Announcement date
12 May 2026
Link to announcement
Tax reform for workers, businesses and future generations
Problem being addressed
Younger Australians are finding it harder than earlier generations to build wealth and buy a home, as house prices have risen much faster than incomes. At the same time, tax concessions on asset income are adding to housing demand and can encourage speculation in existing dwellings, while also weakening the fairness and resilience of the tax system.
- Under current rules, capital gains income earned by individuals, partnerships and trusts is taxed when an asset is sold and generally attracts the 50 per cent capital gains tax (CGT) discount. The flat discount is arbitrary and does not accurately compensate for inflation. This means the current CGT discount has the potential to significantly distort investment decisions, incentivising investment in existing houses.
- An investment is negatively geared when it runs at a current net loss and these losses are used to reduce the investor’s annual taxable income from unrelated sources, such as wages and salaries. This encourages leveraged property investments that can lead to investors receiving greater tax advantages than those available to owner occupiers.
Negative gearing, in combination with the CGT discount, contributes to low effective tax rates on property investments. These tax advantages have increased the share of housing owned by investors, at the expense of Australians looking to buy a home.
Proposal
This Impact Analysis Equivalent (IAE) considers reforms to negative gearing and CGT arrangements.
Improving Tax Arrangements for Capital Gains
- From 1 July 2027, the 50 per cent CGT discount for individuals, trusts and partnerships will be replaced with cost base indexation and a 30 per cent minimum tax rate. Cost base indexation will ensure that in future, only real capital gains are subject to tax, encouraging investment to flow to where it’s most productive.
- The minimum tax will support more consistent taxation of lifetime income by aligning the tax rate on real capital gains with the marginal tax rate faced by the average worker.
- Transitional arrangements will limit the impact on existing investments, with the new arrangements only applying to gains arising after 1 July 2027. Investors who acquire new homes will be able to choose either the 50 per cent CGT discount or the new arrangements when they sell the property.
Reforming Negative Gearing to Support New Housing Supply
- From 1 July 2027, losses related to existing residential investment properties purchased from 7:30pm AEST 12 May 2026 will only be deductible against other income from residential properties, including capital gains.
- Excess losses would be carried forward and able to be offset against residential property income in future years.
- Eligible new builds would be exempt from the changes, ensuring the benefits of negative gearing are directed to investment that increases the housing stock.
Assessed Impact Analysis outcome
Impact Analysis Equivalent
Assessment comments
The Office of Impact Analysis (OIA) does not assess the quality of reviews and documents used in lieu of an Impact Analysis (IA). Impact Analysis Equivalents (IAE) are assessed by the OIA for relevance to the recommended option(s) and for the coverage of the seven Impact Analysis questions.
For this IAE, the Treasury has drawn on the Report of the Senate Select Committee on the Operation of the Capital Gains Tax Discount; 2026-27 Budget, Budget Paper No. 1 – Budget Statement 4: Tax reform for workers, businesses and future generations (PDF, WORD); together with the Supplementary Analysis prepared by Treasury.
In this case, the OIA’s assessment is that the options analysed in the IAE are sufficiently relevant to the proposal. The IAE contains Supplementary Analysis prepared by the Department of the Treasury (the Treasury) to address IA question 7.
Regulatory burden
The Treasury estimates the changes would increase average regulatory costs by $88.4 million per year.