The Federal Government is continuing to progress significant reforms to capital gains tax (CGT) and negative gearing, with further legislation now providing greater clarity around how the new rules will apply from 1 July 2027.
When these reforms were first announced in May, we outlined the potential impact for property owners and investors. The latest developments provide more detail around the treatment of new residential property, trusts and the transition to the new CGT system.
Previous Articles:
Proposed Negative Gearing Changes – What You Need to Know — Mission Advisory
Major Capital Gains Tax (CGT) Changes – What You Need to Know — Mission Advisory
Where the CGT and negative gearing reforms now stand
The Government’s reforms to CGT and negative gearing are starting to take clearer shape, and for property investors there is a common thread running through the changes: maintaining incentives for investment in new housing, while changing the tax treatment of established residential property.
From 1 July 2027, the existing 50% CGT discount for many individuals and trusts will be replaced by a cost base indexation model. Rather than simply reducing an eligible capital gain by 50%, the new approach adjusts the cost base of an asset for inflation, with the intention of taxing the “real” economic gain made on the investment.
The Government has now progressed the second tranche of these reforms, providing more detail about how the new CGT rules will work across trusts, managed investments, superannuation and other specific arrangements. For residential property investors, one of the most important developments is the treatment of new residential dwellings. Qualifying new residential properties will continue to receive favourable treatment, with investors able to retain access to the 50% CGT discount or choose to apply cost base indexation together with the new minimum tax rules. Negative gearing will also continue to be available for qualifying new residential dwellings. Together, these measures reinforce the broader direction of the reforms: encouraging investment that adds to Australia’s housing supply.
So, what about property you already own?
For investors who already hold property or other CGT assets, the transition to the new rules brings a different consideration. For assets held before 1 July 2027 and sold after that date, it may be necessary to separate the capital gain attributable to the period before the reforms from the gain accruing afterwards. Depending on the circumstances, this may involve establishing the asset’s market value immediately before 1 July 2027.
Importantly, there is no need to rush out and arrange a valuation now. The ATO has clarified that taxpayers do not need to have a valuation in place by 1 July 2027 and should not obtain one in advance, as a valuation cannot be forward-looking. An alternative apportionment method may also be available in certain circumstances. For investors with long-held property or other assets, the practical step for now is much simpler: make sure your records are in order.
And where does negative gearing fit in?
This is where the broader property investment picture starts to come together. Under the reforms, negative gearing will become more targeted for residential property. Negative gearing simply occurs when the deductible costs of owning an investment property exceed the rental income it earns. Traditionally, that loss can generally reduce other taxable income.
Under the new settings, losses from affected residential properties will instead be quarantined, meaning they can generally be used against residential property income or capital gains rather than salary or unrelated income. The important point is that the loss does not necessarily disappear. What changes is when, and against what income, you can use it.
At the same time, qualifying new residential dwellings will remain eligible for negative gearing, while certain properties used for specified purposes, including qualifying affordable housing, can also receive favourable treatment. For investors, this means tax is likely to become a more significant part of the conversation when comparing an established property with a new build. It does not automatically make one a better investment than the other, but the after-tax outcome may look quite different depending on what you buy, when you buy it and how long you intend to hold it.
That makes planning before the purchase, rather than after it, increasingly valuable.
Why these changes matter
Together, the CGT and negative gearing reforms change some long-standing assumptions around residential property investment. Established properties may produce a different after-tax outcome under the new rules, while qualifying new residential property may become comparatively more attractive as certain CGT and negative gearing concessions are retained.
Tax is still only one part of the picture.
What you buy, when you buy or sell, how the investment is structured and how it fits within your broader financial position will become increasingly important.
For clients with multiple properties, family trusts or long-held assets, this makes planning ahead particularly valuable. The goal is not to invest for a tax outcome, but to understand the tax consequences early enough to make a well-informed decision.
Looking ahead
These reforms represent a significant change to Australia’s investment tax landscape. With sufficient time before the new rules take effect, there is an opportunity to review existing investments, understand how the changes interact with your plans and make informed decisions rather than reactive ones.
If you own investment property, are considering your next purchase, or have a significant CGT asset that you may sell after 1 July 2027, now is a good time to start the conversation on what the changes will mean for you.
At Mission Advisory, we’re continuing to monitor the legislation as it progresses and what the detailed rules mean in practice. Understanding your position early can provide greater clarity and flexibility when the new rules take effect. Contact our team today to find out more.
This information is general in nature and does not take into account your individual circumstances. Please seek advice before making investment or tax decisions.