The 2026-27 federal budget will be delivered by Treasurer Jim Chalmers at 7:30pm AEST on Tuesday 12 May 2026. For property investors, this is shaping up to be the most significant budget in over a decade.
Treasury has been modelling changes to both negative gearing and the capital gains tax discount. The RBA has just delivered back-to-back rate hikes. And the government is under pressure to show progress on its 1.2 million homes target. All of this is coming to a head in May.
Here’s what we know, what’s expected, and what investors should be doing right now.
What’s on the table
Three property-related policy areas are in play.
Negative gearing changes
Treasury is modelling a cap that would limit negative gearing deductions to a maximum of two investment properties per person. Properties beyond that cap would have their rental losses “quarantined” - offset only against future rental income from those properties, not your salary or wages.
The ACTU has pushed for a harder limit of one investment property. The Greens want negative gearing scrapped entirely. The government’s modelling sits somewhere in between.
We covered this in detail in our negative gearing changes breakdown. The key number: ATO data shows approximately 214,700 investors own three or more properties, representing about 9.5% of all property investors. The vast majority wouldn’t be affected by a two-property cap.
CGT discount reduction
The capital gains tax discount is expected to be cut from 50% to 33% for assets held longer than 12 months. Under the current rules, if you sell an investment property after holding it for more than a year, you only pay tax on half the capital gain. Under the proposed change, you’d pay tax on two-thirds.
The government has refused to rule out this change, while the Coalition opposes it outright.
Here’s what the difference looks like in dollar terms:
| Capital gain | Current tax (50% discount, 37% rate) | Proposed tax (33% discount, 37% rate) | Extra tax |
|---|---|---|---|
| $100,000 | $18,500 | $24,790 | $6,290 |
| $200,000 | $37,000 | $49,580 | $12,580 |
| $400,000 | $74,000 | $99,160 | $25,160 |
If changes go ahead, existing holdings are highly likely to be grandfathered. That means the current 50% discount would continue to apply to properties you already own. The reduced discount would apply to future purchases only.
Housing supply measures
The government has several housing initiatives already in motion:
Help to Buy. The shared equity scheme launched in December 2025 and has already received more than 2,300 applications. The government contributes up to 40% of the purchase price for new homes (30% for existing), reducing the buyer’s mortgage. This scheme targets owner-occupiers, not investors, but it affects demand dynamics in certain price brackets.
Housing Australia Future Fund. Round 3 was launched to fund 21,350 new social and affordable homes. The $10 billion fund is designed to address the social and affordable housing shortage, not the broader market, but it signals the government’s policy direction.
Foreign buyer ban. The ban on foreign purchases of established dwellings remains in effect and may be extended or strengthened in the budget.
Building approvals. Despite the policy effort, the numbers aren’t keeping up. Australia is forecast to fall approximately 262,000 homes short of its 1.2 million homes target over the National Housing Accord period. Building approvals have been falling, not rising, which means the supply shortage that’s been driving prices up isn’t going away any time soon.
The economic backdrop
This budget arrives in a challenging economic environment.
Inflation has re-accelerated. The CPI annual change hit 3.7% as of February 2026, driven largely by the Middle East conflict pushing fuel prices higher. This is well above the RBA’s 2-3% target band.
The RBA is hiking, not cutting. After three rate cuts in 2025 (taking the cash rate down to 3.60%), the RBA reversed course with back-to-back hikes in February and March 2026, pushing the cash rate back to 4.10%. All three 2025 cuts have been completely unwound. Most major banks expect another hike in May to 4.35%, with Westpac forecasting rates could reach 4.85% by August. We’ve covered the full implications in our RBA rate hike analysis.
GDP growth is soft. The economy is growing at around 2%, with unemployment at 4.1%. The government is navigating a difficult balance between cost-of-living pressures and fiscal restraint.
Property prices keep climbing. Despite the rate hikes, the national median dwelling value reached $922,838 in February 2026, up 9.9% year-on-year. The chronic undersupply of housing is overriding the impact of higher rates in most markets.
What the budget means for different investors
You own one or two properties
If the negative gearing cap is set at two properties, you’re unaffected. Your deductions stay exactly as they are. The CGT discount change would only affect you if you sell after the new rules take effect, and existing holdings are expected to be grandfathered anyway.
If you’re thinking about building a property portfolio, the timing of your next purchase relative to any announcement could matter. A property settled before any new rules commence would likely be grandfathered under the current tax treatment.
You own three or more properties
The two-property cap would affect your ability to deduct losses on your third, fourth, and subsequent properties against your salary income. Run the numbers on what quarantined losses would mean for your annual cash flow. For many investors, the impact is modest - especially if those properties are close to neutrally geared or positively geared already.
You’re planning to buy in 2026
Don’t rush. But don’t wait indefinitely either. If changes are announced on 12 May, there will likely be a commencement date - possibly 1 July 2026 or later. The window between announcement and commencement is when strategic timing decisions matter most.
The fundamentals haven’t changed. Growth, yield and location quality still determine long-term returns. Tax treatment is one input, not the whole picture.
You’re considering selling
If you’re planning to sell within the next few years, the CGT discount change could cost you real money. On a $300,000 capital gain, the difference between a 50% and 33% discount at the 37% marginal rate is approximately $18,870 in additional tax.
If selling is part of your strategy, talk to your accountant about timing before the budget. Contracts exchanged before any new legislation takes effect would typically be assessed under the current rules.
What the industry is saying
The Housing Industry Association warns that combined CGT and negative gearing changes could reduce new housing starts by approximately 46,000 dwellings over five years and cost more than 4,300 construction jobs. In a market already struggling to meet supply targets, that’s a meaningful concern.
The Grattan Institute takes the opposite view, arguing that combined reforms would reduce property prices by only 1-2% and have minimal rental impact.
The Property Council argues that reducing investor incentives will push some landlords to sell, tightening rental supply in a market where national vacancy rates sit at around 1.1%.
Both sides have legitimate analysis. The practical reality is likely somewhere in between.
What to do before 12 May
Review your portfolio. Count your properties. Understand which ones run at a loss and how much of that loss you’re currently deducting against your income. If you own three or more, model the quarantined loss scenario.
Talk to your accountant. Before the budget, not after. A good accountant can model the specific impact on your position and help you make timing decisions about purchases or sales.
Don’t panic-buy or panic-sell. Every major tax reform announcement triggers a rush of emotional decisions. The investors who do best are the ones who’ve already done the analysis and can act calmly when the details are confirmed.
Keep watching the data. The property markets that are performing best right now - Brisbane, Perth, Adelaide, and regional areas - are being driven by fundamentals like undersupply, population growth, and infrastructure investment. Those fundamentals don’t change because of a budget announcement.
Consider your EOFY position. With the financial year ending 30 June, there are tax strategies worth considering before the year wraps up, regardless of what the budget delivers.
We’ll update this as the budget drops
Budget night is 12 May 2026. We’ll break down the actual announcements as soon as they’re confirmed and what they mean for your investment strategy.
In the meantime, the best thing you can do is be prepared. Know your numbers, understand your exposure, and have a plan for different scenarios. That’s what separates strategic investors from reactive ones.
This is general information only and not financial or tax advice. Speak to your accountant or financial adviser about how any proposed changes apply to your specific situation.
If you want to talk through how the budget might affect your portfolio, book a free discovery call.
