The 2026 to 2027 Federal Budget changed the rules. Here is what applies now, what changes from 1 July 2027, and how to think about property under the new regime.
On 12 May 2026, the Federal Budget delivered the most significant change to Australian capital gains tax in more than 25 years. The 50% CGT discount for individuals, trusts, and partnerships, which has shaped property investment decisions since 1999, is being replaced with cost base indexation and a 30% minimum tax rate on capital gains. The new regime takes effect from 1 July 2027.
For property investors, this is a material change. It affects how future capital gains are calculated, how much tax is payable on those gains, and how to think about timing, structure, and asset selection across the next several years. It also creates a window between now and 1 July 2027 during which the current rules continue to apply, which has its own strategic implications.
This article explains what capital gains tax is, what currently applies to property investments, what the May 2026 Budget changes, and how to think through property decisions during the transition. The main residence exemption, the small business CGT concessions, and several other key features are unchanged, and we explain where each fits in the new picture.
What Capital Gains Tax Is and When It Applies
Capital gains tax is not a separate tax. It is a component of income tax that applies when a CGT asset is sold or otherwise disposed of, and the proceeds exceed the cost base of the asset. The difference between the two is a capital gain, which is added to taxable income for the year of the CGT event and taxed at the taxpayer’s marginal rate, subject to any discounts or exemptions that apply.
Most assets acquired after 19 September 1985 are CGT assets. Property is the most common, but the rules also apply to shares, business assets, collectables, and many other categories. The CGT event is most often a sale, but it can also be triggered by gifting, transfer between entities, the loss or destruction of an asset, or certain other transactions.
The cost base of an asset is more than the purchase price. It includes incidental costs of acquisition such as legal fees and stamp duty, capital improvements, and certain ownership costs for properties that have been used to produce income. Calculating the cost base accurately matters more under the new regime than it did under the old, because the cost base becomes the basis for the indexation calculation rather than simply the starting point for a percentage discount.
The Current Rules: What Applies Until 30 June 2027
Until 30 June 2027, the rules that have applied since 1999 remain in force for capital gains arising in that period. Individuals, trusts, and partnerships who hold a CGT asset for more than 12 months before sale are entitled to a 50 percent discount on the capital gain before it is added to taxable income. The 12 month holding period is measured from the date of acquisition to the date of the CGT event, exclusive of both dates.
Under the current regime, an investment property bought for $500,000 and sold for $800,000 produces a $300,000 capital gain. With the 50% discount applied, $150,000 is added to taxable income for the year of sale. For a taxpayer on the top marginal rate, the resulting tax is roughly $70,000 to $75,000 depending on the precise income mix.
Companies do not receive the 50% discount, even under the current rules. Capital gains on assets held by a company are taxed at the company tax rate, currently 25% for base rate entities and 30 percent for other companies. This treatment is unchanged by the Budget.
The Main Residence Exemption: More Valuable Than Ever
The main residence exemption is unaffected by the May 2026 Budget. The family home remains fully exempt from CGT, with no cap on the gain. This is now one of the most important features of the Australian tax system, particularly for households with significant home equity.
The main residence exemption applies in full when the property has been the taxpayer’s main residence for the entire ownership period and has not been used to produce income. Where these conditions are partially met, a partial exemption applies. Several rules sit around the exemption that are worth understanding.
| Exemption | Details |
|---|---|
| The 6 Year Absence Rule | A taxpayer who moves out of their main residence and rents it out can continue to treat the property as their main residence for up to 6 years. During this period, no CGT applies to any gain that accrues on the property. The 6 year clock only runs while the property is producing income. A vacant former home can be treated as the main residence indefinitely. Genuinely moving back in and reoccupying the property as the main residence resets the six year clock for any future income producing absence. |
| The Partial Exemption | Where a property has been the main residence for part of the ownership period and an investment for the other part, the gain is apportioned on a day count basis. The portion of the gain attributable to the main residence days is exempt. The portion attributable to the non main residence days is assessable. Market valuations at the date of any change in use become important under this calculation, and obtaining a valuation at the right time can preserve significant value. |
| Only One Main Residence at a Time | A taxpayer can only treat one property as their main residence at any given time, with a limited overlap rule allowing up to 6 months when moving between homes. Couples are generally treated as a single household for this purpose, meaning a married or de facto couple can only have one main residence between them for any given period. |
| Foreign Residents | Since 1 July 2020, the main residence exemption has not been available to taxpayers who are foreign residents at the time of sale. This applies even where the property was the main residence for many years before the taxpayer left Australia, with limited exceptions for certain life events. Anyone considering moving overseas should obtain advice before leaving, not after returning. |
Under the new regime announced in the May 2026 Budget, the main residence becomes the single most tax advantaged appreciating asset in Australia. Investment property gains will face a minimum 30 percent tax on the real gain from 1 July 2027. The home remains fully exempt.
What the May 2026 Budget Changes for Property Investors
The Budget announced two changes to property tax that are directly relevant to investors. The first is the replacement of the 50% CGT discount. The second is the change to negative gearing rules.
The CGT Discount Change
From 1 July 2027, the 50%t CGT discount is replaced with cost base indexation and a 30% minimum tax on the real gain. For most property investors, the new regime delivers a higher effective tax rate particularly for properties with strong capital growth and shorter holding periods.
The Negative Gearing Change
From 1 July 2027, net rental losses on established residential properties acquired after Budget night can only be offset against rental income or capital gains, not salary or other income. Existing investments and new builds are exempt. Excess losses carry forward indefinitely.
Grandfathering & Transition
Properties held at Budget announcement are protected. Gains accrued before 1 July 2027 remain subject to the 50% discount. Only post 1 July 2027 gains fall under the new rules – meaning long held properties can effectively split the gain across both regimes.
CGT on Investment Properties vs Principal Place of Business
Properties used in a business are treated differently from passive investment properties. Where a property is used as the principal place of business by the owner, by an affiliate, or by a connected entity, it may qualify as an active asset for the purposes of the small business CGT concessions. These concessions are not affected by the May 2026 Budget changes and continue to operate as they have.
The small business CGT concessions can deliver substantial tax relief on the sale of business premises, often reducing the CGT liability to zero. They are particularly relevant for business owners who own their commercial premises through a related entity, and for retiring business owners who want to convert business value into superannuation. We cover the small business concessions in detail in our companion article on business sales.
The distinction between an investment property and a business asset is one of the most valuable categorisations in the Australian tax system. The right structure, established well before any sale, can move a property from the new investment property regime into the small business concession regime.
Common Mistakes That Trigger Unexpected CGT Events
Property CGT tends to produce surprises rather than smooth outcomes when records are incomplete or structural decisions were made without tax awareness. The mistakes that come up most often share a common theme: decisions were made for non tax reasons, and the CGT consequences only emerged years later.
Treating a Former Home as a Main Residence Too Long or Not Long Enough
The six year absence rule has a specific structure. Exceeding the six years while the property is income producing converts part of the gain into an assessable amount. Many homeowners do not realise their absence has passed the6 year mark until they are preparing to sell.
Missing the Market Value at Change of Use
When a main residence first becomes an investment, the market value at that date becomes the relevant starting point for any future partial exemption calculation. Without a valuation taken at the right time, the calculation defaults to the original purchase price, which can substantially inflate the assessable gain.
Capital Improvements Not Added to the Cost Base
The cost base includes the cost of capital improvements. Renovations, structural additions, and other capital works should be tracked carefully across the ownership period. Failing to do so means paying tax on a larger gain than the real economic gain represents.
Holding Property in the Wrong Entity
The entity that owns a property determines how the CGT rules apply. Properties owned in a company miss out on the CGT discount under the current rules and the indexation under the new rules. Properties owned in a discretionary trust have flexibility but also complexity. Decisions about ownership structure made at acquisition often become difficult to undo at sale, which is why structural advice early in the ownership period is one of the most valuable conversations a property investor can have.
Becoming a Foreign Resident Before Selling
Foreign residents lose access to the main residence exemption entirely on Australian property and lose access to the 50% CGT discount on gains accruing after 8 May 2012. The tax consequences of becoming a foreign resident before disposing of Australian property are often significantly larger than the tax consequences of selling before leaving.
How a Strategic Advisory Partnership Reduces CGT Exposure
Capital gains tax is one of the areas where the difference between reactive compliance and proactive advisory shows up most clearly in dollar terms. The opportunities to reduce CGT exposure are often time sensitive, structurally embedded, and dependent on decisions made years before the CGT event itself.
The work of a strategic advisory partnership on property CGT covers several areas. Ownership structure review at acquisition. Use review at any change of circumstances. Cost base maintenance across the ownership period. Timing planning ahead of any disposal. Coordination with broader wealth strategy, including super and investment portfolio decisions. Where appropriate, coordination with succession planning to align property decisions with the broader estate.
In the current transition period, this work is more time sensitive than usual. The window between now and 1 July 2027 is one in which the current rules still apply. Decisions about whether to dispose of property before the new regime, whether to restructure ownership, and how to capture value under the existing rules all benefit from being thought through deliberately rather than left until late in the window.
Working with 360 ONE on Property CGT
Our advisory and wealth teams work across the full property CGT picture, from acquisition through ownership through eventual disposal. For clients with existing property portfolios, we offer a CGT position review that examines current exposure, the impact of the Budget changes, and the opportunities available in the transition window.
For clients considering property acquisitions, structural advice at the point of purchase often delivers the largest single improvement to long term CGT outcomes. The decisions are simpler to make at acquisition and difficult to change later. Getting them right early is the most valuable single move a property investor can make.
If you would like to discuss your property position, contact us today.