Australia to limit negative gearing for new purchases
Sydney (12 May)
The Australian Government will end negative gearing for existing houses bought after 12 May from the 2027-28 financial year to 30 June to encourage investment in new builds, it announced in its 2026-27 Budget.
Property investors will continue to be able to negatively gear existing properties and newly constructed homes, the Government said on 12 May.
The Australian Government has also announced plans to change the country’s capital gains regime. Investors will receive a Capital Gains Tax discount (CGT) tied to inflation, rather than their current 50% blanket discount, from 2026-27, it said.
But – as with the negative gearing changes – the Government’s CGT reforms will not impact new builds.
Australia’s flat CGT discount is arbitrary and overcompensates some investors while undercompensating others, the Government said in its budget. Property investors, outside of some regional areas, have typically been overcompensated for inflation, it added.
The Australian Government will also introduce a 30% minimum tax on inflation-adjusted capital gains for most investors, except for income support recipients like pensioners, it said.
“[Capital gains and negative gearing] changes will help about 75,000 Australians achieve the dream of home ownership,” Treasurer Jim Chalmers told Parliament. “These changes will … support investment in productive assets, including new housing supply,” Chalmers added.
The Australian Government expects to raise A$3.6 billion in revenue from its negative gearing and capital gains tax reforms over the 2028-29 and 2029-2030 financial years, Treasury modelling shows.
Australia’s tax changes are expected to create 75,000 first-home buyers and curb annual house price growth by around 2% for a few years, according to Treasury. They are also expected to increase median rents by under A$2/week and curb dwelling construction by 35,000 units over a decade.
The tax policies will primarily increase the share of owner-occupiers in the property market, rather than increase supply, Treasury modelling indicates. Tax-related dwelling construction reductions will also be wholly offset by other policies in the Budget, Treasury modelling shows.
Australian investment is expected to grow by 4% in 2026-27 and 3.5% in 2027-28, down from 5% in 2025-26, Treasury modelling shows. Treasury forecasters expect dwelling investment growth to slow over the next two years because of elevated interest rates and construction cost hikes linked to the US-Israeli war in Iran.
Treasury’s forecasts assume that oil prices will average $100/barrel (A$138/barrel) in April-June 2026, before falling to $80/barrel by June 2027. Elevated oil prices pose downside risks to economic activity, it said.
Brent crude futures traded at $107.58/barrel on 12 May, up from $72.87/barrel on 27 February, immediately before the Iran war began, data from Trading Economics show.
Australia’s Liberal-National coalition will not support the Government’s tax changes because of their impact on dwelling construction, Shadow Treasurer Tim Wilson told the ABC.
The Australian Greens will examine the details of the policy once the Government releases legislation, but opposes continued negative gearing for existing homes bought before 12 May, Greens Leader Larissa Waters told the ABC.
By Avinash Govind