Australia 2026 Budget Watch: CGT and Negative Gearing Reform

The “What If” — In One Paragraph

Picture budget night. Chalmers stands up and says two things: the CGT discount is being cut from 50% to 25%, phased in over five years, and negative gearing is being capped at two investment properties per taxpayer. Within minutes, every spreadsheet held by every Australian investor with more than two properties is wrong. Cash-flow assumptions break. Holding-period maths flips.

That is not what has been announced. But it is exactly what is being modelled in public commentary right now — and the numbers attached are real. So you are not caught flat-footed if any of it lands.

What’s Actually in the Leaks (7 May 2026)

Forward-looking commentary across the past fortnight has settled into a tight set of options:

• Senate Committee report (March 2026) is summarised by CommBank’s negative gearing explainer (4 May 2026) as finding evidence that the CGT discount, together with negative gearing, had shifted housing ownership away from owner-occupiers and towards investors. Read CommBank’s wording as a paraphrase rather than a verbatim committee quote. That report is the political cover any reform package would lean on.
• Parliamentary Budget Office has a published costing (2025-3414) for phasing out negative gearing and CGT concessions for property investors with more than one investment property — i.e., concessions apply only to a single property. Industry commentary (Picki and Australian Property Experts) discusses a separate two-property cap variant at roughly $1.6–2 billion per year; that figure is industry-attributed, not the PBO’s own number.
• CommBank’s 29 April 2026 budget preview cites modelling for two larger options:
  • Negative gearing abolished for new investments: roughly $5 billion per year in the no-grandfathering steady state. With grandfathering, the figures are smaller in early years and ramp up — CommBank cites about $2 billion over four years (because most of the existing rental stock is still under the old rules) rising to ~$20 billion over ten years as the post-cutoff stock accumulates. The two figures are the same scenario at different points in the phase-in, not contradictory steady-state estimates.
  • CGT discount replaced with pre-1999 inflation indexation, applied to all asset classes, not just property: roughly $2 billion over four years and $25–30 billion over ten years, with similar phase-in dynamics.
• Treasurer Chalmers has confirmed the government is “looking at the issue” of longer-term tax including negative gearing and the CGT discount, but has not signed up to a particular model. Every figure above is informed leak, not legislated policy.

The Two Concessions, in 60 Seconds

If those two posts are new to you, read them first — the worked examples below build on them directly.

CGT Reform Path A — Discount Cut from 50% to 25%, Phased Over 5 Years

Property Principles describes this as the “most credible scenario”: cut the discount in half, phase it in over five years, grandfather properties acquired before commencement.

Run it against the worked example from the capital gains tax explainer:

A roughly $16,650 swing on a single sale, on the assumption that the discounted gain falls entirely within the 37% marginal-rate bracket. The assessable amount still stacks on top of your salary, so for a high-income year the gain can spill into the 45% bracket and the actual swing is larger again. The point is the direction, not the precision.

Grattan Institute modelling cited by Property Principles puts the price impact of halving the CGT discount alone at less than 1% — the smallest of the publicly modelled impacts. (Grattan’s separate combined-package estimates for CGT plus negative gearing reform have historically been larger; treat the “less-than-1%” figure as the halving-alone component, not the full package.) The political appeal is exactly that: meaningful revenue, modest market disruption, an easy grandfathering story.

CGT Reform Path B — Return to Pre-1999 Inflation Indexation

The bolder option in CommBank’s preview: scrap the 50% flat discount and bring back the pre-1999 inflation indexation mechanism, where you only pay CGT on gains above inflation.

Two structural differences from Path A matter:

1. All asset classes are in scope — shares, managed funds, business assets, not just residential property. CommBank notes the change “would apply to all assets, not just residential housing.”
2. Inflation does the heavy lifting — in a low-inflation period, indexation produces a smaller discount than the current 50% rule; in a high-inflation period, it produces a larger one. Investors who held through the 2022–2024 inflation spike would have looked very different under indexation.

CommBank cites revenue of around $2 billion over four years and $25–30 billion over ten years from this option — comparable to the discount cut over four years, but with a much larger ten-year tail. CommBank’s preview also models a 1–4% lower house-price path than otherwise, with partial grandfathering and an effective-from-budget-night start as one of the variants discussed.

Negative Gearing Reform Path A — Investor-Cap Models

Two related “cap” proposals are circulating, and they are not the same policy.

• The Parliamentary Budget Office costing 2025-3414 is titled “Phase out negative gearing and CGT tax concessions for property investors with more than one investment property” — a Greens-aligned proposal where the concessions apply only to a single investment property, and any property beyond the first loses them.
• Industry commentary (including Picki and Australian Property Experts) has separately discussed a two-property cap variant — concessions retained on the first two properties, quarantined on the third and beyond.

Run the PBO “more than one” model against the worked example from the negative gearing explainer:

Today (any number of properties): that $10,000 loss reduces a $90,000 salary to $80,000 of taxable income. Tax saving at the 30% marginal rate: $3,000. Cash position: $7,000 out of pocket.

Under the PBO model (this is your second investment property): the $10,000 loss is quarantined to that property — it carries forward against future profit or eventual capital gain on that same property. Tax saving this year: $0. Cash position: $10,000 out of pocket.

Under the two-property variant, the same arithmetic applies but only from your third property onward — your first two stay under current rules. Industry commentary cites revenue in the range of $1.6–2 billion per year for the two-property variant. The PBO costing for the more-than-one variant is published separately; the two figures should not be conflated.

The political pitch in both cases is narrow: only investors holding multiple properties are affected, which protects the bulk of small landlords while collecting from the concentrated-portfolio end.

Negative Gearing Reform Path B — Abolition for New Investments

CommBank’s preview describes the bigger option: negative gearing scrapped, not just capped at the second property — applied to all new investments, with grandfathering for existing portfolios.

Numbers cited:

• Full abolition (no carve-outs): roughly $5 billion per year.
• First-property carve-out: just under $1 billion per year.
• Grandfathered: around $2 billion over four years and $20 billion over ten years.

CommBank’s modelled house-price impact for the combined CGT-plus-negative-gearing-abolition package: a further ~2% on top of the 1–4% from CGT changes — so a total of around 3–6% lower than otherwise, concentrated in capital cities and high-investor-share suburbs.

Price and Rent Effects: What the Modelling Actually Says

CommBank’s own caveat applies to all of these: “the fundamental drivers of supply and demand and interest rates are still expected to dominate market moves.” Reform shifts the level; the trend is set elsewhere.

What New Zealand’s Experiment Actually Showed

Australia is not flying blind here. New Zealand ran a near-perfect natural experiment between 2021 and 2025 — removing, phasing out, and then restoring residential interest deductibility — and the data is now in. It’s the closest real-world analogue to several of the negative gearing scenarios on Chalmers’ table, so it’s worth taking seriously and reading professionally.

The policy timeline

• 27 March 2021 — Inland Revenue Department announces interest is no longer deductible on residential investment property acquired after that date. Existing-property interest deductibility is phased down.
• 1 October 2021 → 1 April 2025 — Phase-down for existing properties: 75% deductible, then 50%, 25%, 0%.
• 27 November 2023 — A National-led coalition takes office, having campaigned on restoring deductibility.
• March 2024 — The new government’s tax bill legislates an accelerated restoration of deductibility, reaching 100% from 1 April 2025.

In structure, the New Zealand removal was harsher than anything currently being modelled in Canberra: a near-total denial of interest deductibility, eventually applied to existing portfolios — closer to outright abolition than to the two-property cap. So treat the New Zealand numbers below as an upper-bound analogue, not a like-for-like prediction for Australia.

What happened to prices

Per the REINZ House Price Index and CoreLogic / Quotable Value (QV) indices, drawn together by published commentary:

What happened to who was buying

Per CoreLogic New Zealand data summarised by Chief Property Economist Kelvin Davidson:

• First-home buyers reached a record ~27% of purchases in Q3 2023 — the highest share CoreLogic had ever recorded.
• Investors (mortgaged multiple property owners) fell to roughly 20% of purchases in mid-2023, against a historical norm closer to 25%.
• After deductibility was restored from April 2025, the investor share rebounded to ~23% in Q1 2025. First-home-buyer share began to soften from its peak.
• The “mum and dad” single-investment-property cohort moved from ~6% (mid-2023) back to ~8% (Q1 2025).

In short: the period saw a measurable shift in market share from investors to owner-occupiers, and the share rebalanced again once policy and rates moved in investors’ favour. Whether the deductibility removal caused most of that shift, versus the rate cycle and other settings doing it, is the harder question — picked up in the caveats below.

What happened to rents

Public commentary across the period reports record-high rental price growth during the deductibility-removal window, attributed by industry bodies to landlords passing through higher after-tax holding costs alongside compounding council rates, insurance, and Healthy Homes compliance costs. The Reserve Bank of New Zealand’s housing-as-an-asset research notes the same direction of travel. There is no clean isolation of the deductibility effect on rents from those other cost pressures — but the “investors will pass it on” thesis showed up in the data, even if the magnitude is contested.

The professional caveat — don’t pin it all on one policy

Three confounders ran simultaneously with the New Zealand deductibility removal, and any honest reading needs to flag them:

1. Reserve Bank of New Zealand rate cycle. The Official Cash Rate rose from 0.25% (October 2021) to 5.5% (May 2023). Floating mortgage rates moved from sub-3% to above 8%. Most New Zealand analysts attribute the majority of the price decline to the rate cycle, not deductibility.
2. Brightline test extension to 10 years (the brightline test taxes residential property gains realised within a set holding period — New Zealand’s nearest equivalent to a CGT regime), plus Credit Contracts and Consumer Finance Act (CCCFA) tightening in December 2021, plus loan-to-value ratio (LVR) re-tightening for investors. Each independently suppressed investor demand.
3. Post-COVID reset. New Zealand’s 2020–2021 boom was extreme by any standard. Some of the 2022–2023 fall was unwinding speculative excess, not policy response.

So the professional view — held across CoreLogic commentary, interest.co.nz analysis, and the Reserve Bank of New Zealand literature — is that interest deductibility removal contributed to the price fall and the investor-share decline, but did not cause most of it. The rate cycle did the heavy lifting. And the price recovery from May 2023 began before deductibility was restored, suggesting the policy was a contributing factor rather than the binding constraint.

Read-across to the Australian options

Mapping New Zealand’s experiment onto the Australian scenarios on Chalmers’ table:

Australia’s grandfathering protections are stronger than New Zealand’s were, the macro environment is different, and the political constraints are different. If Chalmers picks an investor-cap model (the PBO’s more-than-one variant or the two-property variant), the New Zealand precedent is largely irrelevant — too narrow. If he picks abolition for new investments, New Zealand’s experience suggests investor share, first-home-buyer share, and prices will all move in the expected direction — but the magnitude depends overwhelmingly on what the Reserve Bank of Australia is doing at the time, and on how generous the grandfathering ends up being.

For the New Zealand-side mechanics in detail, see our interest deductibility explainer and the New Zealand vs Australia comparison.

State-Level Wrinkles the Federal Budget Cannot Touch

The federal budget cannot change:

• Stamp duty — set by each state and territory. New South Wales transfer duty, Victoria’s land transfer duty, Queensland’s transfer duty are state matters.
• Land tax — also state-set, with thresholds and surcharges that move on state budget cycles.
• Residential tenancy rules — entirely state and territory based.

So whatever Chalmers says about CGT and negative gearing on budget night, the upfront costs of buying — the genuinely brutal part of the entry maths — sit with hidden purchase costs that the federal budget has no lever over.

The Document Trail That Protects You in Any Scenario

Every realistic reform path rewards the same thing: clean records.

• Purchase documents — contract date, settlement statement, stamp duty receipt. These set your cost base, and the cost base is what every CGT reform leverages on. Indexation makes it more important again.
• Annual mortgage interest statements — the single biggest line item in any negative-gearing claim. Under the two-property cap, you also need clear allocation per property.
• Repair vs. improvement invoices — already matters under existing Australian Taxation Office rules; matters more under any reform that scales back deductibility.
• Depreciation schedules — quantity surveyor reports for Division 40 plant and equipment and Division 43 capital works. The clawback maths only works if you know what was claimed.
• Property management statements — itemised by category, year by year, per property.

Across two or three properties, that is hundreds of documents per year. AI document management prepares cited views of the cost base, depreciation history, repair-vs-improvement classification, and per-property allocation in any reform scenario — including the most likely one, where the budget passes without changing the rules and the Australian Taxation Office still expects perfect records. For the audit context that is already in force, see Australia Rental Tax Changes 2026: What the Australian Taxation Office Is Watching.

The Short Version

1. As of 7 May 2026, the 50% CGT discount and negative gearing are unchanged. Treasurer Jim Chalmers has signalled the government is “looking at the issue” but has not committed to a model.
2. CGT path A — discount cut from 50% to 25%, phased over five years, grandfathered — Grattan Institute models less than 1% impact on prices.
3. CGT path B — return to pre-1999 inflation indexation across all asset classes — CommBank cites $2bn over 4yr / $25–30bn over 10yr; 1–4% lower house prices.
4. Negative gearing path A — investor-cap models: the Parliamentary Budget Office has costed a “more than one investment property” phase-out (Greens-aligned), and industry commentary discusses a separate two-property cap variant ($1.6–2bn/yr per Picki / Australian Property Experts).
5. Negative gearing path B — full abolition for new investments — CommBank cites ~$5bn/yr; a further ~2% on house prices on top of the CGT effect.
6. New Zealand’s experiment (2021–2025) showed a 17–18% nominal national price fall, investor share dropping to ~20%, first-home-buyer share hitting a record 27% — but most analysts attribute the bulk of the move to the Reserve Bank of New Zealand’s rate cycle, not deductibility removal alone. Australian reform with stronger grandfathering should produce a smaller policy effect.
7. Watch budget night. Run your maths against multiple scenarios. Keep the records that protect you under any of them.

For where this fits among the other recurring decisions Australian landlords have to make, see What Amateur Property Investors Actually Need in Australia.

Last reviewed: May 2026. Australian Taxation Office guidance, rental deduction rules, capital gains tax, negative gearing, and related tax positions are subject to legislative and administrative change. The figures and rules above reflect publicly available guidance current at the date of publication — confirm the current rules with the Australian Taxation Office before acting on any tax position. This article is general information, not personal tax advice — a registered tax agent or BAS agent should be consulted before acting on the contents.