Making sense of the 2026–27 Budget

The biggest change to property investment in decades.   

The federal government’s 2026–27 Budget landed on 12 May against a backdrop of rising rates, an oil-driven inflation spike and a housing market under real pressure. For investors, developers and real estate agency principals, the implications go well beyond the negative gearing headlines, touching capital gains, trust structures, borrowing capacity and the broader economic environment all at once.   

The negative gearing and capital gains tax changes – what actually changes  

Currently, losses from a rental property can be used to reduce other forms of taxable income, including salary. From 1 July 2027, that changes for any established residential property purchased after Budget night (7:30pm AEST on 12 May 2026). After that point, losses will only be deductible against other residential property income, including capital gains. For investors who already hold property, nothing changes – you can continue to negatively gear for as long as you hold the property.  

The capital gains tax (CGT) discount is also being overhauled, with the current 50% discount replaced by a CPI indexation model and a 30% minimum tax on real gains, but only for gains accruing after 1 July 2027.   

Critically, new builds are fully exempt from both changes. Investors in eligible new residential construction retain access to negative gearing and can choose between the existing CGT discount or the new model when they sell.  

What this means for borrowing capacity 

The loss of negative gearing deductibility against wage income could have a direct effect on how lenders assess serviceability. Lenders currently factor the tax benefit into borrowing calculations, treating it as a contribution toward the cost of holding the loan. Without it, the net cost of holding a new established investment property increases, and lenders will reflect that. For investors with large portfolios planning further acquisitions, this could meaningfully reduce borrowing capacity, not just on the next purchase but potentially across the portfolio.  

On the other side, the Budget also includes measures that may increase take-home pay for some working Australians. The new $250 Working Australians Tax Offset, two further rounds of legislated tax cuts and a $1,000 instant work-related expense deduction may increase take-home pay for many working Australians, depending on their circumstances. And higher net income does improve serviceability, at least modestly.  

Changes to discretionary trusts 

From 1 July 2028, a minimum tax of 30% will apply to discretionary trust income. Beneficiaries will receive credits for tax already paid by the trustee, so income isn’t taxed twice, but the 30% minimum rate applies regardless of the individual beneficiary’s marginal rate.   

The government has built in rollover relief for three years from 1 July 2027, which gives affected businesses and investors a window to assess whether restructuring makes sense before the rules bite in 2028. Self-managed superannuation funds (SMSFs) are explicitly excluded from the changes. 

If you currently operate through a discretionary trust, it is recommended that you discuss your options with both your accountant and finance broker, because any restructuring may also have implications for how your borrowing is assessed.  

What the Budget means for developers 

For residential and commercial developers, the Budget’s housing policy settings are arguably the most favourable in years. By restricting negative gearing to new builds only, the government has created a clear tax advantage for investors purchasing newly constructed stock, and that shift in investor demand is likely to be meaningful over time. End-buyer demand for new residential stock should strengthen as investors opt for new builds.  

The second key feature of the Budget for developers is the $2 billion Local Infrastructure Fund, tied to planning and zoning reform by state governments. This is designed to accelerate the approvals and infrastructure needed to unlock new housing supply, which could reduce a persistent friction point in the development pipeline. 

For developers who work quickly across multiple projects, the policy direction supports continued investment in new supply. Having finance pre-arranged and ready to deploy, may help developers act quickly when suitable opportunities arise.  

The broader economic picture  

The Budget forecasts inflation at 5% through to June 2026, driven largely by the oil shock from the Middle East conflict, with economic growth expected to slow to 1.75% in 2026–27.  

For real estate agency principals, this creates both pressure and opportunity. Landlord stress, softening transaction volumes and tighter buyer budgets are real near-term risks. But rising compliance costs and margin pressure are also pushing smaller operators to consider exits, and principals with their finance in order will be well-positioned to move on rent roll or agency acquisitions when those opportunities arise. 

What this means for your next move  

The tax changes announced in this Budget are significant, but they come with long lead times and extensive grandfathering. A more immediate pressure is the lending environment after three consecutive rises, inflation heading to 5% and tightening serviceability assessments.  

That makes finance strategy more important than ever. Whether you’re an investor assessing how the negative gearing changes affect your next acquisition, a developer looking to move quickly on a new project or a principal with an eye on buying a rent roll or agency, having finance structured appropriately before you need it can be an important part of planning. 

*Budget measures are subject to legislative implementation and may change before commencement. 

If you want to talk through how the Budget changes may affect your borrowing position or your next move, get in touch with Ben at Finance Advisory Co by calling 0426 236 007 or emailing ben@finad.com.au.  

Finance Advisory Co Pty Ltd (ABN 37 660  030 419) is a Credit Representative (CR No. 541104) of Connective Credit Services Pty Ltd (Australian Credit Licence 389328)

The information in this article is general in nature and does not constitute personal advice. You should consider whether the information is appropriate to your needs and seek professional advice before making any decision. All applications are subject to lender credit criteria, fees and charges.