2026 Federal Budget
Examples
Impacts on existing property investors
Michael owns an investment property purchased before 12 May 2026 that is negatively geared. He can continue to negatively gear this property in future years by using losses from his investment property against other income.
Michael sells the property two years after the policy commences for $560,000. Michael still receives the 50% CGT discount for the capital gain he makes on the property between the purchase date and 1 July 2027. He uses ATO tools to determine its value on that date was $500,000. After adjusting for two years of inflation of 2.5 per cent, his taxable capital gain for the period after 1 July 2027 is $34,688, slightly more than if he had applied a 50 %discount (which would have resulted in a taxable capital gain of $30,000). Assuming a 47% tax rate, the tax on his gain since 1 July 2027 is $16,303 (instead of $14,100 with a 50% discount).
Michael does not pay any tax on the capital gain until he sells his property.
Carrying forward losses for future property investors
A person buying a new build property can continue to negatively gear as per current arrangements.
For an individual purchasing an existing property after the announcement, the impact depends on the size of their rental loss and how much other income they have. For example, assuming a rental loss of $14,800:
• For a person with $80,000 in other income this deduction would be worth $4,761.
• For a person with $210,000 in other income this deduction would be worth $6,961.
This person will instead carry forward their $14,800 loss to use against future property income. The tax value of this future deduction will also depend on their other income at the time.
Negative gearing an existing residential property bought after announcement
Jean earns an income of $100,000 and buys an existing residential investment property for $519,000 (including stamp duty) after the policy start date, rents it out and sells it ten years later for $814,447.
Over the first five years that she owns the property she has net rental losses and accumulates $22,879 of carry forward losses.
In the following five years, Jean applies most of these carried forward losses to reduce her positive net rent over this period from $18,079 to zero.
In the year she sells the property she uses the remaining carried forward losses to reduce her real estate capital gain from $150,083 to $145,284. Overall, she pays $186 more in nominal tax over the years of her investment compared to previous settings.
Had Jean bought a new build property, she would not pay additional tax as negative gearing and the existing capital gains tax discount would still be available for this property.
Cost base indexation
Zoe purchases shares in a company for $100 on 1 July 2027. She then sells her shares on 1 July 2032 for $125, having made a nominal gain of from this investment of $25, with an investment return of 4.6 % per year.
As the shares were purchased after 30 June 2027, Zoe’s capital gains are subject to cost base indexation. Inflation is 2.5 % each year Zoe holds the assets and, using ATO tools, Zoe can work out that the indexed cost base of the shares is $113.
Zoe's taxable capital gain is reduced from $25 to $12 under cost base indexation. This is slightly less than the taxable capital gain of about $13 under the 50% discount, meaning she will pay slightly less tax.
Transitional CGT arrangements
Jane purchases an asset on 1 July 2022 for $800,000. She sells the asset on 1 July 2032 for $1,600,000 earning a 7.2 % annual return. Using ATO tools, Jane determines that the asset was worth $1,131,371 at commencement of the policy (1 July 2027).
Under the transitional rules, Jane calculates her taxable capital gain by adding:
• Taxable capital gains of $165,685 earned before commencement, which is equal to gross capital gains of $331,371 with the 50 % CGT discount; plus
• Taxable gains of $319,958 earned after commencement, which is equal to the gain of $468,629 less cost base indexation.
Her total taxable capital gain is $485,643. This is more than the $400,000 that would have been calculated if a 50% discount applied to the gain overall.
Assuming a 47 % tax rate, the tax on her gain is $228,252 (compared to $188,000 with a 50% discount).
Different rates of return
People will be affected differently depending on the rate of return on their assets.
For example, assuming 2.5% inflation, an asset purchased for $500,000 in July 2027, a holding period of 10 years, and $100,000 in other income per year:
• David earns an annual rate of return of 5%, similar to longer term returns on residential real estate. He will have a taxable capital gain of $174,405 under cost base indexation compared to $157,224 under the current 50 % discount. He will pay an extra $8,075 in tax due to the reforms.
• Ben earns a lower 2.5% annual return. As Ben does not earn a positive return on his investment after inflation, he will not have a taxable capital gain under cost base indexation. Under the 50% discount his taxable capital gain would have been $70,021. He will pay $24,858 less in tax due to the reforms.
• Kate earns a higher 7.5 % annual return. She will have a taxable capital gain of $390,474 under cost base indexation compared to $265,258 under the current 50 % discount. She will pay an extra $58,851 in tax due to the reforms.
Minimum tax on capital gains
Jack has a taxable income before capital gains of $25,000 in 2030FY and realises a capital gain of $10,000 on an asset that he purchased in 2028FY. Jack does not receive an income support payment so is not exempt from the minimum tax.
• The tax on Jack's capital gain of $10,000 is $1,400, or a tax rate of 14 % (excluding the Medicare levy). As this is lower than 30%, Jack pays an additional $1,600 in tax to bring the tax rate on his capital gain up to 30%. Jack may have tax offsets available to reduce the minimum tax and would be exempt from the minimum tax if he received an income support payment in that year.