The 2026 Federal Budget contained the most significant changes to investment property taxation in years. If you own an investment property — or are considering buying one — here's a plain-English breakdown of what changed, what didn't, and what you should be thinking about now.

Important: This article is general information only. The tax implications of these changes will vary significantly depending on your individual circumstances. Speak with your accountant or tax adviser before making decisions based on this information.

What is negative gearing (a quick refresher)?

Negative gearing occurs when the costs of owning an investment property (interest, rates, maintenance, property management fees) exceed the rental income it generates. That net loss can currently be deducted against your other income — reducing your taxable income and therefore your tax bill.

It's a strategy used by a large proportion of Australian property investors, particularly in high-cost cities like Melbourne where rental yields are often modest relative to purchase prices.

What changed in the 2026 Budget?

The government announced the following changes, to take effect from 1 July 2026 (subject to legislation passing Parliament):

  • Negative gearing deductions limited for new purchases: For properties purchased after 1 July 2026, negative gearing deductions will be limited to $20,000 per year per taxpayer. Losses above that threshold can be carried forward and offset against future rental income or capital gains (but not against other income such as salary).
  • CGT discount reduced for new purchases: The 50% capital gains tax discount for properties purchased after 1 July 2026 will be reduced to 25% for individuals (down from 50%). The discount remains at 50% for investments held in super funds.
  • Existing property holdings grandfathered: Properties purchased before 1 July 2026 are unaffected. Negative gearing deductions remain uncapped, and the existing 50% CGT discount continues to apply on disposal.

What stayed the same?

  • Negative gearing on existing properties (purchased before 1 July 2026) remains fully deductible against all income with no cap
  • The 50% CGT discount continues for properties purchased before the cut-off date
  • Depreciation deductions, interest deductions, and other property-related expenses remain fully deductible for both new and existing properties
  • SMSF investors retain the 50% CGT discount regardless of purchase date

What does this mean for Melbourne investors in practice?

For investors already holding Melbourne property, the changes are effectively a non-event — your tax position is unchanged. The grandfathering provisions are broad and clear.

For investors considering a new purchase after 1 July 2026, the calculus shifts somewhat. A property generating a $30,000 annual loss can still deliver $20,000 in deductions immediately, with the remaining $10,000 carried forward. For properties with modest negative gearing (say, under $20,000 per year), the change has limited practical impact.

The CGT discount reduction is more significant over the longer term — especially for investors buying higher-growth assets where the eventual capital gain is expected to be substantial. That's worth modelling carefully with your accountant before committing.

Should you rush to buy before 1 July 2026?

That's a question your accountant and financial adviser should answer — not us, and not a mortgage broker. What we can tell you is that the financing side of a property decision shouldn't be rushed. A purchase made in haste to beat a deadline, without proper due diligence, carries its own risks.

If you're already well progressed on a purchase and the timing works for you, the cut-off date is a real consideration. If you're starting from scratch, making a sound investment decision matters more than the deadline.

What about SMSF investors?

SMSF investors retain the 50% CGT discount regardless of when they purchase. For investors with significant super balances considering property inside their fund, this changes the relative attractiveness of SMSF versus personal ownership going forward. Again, that's a discussion to have with your financial adviser — but if you need SMSF lending, we can help with that.

Questions about investment property finance?

We specialise in investment loans across Melbourne and Geelong — including interest-only, offset structures, and SMSF lending. Book a free chat to talk through your options.

Book a free consultation   or call 0401 333 636

This article is general information only and does not constitute tax, financial or legal advice. The Budget measures described are subject to legislative change. Please consult a qualified tax adviser regarding your specific circumstances.