2026–27 Federal Budget
Property Tax: 23 Key Questions Answered

Answer: The key is when the original home was acquired.

• If the home was under contract before 7:30pm AEST 12 May 2026: it is fully grandfathered. Converting it to an investment property allows you to continue negatively gearing under the old rules. This strategy works.
• If the home was acquired after the Budget: from 1 July 2027, negative gearing losses can only offset other residential rental income — not wages or other income.

Answer: Calculated in three phases, each under different rules:

• Phase 1 (held until 30 June 2027): Old rules apply — eligible for the 50% CGT discount.
• Phase 2 (from 1 July 2027 until move-in date): New rules apply — CPI indexation, net capital gain subject to 30% minimum tax.
• Phase 3 (from move-in until eventual sale): Main Residence Exemption applies — gains during this period are completely CGT-free.

Answer: No. The Main Residence Exemption operates as a completely separate mechanism, entirely independent of the negative gearing and CGT discount reforms. It remains fully intact and is unaffected by these changes.

Answer: From 1 July 2027, capital gains for individuals and trusts will be subject to a 30% minimum tax rate:

• If your marginal tax rate in the year of sale is already ≥30%: no change — you pay at your normal marginal rate.
• If your income is very low in the year of sale: the low-rate benefit no longer applies to capital gains — a 30% floor kicks in.
• Exception: If you receive a Centrelink means-tested payment (Age Pension, JobSeeker, etc.) in that year, the 30% minimum does not apply.

Answer: The new rules replace the 50% discount with CPI indexation, producing three scenarios:

• Scenario 1 — Gain beats inflation: The portion above inflation is a taxable capital gain, taxed under the new rules.
• Scenario 2 — Gain below inflation, but above cost: e.g. bought for $1M, sold for $1.1M, but inflation-adjusted value is $1.15M. The $100K actual profit is fully tax-free; the $50K “inflation shortfall” is not a capital loss.
• Scenario 3 — Sold below cost (genuine loss): This constitutes a real capital loss, which can offset future capital gains on other assets.

Answer: Only partially tax-free — 1 July 2027 is the dividing line:

• Gains accrued before 1 July 2027: Pre-CGT exemption still applies — no tax.
• Gains accrued after 1 July 2027: Taxed under new rules (CPI indexation + 30% minimum tax) — the pre-CGT exemption does not apply to this portion.
• Therefore, pre-CGT asset holders also need a baseline market valuation as at 1 July 2027 to establish the dividing point between the two periods.

Answer: Strongly recommended. Here’s why:

• 1 July 2027 becomes the CGT dividing line — gains before that date follow old rules, gains after follow new rules. Without a benchmark valuation, you can’t accurately split the two components later.
• Valuations can be backdated, but the closer to the date the better — less room for dispute in an ATO audit.
• Commission an independent Registered Valuer — not a bank valuation. Cost is around $500 and well worth it.

Answer: No. The ATO applies a “Purpose Test” principle:

• Whether loan interest is deductible depends on whether the underlying investment the borrowed money was used for is itself deductible.
• Under the new rules, established properties cannot be negatively geared, so the interest on a loan used to purchase an established property is also not deductible.
• The existing loan on your first property is unaffected — it remains deductible under the grandfathering rules.

Answer: Yes. Under the same ownership entity, losses from residential investment properties can offset each other:

• “Losses related to existing residential investment properties” can offset “rental income from other residential properties.”
• This means losses from one established property can reduce the surplus from the other — only the net income is taxed.

Answer: Under ATO Budget guidelines, a “new build” must genuinely add to housing supply:

• ✓ Building a new dwelling on vacant land (0 to 1): qualifies.
• ✓ Demolishing one and building two or more (1 to 2+): qualifies.
• ✗ Demolishing one and rebuilding one (1 to 1): does not qualify.
• ✗ Granny flat: does not qualify.
• ✗ Substantial renovation without increasing dwelling count: does not qualify.

Answer: This is a complex, multi-phase question:

• Phase 1 (holding period until development): Gains up to 30 June 2027 follow old rules (eligible for 50% discount); gains from 1 July 2027 until development follow new rules.
• Phase 2 (new build after development): If the number of dwellings increases (meeting the new build definition), the new property qualifies for negative gearing and can choose the most favourable CGT method (old or new rules) on sale.

Answer: No. This is an important distinction between developers and investors:

• The buyer (investor) who purchases your property can benefit from the CGT choice mechanism.
• As the developer selling, if the development is profit-driven, proceeds are treated as ordinary income — no CGT discount applies.
• This is the ATO’s long-standing position on commercial development income, clearly set out in TR 92/3 and related rulings.

Answer: Yes. Here’s why:

• A granny flat is attached to the main dwelling and cannot be treated as a standalone new build.
• Its legal status is ancillary to the main dwelling — it follows the main dwelling’s acquisition date and grandfathering protections.
• Since the main dwelling was acquired before the Budget and is fully grandfathered, the granny flat’s negative gearing benefits follow suit.

Answer: Very reasonable — an attractive strategy under the new rules, especially for high capital-growth scenarios:

• A passive investment company (Base Rate Entity, passive income >80%) pays 30% tax; if the company also runs a business, the 25% small business rate may apply. Both generate tax-effective Franking Credits.
• In retirement, paying dividends in a low-income year allows Franking Credits to offset personal income tax, reducing overall tax burden.
• Reinvesting within the company does not trigger Division 7A issues.

Answer: Yes. The Six-Year Rule falls under the Main Residence Exemption, which is entirely independent of the negative gearing and CGT discount reforms — unaffected by the new rules.

• You can continue to treat a property as your “main residence” during a rental period of up to 6 years, with gains during that period remaining CGT-free.
• Practical use: renovate during the owner-occupier period, rent it out at a premium, move back in, renovate again, and sell — gains during the ownership period are completely tax-free.

Answer: Your concern is valid, but based on your specific circumstances, a discretionary trust can still be the optimal structure if certain conditions are met.

See Q16–Q18 for details on how the 30% minimum tax mechanism works, the optimal strategy for using a family trust, and a comparison with a company structure.

Answer: From 1 July 2028, trustees must pre-pay 30% tax on the taxable income of family (discretionary) trusts:

• Beneficiaries receive a corresponding non-refundable tax credit when distributions are made.
• If the beneficiary’s effective average tax rate is ≥30%: the credit is fully utilised — no loss.
• If the beneficiary’s effective average tax rate is <30%: the non-refundable credit is wasted, creating tax leakage — this is the core risk of the new trust rules.

Answer: Yes, but three conditions must be met simultaneously for the trust to deliver maximum benefit:

• Condition 1 — Buy a new build: New builds can still elect the 50% CGT discount after 1 July 2027 (established properties cannot), making them far more tax-effective.
• Condition 2 — Maintain annual rental losses: Commission a Quantity Surveyor to prepare a depreciation schedule. The 2.5%/year construction cost depreciation creates non-cash deductions, keeping most new builds in a loss position each year. No taxable income in the trust means no 30% minimum tax is triggered.
• Condition 3 — Sell when beneficiaries’ average tax rate is ≥30%: Accumulated losses offset the capital gain on sale. Combined with the 50% CGT discount, the net taxable amount is significantly reduced. If beneficiaries’ effective rate meets or exceeds 30%, the non-refundable credit is fully utilised — no tax leakage.

Answer: No. For new builds, a family trust remains superior to a company structure. The core reason is the CGT discount:

• Companies never receive a CGT discount. New builds held in a trust or by an individual qualify for the 50% CGT discount (retained under the new rules); a company selling the same property pays tax on the full capital gain.
• Example: New build with $500K gain — trust taxable gain: $250K (after 50% discount); company taxable gain: $500K (no discount). The difference is significant.
• A company structure is appropriate for: established properties, properties with long-term positive cash flow, or where beneficiaries’ anticipated tax rate on sale is below 40% (to avoid wasted non-refundable credits).

Answer: Yes, but only during the transition period — then it becomes restricted:

• Established properties acquired between 7:30pm AEST 12 May 2026 and 30 June 2030: can still be fully negatively geared from May 2026 to 30 June 2027 — losses can offset wages and all other income.
• But from 1 July 2027: losses from these same properties can only offset other residential rental income — wages and other income can no longer be offset.

Answer: Not at all. This is an important exemption under the new rules:

• SMSFs are explicitly exempt from the new negative gearing restrictions. Whether holding new builds or established properties, they can continue to negatively gear under the old rules, with losses offsetting all SMSF income.
• Also exempt: Widely-held Trusts, Build-to-Rent developments, and private investors participating in government housing programs.

Answer: A professional valuer is not mandatory. The ATO officially provides two options:

• Option 1 — Professional valuation report: Commission an independent Registered Valuer to produce a market value report as at 1 July 2027. This carries the strongest weight in an ATO audit.
• Option 2 — ATO Apportionment Formula: The ATO will release a calculation tool that estimates market value based on the growth rate across the entire holding period — free to use, no third party required.

Answer: Yes. The Budget specifically preserves full negative gearing rights for private investors supporting government housing programs:

• Private investors participating in government-approved housing programs are exempt from the new negative gearing restrictions and can continue to offset losses against all income under the old rules.
• This is an important complementary policy to encourage private capital to help address housing supply shortfalls — an explicit exemption under the new rules.