Negative Gearing and CGT Changes: What Strata Apartment Investors Need to Know

• Negative gearing will be limited to new builds only. Investors who buy established properties after Budget night will no longer be able to deduct rental losses against their salary or other income.
• The 50% CGT discount will be replaced with a discount based on actual inflation, plus a new minimum 30% tax rate on capital gains.

The new negative gearing rules:

• New builds: Full negative gearing preserved. Rental losses can still be deducted against all income, including wages.
• Established properties purchased after Budget night: Losses can only be deducted against residential property income — not wages or other income. Unused losses can be carried forward to future years.
• Properties held before Budget night (12 May 2026): Fully grandfathered. No changes to existing arrangements.
• Affordable housing investments: Properties provided through government housing programs are exempt from the restrictions.

New CGT rules:

• The 50% discount is replaced with an inflation-linked discount. You only pay tax on the real capital gain above inflation.
• A new minimum 30% tax on capital gains applies regardless of the inflation adjustment.
• The changes only apply to gains arising after 1 July 2027, not gains accrued before that date.
• Investors in new housing can choose either the old 50% discount or the new inflation-linked system — whichever is more favourable.
• The CGT discount in superannuation is not affected.

Grandfathering summary:

• Negative gearing: If you owned your investment property before 12 May 2026, your negative gearing arrangements are fully grandfathered. No changes.
• CGT discount: Capital gains accrued before 1 July 2027 are taxed under the existing 50% discount. Only gains arising after that date fall under the new rules.
• Transition period: Properties purchased between Budget night and 30 June 2027 can still be negatively geared under the current rules. The restrictions kick in from 1 July 2027.

Scenario 1: Buying an established apartment after July 2027

You buy a two-bedroom apartment in an older strata building for $800,000. Your rental income is $35,000/year. Your costs (mortgage interest, strata levies, insurance, maintenance) total $50,000/year — a $15,000 annual loss.

• Old rules: The $15,000 loss offsets your salary. At a 37% marginal rate, that saves you $5,550 in tax each year.
• New rules: The $15,000 loss can only offset income from other residential properties. If this is your only investment property, you get no immediate tax benefit. The loss carries forward until you have property income to offset it against — or until you sell.

Scenario 2: Selling an investment apartment under the new CGT rules

You bought an apartment for $600,000 and sell it three years later for $700,000 — a $100,000 capital gain. Inflation over those three years averages 5% annually (roughly 15% cumulative on your cost base).

• Old rules (50% discount): Taxable gain = $50,000. At a 37% marginal rate, you pay $18,500 in CGT.
• New rules (inflation-indexed): Inflation-adjusted cost base = $690,000. Real gain = $10,000. But the minimum 30% tax applies to the full $100,000 gain, so you pay at least $30,000 in CGT.

In this example, the new rules result in a higher tax bill. However, if you held the property for longer and inflation eroded more of the gain, the inflation-indexed discount could be more generous than the flat 50%.

What the economists say:

• Prices: Commonwealth Bank economists estimate both changes could cause house prices to be 3–6% lower than they otherwise would have been. The Grattan Institute puts it at a more modest 1–2% reduction relative to the counterfactual.
• Revenue: The combined changes are expected to raise roughly $2 billion over four years and around $20 billion over a decade.
• Rents: Industry modelling warns rents could rise by around 2.4% by 2029–30 as reduced investor returns push some landlords out of the market, tightening supply.
• Construction: Industry bodies caution the changes could reduce dwelling starts by tens of thousands, though the government argues the new-build exemptions will channel investment towards new supply.

If you already own an investment apartment:

• Your negative gearing is safe. Properties held before 12 May 2026 are fully grandfathered.
• Review your CGT position. Capital gains accrued before 1 July 2027 are still taxed under the 50% discount. If you are planning to sell, talk to your accountant about timing.
• Check your strata building's financial health. If your building has deferred maintenance or upcoming major works, the risk of special levies is real — and harder to absorb under tighter tax settings.

If you are thinking of buying an investment apartment:

• New builds vs. established: The tax advantage now strongly favours new builds. Factor this into your purchase decision.
• Run the numbers without negative gearing. If the investment only works because of the tax deduction against your salary, it may not work under the new rules.
• Strata due diligence matters more than ever. High levies, special levies, and deferred maintenance hit harder when you cannot offset them against wages. Use a strata due diligence checklist and check the capital works fund balance before committing.

If you are on a strata committee:

• Expect ownership mix changes. Some investor-owners may sell over the next few years, particularly in older buildings with high levies. Prepare for potential turnover.
• Get your capital works plan in order. Well-funded buildings with clear maintenance plans will be more attractive to both investors and owner-occupiers in a market where holding costs matter more.
• Communicate upcoming costs early. Surprise special levies are always unwelcome, but they are especially problematic when investor-owners are reassessing their positions.