New Tax Reforms: What the Changes to Negative Gearing and Capital Gains Tax Mean for Australians

Why are these reforms being introduced?

The Government’s stated objectives are to:

• Improve housing affordability for first home buyers.
• Encourage investment in newly constructed residential housing.
• Create a fairer and more efficient tax system.
• Increase the supply of new homes across Australia.

Changes to Negative Gearing

Current Rules

Currently, investors who incur a loss on an investment property can generally offset those losses against their other taxable income, including salary and wages.

From 1 July 2027

Under the proposed legislation:

• Negative gearing deductions for new residential properties will continue.
• Established residential properties purchased after the commencement date will generally no longer be eligible for traditional negative gearing benefits.
• Losses from established residential investment properties will instead generally only be offset against future residential rental income or residential capital gains.
• Existing investment properties will generally be grandfathered, meaning current owners are expected to retain the existing tax treatment until they dispose of the property.

What does this mean?

For investors considering purchasing residential property after the reforms commence, buying a newly constructed property may provide more favourable tax outcomes than purchasing an established dwelling.

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Capital Gains Tax (CGT) Changes

Another major reform affects how capital gains are taxed.

Current Rules

Currently:

• Individuals generally receive a 50% CGT discount on assets held for more than 12 months.
• Superannuation funds generally receive a one-third CGT discount.

Proposed Changes from 1 July 2027

The Government proposes to:

• Replace the existing 50% CGT discount with an inflation-based cost base indexation system.
• Tax only the real capital gain (after adjusting for inflation).
• Introduce a minimum 30% tax on net capital gains.
• Apply the new rules only to gains accruing from 1 July 2027 onwards, with transitional arrangements protecting gains accumulated before that date.

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Grandfathering Provisions

Importantly, the reforms include transitional arrangements.

Existing property owners are generally expected to continue under the current tax rules until they dispose of their investment property. This provides certainty for current investors while applying the new rules primarily to future investments.

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Who Could Be Affected?

These reforms may impact:

• Residential property investors
• Individuals planning to purchase investment properties
• Property developers
• First home buyers
• Self-Managed Super Funds (SMSFs)
• High-income earners
• Long-term investors holding capital assets

Every investor’s circumstances are different, making personalised tax advice increasingly important.

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Planning Opportunities Before 1 July 2027

With the commencement date still some time away, taxpayers have an opportunity to review their investment strategies.

You may wish to consider:

• Reviewing your current property portfolio.
• Assessing the timing of future property purchases.
• Understanding how grandfathering provisions may apply.
• Reviewing expected capital gains on existing investments.
• Considering whether new residential developments align with your investment objectives.
• Obtaining professional tax advice before making significant investment decisions.

Early planning may help minimise future tax liabilities and ensure your investment strategy remains aligned with the changing tax landscape.

Contact Roy A McDonald Pty Ltd Accountants

The proposed reforms present both challenges and opportunities. Understanding how they apply to your individual circumstances is essential before making major financial decisions.