also signalled a tougher stance on holiday home tax deductions. ⁱⁱⁱ

Following the release of a new holiday home tax ruling, owners will now be limited in how much personal use they can derive from their property each year if they wish to retain access to tax deductions.

From 1 July 2026, deductions for ownership costs, including mortgage interest, council and water rates, insurance, repairs and maintenance, may be denied depending on when and how the property is used. However, expenses such as advertising and cleaning, as well as booking fees and commissions, will remain deductible.

Personal use during peak periods is now a key indicator that a property is primarily a lifestyle asset rather than an income-producing one. Even if the property is available for most of the year, blocking out popular periods such as Christmas, Easter, school holidays and local peak seasons may result in it being assessed as not genuinely held for income-generating purposes.

Is it time to reassess your property portfolio?

Given this strict new interpretation of the deduction rules by the ATO, the budget tax reforms to CGT, along with the ban on SMSFs from using the Limited Recourse Borrowing Arrangement (LRBA) for residential properties, property investors should seek professional advice and review their property investment strategy in light of the changes.

Transitional rules, valuation approaches and record-keeping requirements will be critical. Investors should ensure documentation is up to date, and consider timing of transactions carefully.

Now is the time to act. If you’d like to understand how these changes impact your situation and what steps you can take next, fill out the contact form below and our team will be happy to get in touch.

Sources

 i Proposed reforms to the CGT rules |Treasury

ii Negative gearing explainer | Treasury

iii Rental property deductions | ATO