2026 Federal Budget Changes - What Property Developers + Investors Need to Know
You've probably heard the headline: the 50% CGT discount underpinning Australian property investment since 1999 is being phased out. It's the kind of announcement that makes 'plan sealing' feel fun. Almost. Here's the rundown as at early August 2026, minus the jargon and the panic.
The short version
The 50% CGT discount is being replaced with cost base indexation plus a 30% minimum tax.
Applies to individuals, trusts and partnerships. Companies and superannuation funds are unaffected.
New builds get a genuine carve-out: choose between the old 50% discount or new indexation, whichever's better. Established property investors don't get that choice.
The first tranche already passed Parliament, via a deal with the Greens on 25 June 2026, no longer just a Budget thought bubble.
Everything commences 1 July 2027. Sell before then, and the current 50% discount still applies in full (if eligible).
Treasury released exposure draft material yesterday on the transition for properties bought before, sold after, 1 July 2027, more below.
Why????
Announced in the 2026-27 Federal Budget on 12 May 2026, alongside a broader package curtailing negative gearing on established residential property. The government calls it the most significant CGT shake-up since indexation gave way to the discount in 1999, we're going back to roughly where we started 25 years ago, with a 30% minimum rate bolted on fun.
What actually changes
New builds keep flexibility. Investors in new residential builds can elect either the 50% discount or the new indexation regime, whichever gives the better result, even after 1 July 2027. Established property is stuck with indexation and the minimum tax only.
Negative gearing follows the same logic. From 1 July 2027, rental losses on established properties acquired after 7:30pm (AEST) on 12 May 2026 can only offset rental income or property gains, not salary. New builds are excluded, preserving their negative gearing benefit.
The message from Canberra is about as subtle as shag pile carpet in an ensuite: build new, and the tax system stays friendly. Keep flipping established stock, and expect considerably more arithmetic.
Grandfathering
For assets already held, only the gain accruing after 1 July 2027 falls under the new rules, gains already accrued still get the 50% discount. Nobody's retrospectively taxing your last decade of growth; the line is drawn going forward from commencement.
Pre-CGT assets (before 20 September 1985) will effectively have their cost base reset for the post-1 July 2027 period, rather than remaining permanently outside the CGT net. If you hold long-term property from that era, it's worth a conversation sooner rather than later.
Ok, now the long version…
**Warning the below is rather technical and boring... the point is there could be a benefit under the new transitional calculation….**
Example 1: Old rules vs new rules
The scenario: an individual buys an established property for $500,000 after 1 July 2027, sells it 10 years later for $900,000, a nominal gain of $400,000. Assume a 47% marginal rate and ~15% cumulative inflation over the hold, ignoring holding costs.
|
Step |
Old rules |
New rules |
|
Nominal capital gain |
$400,000 |
$400,000 |
|
Cost base adjustment |
None (discount applied instead) |
Indexed for inflation: $500,000 × 1.15 = $575,000 |
|
Taxable / indexed gain |
50% discount: $400,000 × 50% = $200,000 |
$900,000 − $575,000 = $325,000 |
|
Tax payable |
$200,000 × 47% = $94,000 |
Greater of marginal rate or 30% minimum: $325,000 × 47% = $152,750 |
Here the new rules land the investor about $58,750 worse off, entirely assumption-dependent: higher inflation pushes the indexed cost base up and the tax bill down, and vice versa. It's worth modelling actual holdings rather than relying on rules of thumb.
This only applies to established property. A new-build investor chooses whichever method wins, so in practice they'd pick the 50% discount and stay at $94,000.
Example 2: The transition method - Property bought before 1 July 2027, sold after 1 July 2027
Treasury released the exposure draft explanatory material for this just recently, answering a question we've been getting a lot: If a property straddles 1 July 2027, how do you split the gain between the old rules and the new ones?
The mechanism is a deemed sale and reacquisition: the property is treated as sold and bought back on 1 July 2027, splitting the gain into a pre-start gain (still discount-eligible) and a post-start gain (indexed, new regime). Rather than an actual valuation, the default method estimates the 30 June 2027 value via a compounding daily growth rate based on purchase price, sale price, and days held.
Worked example (rounded for illustration): property purchased 1 July 2017 for $500,000, sold 30 June 2033 for $1,000,000 (16-year hold, 5,844 days, of which 3,652 fall before 1 July 2027). Total growth rate: $1,000,000 ÷ $500,000 = 2.0. Daily growth rate: 2.0^(1 ÷ 5,844) − 1 = 0.0119% per day.
The "Under old rules" column below shows, for comparison, what tax would be payable if the entire gain were simply taxed under the current 50% discount regime for the whole 16-year period, as if the reform had never happened.
|
Step |
Formula |
Amount |
Under old rules |
|
Deemed sale value (30 June 2027) |
Purchase price × (1 + daily growth rate)^days to 30/6/27 = $500,000 × (1.0001186)^3,652 |
$771,060 |
N/A |
|
Pre-start gain (50% discount eligible) |
Deemed sale value − purchase price = $771,060 − $500,000 |
$271,060 |
N/A |
|
Cost base reset (1 July 2027) |
= Deemed sale value |
$771,060 |
N/A |
|
Cost base indexed to sale (~20% cumulative CPI) |
Cost base reset × (CPI at sale ÷ CPI at start) = $771,060 × 1.20 |
$925,272 |
N/A |
|
Post-start gain (indexation + 30% minimum tax) |
Sale price − indexed cost base = $1,000,000 − $925,272 |
$74,728 |
N/A |
|
Total tax payable |
(Pre-start gain × 50% discount × 47%) + (Post-start gain × 30% minimum tax) = ($271,060 × 50% × 47%) + ($74,728 × 47%) |
$98,821 |
Nominal gain × 50% discount × 47% = $500,000 × 50% × 47% = $117,500 |
So the $500,000 nominal gain is reported in the sale year as two amounts: a $271,060 pre-start gain ($135,530 assessable after the 50% discount) and a $74,728 post-start gain. Both land in the same year's assessable income, adding up to roughly $98,821 of tax, compared with $117,500 if the entire gain were simply taxed under the old 50% discount rules with no transition. The reform's indexation actually works in the investor's favour here, since a decent chunk of the nominal gain over 16 years is just inflation.
The ATO is preparing guidance and calculators for these computations, a relief given the compounding maths involved.
Option two: Valuation at 1 July 2027,
If growth-rate method sounds like a lot of mumbo jumbo, and not how the real world works, we're with you. A formal valuation is available instead, and can produce a meaningfully different result.
Say an independent valuation puts the property at $800,000, higher than the formula's $771,060 (from above):
|
Step |
Formula |
Amount |
Under old rules |
|
Deemed sale value (per valuation) |
Market valuation as at 30 June 2027 (given) |
$800,000 |
N/A |
|
Pre-start gain (50% discount eligible) |
Valuation − purchase price = $800,000 − $500,000 |
$300,000 |
N/A |
|
Cost base reset (= valuation) |
= Valuation |
$800,000 |
N/A |
|
Cost base indexed to sale (~20% cumulative CPI) |
Cost base reset × (CPI at sale ÷ CPI at start) = $800,000 × 1.20 |
$960,000 |
N/A |
|
Post-start gain (indexation + 30% minimum tax) |
Sale price − indexed cost base = $1,000,000 − $960,000 |
$40,000 |
N/A |
|
Total tax payable |
(Pre-start gain × 50% discount × 47%) + (Post-start gain × 47%) = ($300,000 × 50% × 47%) + ($40,000 × 47%) |
$89,300 |
Nominal gain × 50% discount × 47% = $500,000 × 50% × 47% = $117,500 |
The valuation shifts more gain into the discount-eligible pre-start bucket ($300,000 vs $271,060) and less into the minimum-tax post-start bucket ($40,000 vs $74,728), roughly $89,300 of tax versus $98,821 under the default formula, and both comfortably beat the $117,500 that would apply under the old rules with no transition at all.
The takeaway: valuers are going to be busy!
The affordable housing angle, arguably the best-kept secret in this reform
Here's the bit that doesn't make headlines: the existing 60% CGT discount for qualifying affordable housing (the standard 50% plus an additional 10%) is being fully retained.
Individuals and trusts disposing of new or qualifying affordable housing on or after 1 July 2027 get the same flexibility as other new builds: a choice between the 50% (or up to 60%) discount or the new indexation-plus-minimum-tax regime.
Conditions haven't changed: eligible for the 50% discount, used for affordable housing for at least three years (1,095 days) since 1 January 2018, managed by a registered community housing provider, a genuine commitment, but one of the more generous concessions left standing.
What's confirmed vs. what's still moving
Confirmed, or as close to it as tax law gets:
The main residence exemption is untouched, still the one truly bulletproof CGT concession.
Superannuation funds are unaffected, no change to their CGT discount.
Income support recipients (e.g. Age Pension) are carved out of the 30% minimum tax.
The core reform package passed its first Parliamentary hurdle on 25 June 2026.
Still developing:
A second bill on CGT treatment of property transfers from separation and death (the "widow tax" fix) had its exposure draft released 4 August 2026, consultation still underway.
A proposed 30% minimum tax on discretionary trust income, separate from the above, still "watch this space", we're tracking it closely given how many developments sit in trusts.
Finer mechanics, valuation methodology, ATO safe harbours, trust integrity interactions, haven't been fully settled.
The big shape of the reform is locked in, but there's still fine print to be written.
What we're doing now
Reviewing structures (individual vs trust vs company) given companies are unaffected, this may shift how future projects are held.
Flagging established-property acquisitions before 1 July 2027, given the negative gearing cut-off applies to contracts from 12 May 2026.
Modelling outcomes under both methods for new builds, so investors can compare in dollar terms before committing.
Checking eligibility for the retained 60% affordable housing discount early, the three-year requirement can't be back-filled at settlement.
Watching the remaining legislation and Treasury guidance.
The takeaway
Nothing changes for a sale completed before 1 July 2027, the current 50% discount still applies. The window for using the old rules on established property is closing, and the new-build carve-outs are shaping up to be a genuine point of difference. Get in touch if you're planning a sale, a new project, or want to understand how this affects a specific holding, and we'll run the numbers properly.
Get in touch with m+h Private today on +61 3036 7174 to see how we can help deliver the best support to you and your business.
As always, the above is general in nature, please discuss with your trusted advisor.