Federal Budget 2026: CGT & Negative Gearing Decoded

What is happening in the 2026 federal Budget?

The 2026 federal Budget is shaping up as the most aggressive tax rebalance in a decade. CommBank chief economist Luke Yeaman has flagged three big moves on 12 May 2026: substantive tax reform, NDIS spending cuts that save around $25 billion over four years, and new investment in national resilience (CommBank).

Property investors care about one slice of that: the tax bit. CommBank's base case is that Labor goes further than expected on capital gains tax and negative gearing, returning the CGT discount to pre-1999 indexation for all assets and abolishing negative gearing rather than capping it. That is more revenue, but also more political heat.

How big is the CGT discount, really?

The 50% capital gains tax discount sounds neutral. The numbers are not. The top 10% of income earners take home roughly 90% of the benefit of the discount, and former Treasury secretary Ken Henry has called the existing settings a “great injustice”to younger Australians who can't compete with leveraged investors (The Guardian).

That distribution is what makes the political case feel different this time. The Treasurer is selling reform as an intergenerational fairnessstory, not a revenue grab. He has explicitly told CommBank's podcast that no one should expect “huge new revenue” in the forward estimates (news.com.au).

Try four regimes on the same gain

What about negative gearing?

Negative gearing lets you deduct a rental loss against your other income, including salary (ATO). It is the rule that makes a $700-a-week rental on a $950-a-week mortgage still survive a household budget. The 2026 Budget is widely expected to either limit negative gearing to new builds or scrap it for established stock entirely.

The McKell Institute work that anchors most leaked blueprints argues only 7% of negative gearing flows to new housing supply. If the policy goal is to add housing, restricting the deduction to new construction is the cleanest cut. Brokers have warned 9News that even a partial cut would likely lift rents in the short term as some investors exit (9News).

How much refund is in the firing line?

Will existing landlords be grandfathered?

Almost certainly, on the political signals so far. In an interview with CommBank's economics podcast, Chalmers said the government would “recognise the decisions that people have taken in the past” and pointed to transitional matters as part of the design (news.com.au). That is policy code for grandfathering.

Grandfathering matters more than the headline rate. CBA estimates that a CGT-plus-negative-gearing package with grandfathering raises only about $2 billion over four years, climbing to $25-30 billion over a decade as old assets cycle out. Without grandfathering, the same package collects much faster but the political cost balloons.

Three scenarios, one Budget night

Most of the “will it / won't it” coverage is really three different policy designs being talked about interchangeably. They have very different effects on a typical investor. Here is the cleanest split.

What should property investors do before 12 May?

Don't panic-sell. Don't panic-buy either. The thing that actually moves your tax outcome is paperwork: contracts, settlement statements, valuations, depreciation schedules and a clean read on the cost base. Get those tidy before Budget night and most of the rumour cycles stop mattering.

For the FRCGW clearance certificate that still drives most settlement timing in 2026, our FRCGW 2026 guide walks through the new defaults. For the foreign-resident CGT retrospective question, see the retrospective tax explainer. If your concern is audit posture rather than policy, the ATO red-flag checklist is the practical companion piece.

How we got here

Negative gearing has been killed and resurrected so many times in Australian politics that even seasoned investors miss the timeline. The short version is below.

Will house prices fall?

Probably a little. The Centre for Independent Studies and Deloitte both point to modelling that puts the price effect somewhere between 1% and 4% below trend. Research cited by The Guardian suggests the bigger shift would be in composition: owner-occupiers winning a few more auctions because investors are bidding less aggressively on established stock.

Rents are the trickier one. Brokers warn rents could rise as some investors exit, while Treasury argues new-build incentives and supply policy will offset the squeeze (7NEWS). Both things can be true at once. The honest answer is that the rental market is going to feel choppy through 2027 regardless of which scenario lands.

Federal Budget 2026 FAQs