Tomorrow night’s federal budget is shaping up to deliver the biggest property-tax shake-up in a generation. The leaked playbook points to two headline reforms: the 50% capital gains discount being replaced with an inflation-indexation model, and negative gearing restricted to newly built dwellings only. Both changes are slated for 1 July 2027, with a one-year grace period for existing arrangements.
If you own — or were planning to own — an investment property, the rules of the game are about to change. The 14-month transition window is short, and we’ve spent the past fortnight stress-testing client portfolios under both scenarios. There are real opportunities to position your structure ahead of the new settings, but the window to act on existing rules is closing.
What we know about Tuesday’s budget so far
■ Capital gains tax 50% discount replaced with inflation indexation from July 2027, one-year grace period.
■ Negative gearing Restricted to new builds from July 2027, existing assets excluded, one-year grace period.
■ Taxing trusts Discretionary trust distributions may be taxed at 30%, like companies.
■ Electric vehicles Phase down tax benefits for vehicles costing over $75,000 from 2027 to save $1.6b.
■ Income tax offset Earned income offset of $200 to $300 for anyone who gets a wage and pays tax.
■ Tax loss carry back Allow small business to offset losses against past year’s profits.
■ Instant asset tax write-off $20,000 annual write-off for businesses turning over less than $10m to be permanent.
■ R&D tax credit Increase the $150m cap on expenses that can be claimed.
■ Productivity package Aims to cut regulatory costs by $10b a year.
■ Defence $14b in extra spending taking defence to 2.3% of GDP.
■ Fuel security Minimum 50-day supply of diesel and jet fuel reserves under $10.7b fuel security package.
■ Suburban Rail Loop Another $3.8b for Melbourne’s controversial $200b rail project.
■ Housing $2b to connect water and sewerage for housing developments.
■ NDIS Screening and eligibility rules to save $22b over four years.
■ Public service $2.7b in reduced external labour and non-wage spending.
Source: Australian Financial Review — pre-budget reporting, 11 May 2026
🔺 RBA Rate Hike: The RBA lifted the cash rate by 0.25% last Tuesday — the second hike this quarter. Major lenders are expected to pass it on within the week.
The Budget Brief — Property Tax Changes
Four leaked items from Tuesday’s budget that directly affect property investors. Sourced from The Australian Financial Review .
50% discount replaced with inflation indexation
From 1 July 2027 , the long-standing 50% CGT discount on assets held over 12 months will be replaced with inflation indexation on the cost base. A one-year grace period applies for assets already held. For investors sitting on substantial unrealised gains, the maths on a pre-deadline sale will need fresh modelling.
Restricted to new builds from July 2027
Negative gearing benefits will be ring-fenced to newly constructed dwellings from 1 July 2027. Existing investment properties are excluded — the deduction will be quarantined against rental income, not other earnings. A one-year grace period applies. Expect a near-term spike in interest in house-and-land and new apartment stock.
Trust distributions may be taxed at 30%, like companies
Discretionary trust distributions are expected to be taxed at a flat 30% , mirroring the corporate rate. For property investors using family trusts to stream rental income or capital gains to lower-bracket beneficiaries, the income-splitting advantage largely disappears.
$200–$300 income tax offset · $20k instant asset write-off permanent
On the relief side: an earned-income offset of $200–$300 for all wage earners, the $20k instant asset write-off made permanent for small businesses under $10m turnover, tax loss carry-back for small business, and a productivity package aimed at cutting $10b/year in regulatory costs.
You have ~14 months to lock in current settings. Use them.
If a refinance, restructure, or property sale was already on your radar, the budget shortens your runway considerably. The smartest moves over the next quarter are not panicked exits — they’re cleaner structures, better-priced debt, and clarity on which assets to hold versus rotate.
Pre-Budget Action Panel
Three moves we’re walking clients through this week, before the policy goalposts shift.
Refinance
Pull the lender review forward. Lock cheaper debt while serviceability is calculated on current rules.
Restructure
If you’re using a discretionary trust to hold property, model the 30% flat rate. For many families, individual or company ownership now looks cleaner — but the transition needs planning, not panic.
Review
Are you negative-geared on an existing property? After July 2027, those losses get quarantined. Decide now whether to hold, rotate to new stock, or accelerate paydown.
Market Context — Why This Budget Matters
The two-speed market heading into Tuesday’s announcement.
Perth & Brisbane vs Sydney & Melbourne
A widening split that any tax reform will land on top of
Tuesday’s budget lands on a market already pulling apart — Brisbane and Perth running double-digit growth while Sydney and Melbourne consolidate. Tight rentals (national vacancy under 1%) and rental growth near 6% mean the demand-side fundamentals are strong. Restricting negative gearing to new builds will sharpen investor focus on house-and-land and apartment stock — and tighter CGT settings will lift the bar for what counts as a hold-versus-sell decision in the back half of the decade.
Beyond Property — The Rest of the Budget
Two other items worth knowing about — for households and small business owners.
$20k Instant Asset Write-Off Made Permanent · R&D Cap Lifted
Businesses turning over under $10m get the $20,000 instant asset write-off as a permanent feature , plus tax loss carry-back against prior-year profits and a lifted R&D tax credit cap. Bundled with the productivity package aiming to strip $10b/year of regulatory cost, this is genuinely useful for sole traders, property developers, and trades. If you operate through a small business entity, the FY27 planning conversation just got easier.
$14B Defence, $3.8B SRL Top-Up, $2B Housing Connections
On the spending side: $14b extra to defence (taking it to 2.3% of GDP), another $3.8b for Melbourne’s Suburban Rail Loop , and $2b to connect water and sewerage for housing developments. The housing-enablement money is the line item to watch — it’s a signal that supply-side delivery is being directly co-funded, which combined with the new-build negative gearing carve-out is a clear nudge toward off-the-plan and house-and-land buyers.
This article was originally sent to Assembly Finance clients as an email market update and is republished here for reference. Rates, figures and policy settings were current at the date of publication and may have changed. General information only — not financial advice. Assembly Finance is a Credit Representative of Finsure Finance & Insurance Pty Ltd (Australian Credit Licence 384704).
