This article was written by Nancy Wang Principal Solicitor at W & G Lawyers.
On 12 May 2026, the Australian Government handed down the 2026–27 Federal Budget. The Budget sends a clear policy message: the Government intends to direct tax concessions, housing incentives, business support and skilled migration settings towards areas considered more productive for the Australian economy.
These include new housing supply, genuine business investment, skilled labour, and migrants who are able to make an immediate and meaningful contribution to Australia’s workforce and tax base.
For property investors, small and medium business owners, skilled visa applicants, employer-sponsored visa applicants and families planning their long-term future in Australia, several proposed reforms deserve close attention.
It is important to note that Budget announcements are not the same as enacted law. Some measures will still require legislation and further guidance from the Australian Taxation Office, the Department of Home Affairs or other relevant government agencies. This article is intended to provide general information only and does not constitute legal, tax, financial or migration advice.
1. Negative Gearing Reform: Tax Benefits for Existing Residential Properties Will Be Narrowed
Negative gearing is a common tax arrangement used by Australian property investors. In simple terms, if the expenses of a rental investment property, such as mortgage interest, repairs, council rates and property management fees, exceed the rental income, the investor may currently be able to offset that loss against salary or other taxable income, thereby reducing personal income tax.
The 2026 Budget confirms that, from 1 July 2027, negative gearing benefits for residential property will be refocused towards newly built homes. The stated policy objective is to redirect investment away from existing housing stock and towards additional housing supply.
Existing investment properties: grandfathering protection
Residential investment properties acquired before 7:30 pm AEST on 12 May 2026 will continue to be covered by the current negative gearing rules until the property is sold. The Budget materials also indicate that properties where a contract was entered into before that time, but settlement had not yet occurred, will also be protected.
This means existing investment property owners should not immediately lose their current negative gearing treatment as a result of the proposed reform.
Existing homes purchased after Budget night
For existing residential properties purchased after 7:30 pm AEST on 12 May 2026, the tax treatment will become more restrictive.
Losses from those properties may still be used to offset residential rental income. Any unused losses may be carried forward indefinitely and used against future residential rental income or future capital gains from residential property. However, those losses will no longer be available to offset salary or other income in the same way as under the current rules.
This may significantly affect investors who have relied on investment property losses to reduce tax payable on employment or business income. High-income individuals purchasing established investment properties may need to reassess after-tax cash flow, borrowing capacity and long-term holding costs.
Newly built homes: existing negative gearing treatment retained
The Government is not abolishing negative gearing entirely. Rather, the proposed reform is designed to encourage investment in new housing supply.
Eligible newly built residential properties will not be affected by the proposed negative gearing restrictions. Investors in those properties may continue to offset rental losses against other income under the existing rules.
This may create a clear distinction in future investment strategy: established homes may become less attractive from a tax perspective, while newly built homes, construction projects and certain government-supported housing investments may receive more favourable policy treatment.
2. Capital Gains Tax Reform: The 50% CGT Discount Will Be Replaced by Indexation
Another major proposed reform concerns Capital Gains Tax, commonly known as CGT.
Under the current rules, individuals, trusts and partnerships that hold a CGT asset for more than 12 months may generally be entitled to a 50% CGT discount. In practical terms, this means only half of the capital gain is included in assessable income and taxed at the taxpayer’s marginal rate.
The 2026 Budget proposes that, from 1 July 2027, the current 50% CGT discount will be replaced by cost base indexation, together with a minimum 30% tax rate on capital gains.
The core idea: taxing real gains rather than inflation
Under the proposed new system, the cost base of an asset would be adjusted for inflation during the period of ownership. The policy intention is to tax the real gain above inflation, rather than the full nominal increase in value.
For example, if an investor purchases an asset for $500,000 and cumulative inflation during the ownership period is 20%, the inflation-adjusted cost base may become $600,000. If the asset is later sold for $800,000, the taxable real gain may be $200,000 rather than $300,000.
The practical outcome will depend on the length of ownership, inflation rate, asset growth, the taxpayer’s marginal tax rate and the final form of the legislation.
Minimum 30% tax rate
The Budget also proposes a minimum 30% tax rate on real capital gains arising after 1 July 2027.
This measure appears designed to limit the ability of taxpayers to time the sale of assets in low-income years in order to reduce the effective tax rate on capital gains. However, the Budget materials indicate that some recipients of certain income support payments, such as Age Pension or JobSeeker recipients, may not be affected by the minimum tax rate if they meet the relevant conditions.
Transitional arrangements
The proposed changes will apply only to capital gains arising after 1 July 2027. Gains accrued before that date are expected to remain subject to the current rules, including the 50% CGT discount where applicable.
For assets already held before the commencement date, this may require taxpayers to distinguish between gains accrued before and after 1 July 2027. In practice, this could increase the importance of valuations, record-keeping and careful tax advice.
Newly built residential property investors
To preserve incentives for new housing supply, investors in newly built residential properties may be able to choose between the existing 50% CGT discount and the proposed new indexation system.
This is an important concession for new housing investors and further demonstrates the Government’s intention to encourage capital to flow into additional housing supply rather than the existing residential property market.
3. Business Tax Reform: Greater Cash Flow Support for SMEs and Start-ups
The Budget also contains several business tax measures aimed at supporting investment, growth and innovation.
Permanent two-year loss carry back
From the 2026–27 income year, eligible companies with annual turnover of up to $1 billion may be able to carry back tax losses for up to two prior income years and obtain a refund of tax previously paid.
This may assist companies that experience losses due to expansion, equipment purchases, business restructuring or short-term trading difficulties. If a company has paid tax in previous years, loss carry back may help convert a current-year loss into an immediate cash flow benefit.
Permanent $20,000 instant asset write-off
From 1 July 2026, small businesses with annual turnover of less than $10 million may continue to immediately deduct the full cost of eligible assets costing less than $20,000 per asset. The measure is expected to become permanent.
This may benefit businesses in hospitality, retail, professional services, construction, education, training and small-scale manufacturing that need to upgrade equipment, technology or fit-out.
Businesses should be careful with timing. In many cases, the asset must be installed and ready for use by the end of the relevant financial year to qualify. Before making large purchases, businesses should confirm eligibility, asset classification, timing and record-keeping requirements with their accountant or tax adviser.
Refundable losses for early-stage start-ups
From the 2028–29 income year, small start-ups may be able to convert certain tax losses from their first two years of operation into a cash refund, subject to caps linked to PAYG withholding and fringe benefits tax paid in respect of employees.
This is significant for start-ups because many early-stage companies are not yet profitable and therefore cannot immediately use tax losses. A refundable loss mechanism may allow some of the tax value of early losses to be converted into cash flow support.
Start-ups should maintain proper payroll, PAYG withholding, FBT and employee records from the beginning. Early compliance may directly affect their ability to access future support.
4. Skilled Migration: A Stronger Focus on Age, English, Qualifications and Genuine Skills Demand
The Budget and related policy discussions also indicate a shift towards a more refined and economically focused skilled migration system.
The Government appears to be prioritising applicants who are able to enter the workforce quickly, meet long-term skills shortages and contribute to Australia’s economy over time.
Based on the current policy direction, future skilled migration competition may favour applicants who:
are younger;
have strong English language ability;
hold qualifications in priority sectors;
have skills in areas of genuine shortage, such as construction, electrical trades, engineering, health, artificial intelligence, advanced manufacturing and renewable energy;
have Australian employer support; or
have a partner who can also contribute through English ability, skills assessment or employment potential.
By contrast, applicants who have relied heavily on regional work experience, Australian study points or Professional Year points may face greater uncertainty in the future. Applicants should avoid relying on a single points-tested pathway and should consider employer sponsorship, state nomination, skills assessment strategy, English improvement and family-based planning together.
5. Practical Implications for Different Groups
Property investors
If you already hold an investment property, now is a good time to organise purchase contracts, settlement records, loan documents, rental statements, repair invoices, depreciation schedules and historical tax records.
These documents may become important for future refinancing, sale, tax calculation, family law property settlement, estate planning or asset restructuring.
If you are planning to purchase an investment property, you may need to compare the after-tax outcomes of purchasing a newly built home versus an established home. The proposed reforms may make newly built properties more attractive from both a negative gearing and CGT perspective.
Small and medium business owners
If you are planning to purchase equipment, expand your business or restructure your company, you should consider how the instant asset write-off, loss carry back and cash flow measures may interact.
Companies in particular should obtain accounting advice on turnover thresholds, eligibility requirements and the practical application of loss carry back rules.
Start-up founders
Start-ups should establish proper payroll, PAYG withholding, FBT and employee record systems from the outset. Future access to refundable loss support may depend on accurate and compliant employment-related reporting.
Skilled migration applicants
If you have already lodged an Expression of Interest and currently have a competitive points score, you should consider whether to also pursue state nomination, employer sponsorship or other visa options.
If your current strategy depends heavily on regional study, regional work experience or Professional Year points, you should reassess your risk position. Improving English scores, obtaining a suitable skills assessment and pursuing genuine employment opportunities may become increasingly important.
6. W & G Lawyers’ Observation
The 2026 Federal Budget is not simply about increasing or reducing tax. It is about redirecting tax concessions and migration settings towards the Government’s preferred economic priorities.
For property investment, the Government wants to reduce tax incentives for investing in existing housing and encourage investment in new housing supply.
For capital gains, the Government proposes to move away from a fixed 50% discount and towards a system that focuses on real gains above inflation.
For businesses, the Government is seeking to support investment, expansion and innovation through loss carry back, permanent instant asset write-off and refundable losses for start-ups.
For skilled migration, the policy direction is increasingly focused on younger, highly skilled, English-proficient applicants who can meet workforce shortages and contribute quickly.
For individuals, families and businesses, the next 18 months may be an important transition period. Strategies that work under the current rules may not produce the same result under the proposed new system.
Whether you are considering purchasing an investment property, selling an asset, expanding a business, restructuring a company, or planning a skilled migration pathway, it is important to obtain timely professional advice.
Conclusion
The 2026 Federal Budget has set a clear direction for Australia’s tax, housing, business and migration policy over the coming years.
For investors, business owners and skilled migration applicants, the key is not to panic, but to understand the proposed changes, keep proper records, reassess risk and make informed decisions before key transition dates.
If you would like to understand how the proposed Budget measures may affect your property investment, business structure, family asset planning or migration pathway, you are welcome to contact W & G Lawyers to arrange a consultation. We can assist you to identify risks, consider available options and plan your next steps within the legal and regulatory framework.
Visit or Contact Us
📍 68 Bryants Road, Shailer Park QLD 4128
📞 (07) 2810 5666
🌐 www.wglawyers.com.au
✉ info@wglawyers.com.au
Disclaimer
This article is general information only and does not constitute legal advice under Australian law. For advice specific to your situation, please contact W & G Lawyers. For further details, please click here to view our disclaimer.