2026 Federal Budget: The tax advantages now favour new builds

What happened last night

On the evening of 12 May 2026, the Federal Government handed down a budget that fundamentally changed the rules of property investment in Australia.

For years, investors have weighed up new builds against established homes based on price, location, and yield. From tonight, there’s a fourth dimension that carries more weight than all three: tax treatment.

The government has removed negative gearing on established properties for any purchase made from 12 May 2026 onwards. It has also replaced the 50% capital gains tax (CGT) discount on established property with a new inflation-indexed model (or a minimum 30% discount), applying to all assets purchased after 1 July 2027.

New builds? They keep everything. Full negative gearing. The full 50% CGT discount – or the option to choose the new indexed model at the point of sale, whichever is more favourable.

That’s not a subtle difference. It’s a legislated tax advantage to actively add to Australia’s housing.

Why the government made these changes

To understand why this matters, it helps to understand the thinking behind it.

Australia is in the middle of a housing supply crisis. Demand (driven by population growth, migration, and household formation) has consistently outpaced the supply of new homes being built. The result has been sustained upward pressure on prices and rents, pricing out first home buyers and straining rental affordability across the country.

Investor activity in the established market has been pushing up prices on existing homes without adding a single new dwelling to the national stock. One investor buying an established property in an auction doesn’t help a family find somewhere to live: it just shifts ownership.

The government’s position is clear: the tax system should reward activity that creates new supply, not activity that competes for existing stock. By removing the tax incentives on established property and preserving them entirely for new builds, they’re redirecting investment capital toward construction; toward houses, townhouses, and apartments that didn’t exist before.

The budget also commits $2 billion to a local infrastructure fund to support the delivery of new supply.

This isn’t a minor tweak to policy. It’s a deliberate reorientation of where the investment market goes next.

What this means if you’re investing for the first time

If you’ve been thinking about your first investment property, the timing of this announcement matters more than it might seem.

Under the old rules, the tax treatment was similar enough between new vs established properties (besides the depreciation benefits) that the decision often came down to preference.

That equation has changed. Here’s a direct comparison of where things now stand.

Negative gearing For an established property purchased from 12 May 2026, any annual losses from your investment can no longer be used to reduce your taxable income in the year they occur (including interest paid to the lender). Those losses can be used to offset personal income tax which is why this was a strategy for high-income earners. For a new build, negative gearing remains fully intact — losses offset your income tax each year, reducing your real out-of-pocket costs while you hold the property.

Capital gains tax discount When you eventually sell an established property purchased after July 2027, the 50% CGT discount is gone. Your gain is taxed under an inflation-indexed model instead. For a new build, you keep the 50% discount or you can elect the indexed method if it works out better at the time of sale. The choice is yours.

Depreciation New builds carry significant depreciation benefits that established homes simply can’t match. A new property allows you to claim depreciation on the building itself, as well as on fittings, fixtures, and appliances, all at their full value from day one. On an established property built before 1987, you can’t claim building depreciation at all. This difference alone can translate to thousands of dollars in additional annual tax deductions on a new build.

Stamp duty In Western Australia, first home buyers building a new home may be eligible for stamp duty concessions that don’t apply to established properties. Depending on the property’s value, this can represent a meaningful saving at the point of purchase.

Taken together, the gap between new and established has grown considerably. It’s not that established property becomes a bad investment — it’s that the economics of new builds have pulled decisively ahead.

A note on uncertainty

We want to be honest about something. Government forecasts and market outcomes don’t always align. In announcing these reforms, the government described the expected impact on renters and property prices as “marginal”. Similar language was used when the 5% deposit scheme was introduced, before significant price growth followed across many targeted market segments.

The direction of these changes is clear. What nobody can forecast precisely is the timing, pace, or scale of how the market responds from here.

What we do know is this: investors who move with a clear strategy are often better positioned than those waiting for perfect certainty. Markets rarely provide certainty first and opportunity second.

If you want to understand what these changes could mean for your own position — including your income, borrowing capacity, savings and long-term goals — our team is here to help you explore the numbers and build a strategy that fits your situation.

Talk to us

The changes announced on 12 May 2026 are significant, and the right move depends on your income, your savings, your timeline, and your goals. There’s no single answer – but there is a clear framework for working it out, and we’re well placed to help you apply it.

Locale Wealth works with first-time investors to build strategies they can understand, action, and feel confident about. No jargon. No pushing products that don’t fit. Just clear advice grounded in what matters most to you.

Understanding the key terms

What is negative gearing?

Negative gearing occurs when the costs of owning an investment property — including mortgage interest, property management fees, rates, insurance, and maintenance — exceed the rental income the property generates. The resulting loss is described as the property being “negatively geared.”

Under the old rules, this annual loss could be used to offset your other income (such as your salary), reducing the amount of tax you paid. If you earned $120,000 and your investment property made a $10,000 loss, you would be taxed on $110,000 instead.

From 12 May 2026, this offset no longer applies to established properties purchased from that date. Losses instead accumulate and can only be used to reduce a future capital gain when the property is sold. For new builds, negative gearing remains unchanged — losses still reduce your taxable income each year.

For a detailed explanation of negative gearing and how it applies to your circumstances, visit the Australian Taxation Office’s guide to rental properties.

What is capital gains tax (CGT)?

Capital gains tax is a tax on the profit made when you sell an asset for more than you paid for it. In property, CGT applies to investment properties — not your primary place of residence.

If you bought an investment property for $600,000 and sold it for $800,000, your capital gain is $200,000. That gain is added to your taxable income in the year of sale, and you pay tax on it at your marginal rate.

Under the previous rules, if you held the property for more than 12 months, you were entitled to a 50% CGT discount — meaning only $100,000 of that $200,000 gain would be taxed. For established properties purchased after 1 July 2027, this discount is removed and replaced with an inflation-indexed model.

For new builds, the 50% CGT discount is retained. Investors can also choose to apply the new indexed method at the point of sale if it produces a better outcome.

For the official ATO guidance on capital gains tax, including the discount rules and how to calculate your gain, visit the ATO’s capital gains tax page.

For the government’s 2026 Budget overview and housing policy detail, visit the Australian Government Budget website.