2026-27 Federal Budget: What Property Investors Need to Know

The federal budget delivers the biggest tax reform package in more than a quarter of a century. Capital gains tax, negative gearing, trust distributions, foreign buyers and housing supply are all in scope. Much of the early coverage frames the changes as a setback for property investors.

Our view at Kev Tran Group is more nuanced. Reform of this scale rarely behaves the way the headlines describe.

The grandfathering provisions did more than protect existing portfolios. They quietly made established stock more valuable on the way through.

For 2026 federal budget property investors, the question is not whether to react. The question is whether the right pieces are in place for what just shifted.

Why This Reform May Backfire on Established Supply

The reforms were designed to open up established supply for owner-occupiers and first-home buyers. Tax efficiency was the chosen mechanism.

Negative gearing has been limited on established stock, pushing capital towards new builds. CGT indexation works alongside, dampening leveraged speculation.

The unintended consequence sits inside the grandfathering. Properties held at 7:30 pm AEST on 12 May 2026 retain full negative gearing under individual names.

The exemption also covers properties under contract before that point, but not yet settled. Sales completed before 1 July 2027 still fall under the existing 50% CGT discount.

What looks like a clamp on investors became an incentive to hold. The owner of a grandfathered property now has a tax position that the next buyer cannot replicate.

Selling means losing that protection. Holding tightens the established supply further.

Capital Gains Tax and the Window That Matters

Among the CGT changes in Australia in 2026, the headline reform takes effect from 1 July 2027. The 50% CGT discount on assets held longer than 12 months has been removed. It has been replaced by cost base indexation, with a 30% minimum tax on net capital gains.

The detail that matters for current holders sits in the transitional arrangements. Sales completed before commencement fall under the old CGT system, and gains accrued before that date on existing holdings retain the existing discount.

Our read is that holders are still better off keeping the asset rather than selling into the window. Growth accruing from commencement onwards falls under the new framework. The asset’s value at that date becomes the new cost base, with indexation applied from there.

How Indexation Works

Indexation lifts the cost base of an asset by inflation. Only the real gain is then taxed at the end of the holding period.

In higher-inflation periods, this approach can shield more of the cost base from tax. In lower-inflation periods, the effect can be smaller. The minimum tax floor sits on top, setting an effective minimum rate regardless of marginal tax position.

Who the New Rules Apply To

The new CGT rules apply across:

• Individuals
• Trusts
• Partnerships

A Note of Caution on New Builds

The reforms preserve full tax treatment for new builds. Investors holding new builds can choose between the 50% CGT discount and indexation. They also retain full negative gearing under the reforms.

On the surface, the tax position looks attractive. In practice, depreciation runs down over time, and the developer margin is typically baked into the purchase price.

Our first question to clients is about the future buyer. The likely answer is no longer another investor.

A subsequent owner of a previously occupied dwelling does not get the same negative gearing treatment under these rules. A buyer of a depreciation-led asset also starts with a smaller depreciation schedule.

Working backwards from that exit picture usually changes the asset selection earlier in the process. Tax efficiency on entry rarely compensates for a thinner buyer pool at exit.

Negative Gearing and the Borrowing Capacity Squeeze

The negative gearing changes in 2026 take effect from 1 July 2027. Losses on established properties can offset rental income or property gains. They cannot offset wages or other income, and any excess losses are carried forward to future income years.

The headline change is the loss of the salary income shield. A second-order effect gets less coverage in the press. Borrowing capacity compresses across the board.

Lenders use negative gearing add-backs to assess serviceability on established stock. Without them, the same income supports a smaller loan.

Our modelling puts the compression around 20%-30% across the investor profiles we work with. A client previously approved at roughly $800,000 may now find that figure closer to $560,000.

The squeeze lands hardest in the $500,000 to $1 million bracket. This is the bracket where strategic investors compete directly with first-home buyers. Reduced borrowing power, paired with first-home buyer support measures, will reshape the dynamics of that segment.

What Is Grandfathered

The grandfathering provision is doing more strategic work than the headlines suggest. Properties held at 7:30 pm AEST on 12 May 2026 are exempt from the negative gearing changes. Properties under contract before that point but not yet settled are also captured by the exemption.

Existing investors keep their current negative gearing treatment on those holdings. Super funds and widely held trusts also sit outside the new rules. 

Why Selling May Be the Wrong Move

For investors thinking about scale, the implication of grandfathering shifts the playbook. Selling a grandfathered property locks in a one-off gain while losing a structural advantage. The funded next purchase will then sit under the post-reform regime.

Debt recycling is the alternative that survives the reform. Refinancing against equity in a paid-down, grandfathered property frees capital for the next acquisition. The original asset keeps its protected tax position, and equity access of this kind does not trigger CGT.

Trust Distributions and the New Minimum Tax

A 30% minimum tax on discretionary trust distributions takes effect from 1 July 2028. In effect, the change targets a structure used by some families to hold property and other assets. The intent behind it is to lift effective tax rates on distributions to lower-rate beneficiaries.

Rollover relief will be available for three years from 1 July 2027. The relief supports small businesses and others restructuring out of a discretionary trust. Such a move can be made without income tax or CGT consequences.

Structures Outside the Measure

Several structures sit outside the new measure, including:

• Fixed trusts
• Widely held trusts
• Complying super funds
• Special disability trusts
• Deceased estates
• Charitable trusts

The Australian Taxation Office provides the existing guidance on trust distributions.

For investors holding property through a discretionary trust, the question is no longer whether to review the structure. It’s when. A planned review with your accountant and adviser can map the impact before commencement.

Foreign Buyer Ban Extended

The ban on foreign purchases of established homes has been extended to 30 June 2029. New dwellings continue to sit under a separate set of rules. Foreign investment in residential property is overseen by the Foreign Investment Review Board.

For domestic investors, the practical effect is continued reduced foreign competition for established stocks. The dynamic reinforces the broader supply tightening already in motion.

Housing Supply and the Demographic Lens

On the supply side, the reforms direct funding to a $2 billion Local Infrastructure Fund supporting up to 65,000 homes over the decade. State and territory programs receive an additional $5.9 billion under the 100,000 Homes for First Home Buyers program. New stock takes years to land, although the supply story is real.

The demand side is where the longer arc sits. Australian Bureau of Statistics projections point to substantial population growth across the next decade, largely driven by net overseas migration. Combined with the structural tightening of established supply, the long-term demand picture for established stock looks durable.

Treasury modelling estimates house price growth to be around 2% lower over a couple of years. The framing is slower growth, not a fall. Separately, the $250 Working Australians Tax Offset for over 13 million workers forms part of the cost-of-living measures.

The Foundation Strategy

Before any property decision sits a more important question. What is your borrowing capacity under the new regime, with no negative gearing add-backs assumed?

The order of operations matters here. We start with the revised borrowing capacity.

From there, we calculate the negative cash flow a client can comfortably absorb each month or year. Only at that point do purchase price range and asset type come into the conversation.

The honest version of this conversation is not always the easy one. If you have no savings outside the mortgage and no buffer, the answer is straightforward. Don’t buy yet.

A wrong purchase locks capital into the wrong asset for years. The right one needs a foundation to sit on first.

What We Look For

Our buyer’s agent perspective pushes us back to first principles. The reforms have moved the tax landscape, although the principles of investment-grade property selection have not changed.

We look for established residential in suburbs with strong owner-occupier appeal and proximity to amenities. Within that, boutique stock works well, including townhouses, one-in-four blocks and low-density brick construction. These are essentially small houses, and the deeper owner-occupier buyer pool matters at exit.

What We Tend to Avoid

• Medium and high-density apartments
• Single-industry and mining towns
• Properties pitched around a single suburb as a thesis

Cycles move and suburbs cool, so the strategy needs to outlast the individual trade. We are wary of advisers who anchor their identity to one location. A one-suburb thesis rarely survives the next cycle.

A Wider Wealth Gap?

A quieter consequence of the reforms may be a widening divide between buyers. Some already hold property, while others are still trying to enter the market.

Grandfathering lets existing investors keep advantages that newer buyers may not receive. Portfolio scaling can be easier for those who already hold, while first-time investors face a higher hurdle.

To be fair, property has rarely become easier with time. Each generation has faced higher entry prices, tighter lending or changing policy settings.

Our advice holds steady for anyone who is financially ready. With the right foundation in place, delaying indefinitely rarely improves the equation. Three or five years from now, the barriers to entry may sit higher again.

This is not about rushing or panic buying. It is about focusing on quality and strategy, then buying the strongest asset your financial position comfortably supports.

The Kev Tran Group View

The fact pattern is unchanged from how we have always read property. Strategy comes before asset selection.

Cash flow tolerance comes before purchase price. A clear answer to “who is your future buyer” comes before any specific suburb conversation.

This reform did not create that order of operations. It sharpened the cost of getting it wrong. The structural advantages now sit with those who already hold.

We operate as a boutique team of seven, with capacity capped by design. Roughly half of the consultations we take end with a different conversation about timing or fit. For the clients we do take on, the acquisition window typically sits between four and twelve weeks.

Saying it straight does not change how we get paid. Two years ago, we told a prospective client to sell an underperforming asset before buying anything new. They returned later to tell us it was the right call.

Budget changes create uncertainty for some, and opportunity for those with the right strategy and the right team. Rules of the game have shifted, while the principles of disciplined investing remain. A structural shift becomes a planning exercise, not a panic.

Next Steps

If you are unsure how the reforms affect your portfolio, we can help. Our team works with professionals to build and scale long-term property portfolios.

The conversation starts with your borrowing capacity and cash flow position. From there, we map what you actually want from the next decade of investing.

When you are ready, book a call to map your portfolio against the new regime.