The 2026–27 Federal Budget tax reforms have now passed Parliament and will reshape how property investors use negative gearing and calculate capital gains tax. These changes affect rental losses, tax deductions, investment decisions, property records and future capital gains calculations.
The key point for investors is simple: tax depreciation schedules and capital gains tax valuations are not becoming less important. They are becoming more important under the new tax system, especially for investors affected by the negative gearing and capital gains tax changes.
From 1 July 2027, negative gearing for residential investment properties will be limited to new builds. The 50 per cent capital gains tax discount for individuals, trusts and partnerships will be replaced with cost base indexation, and a 30 per cent minimum tax rate will apply to real capital gains. Investors who buy new builds will be able to choose between the old 50 per cent CGT discount and the new indexation method. The detailed rules on which homes count as new builds are still a Treasury draft.
Properties held before 7:30 pm AEST on 12 May 2026 remain protected from the negative gearing changes. This protection can also pass to a surviving spouse, a surviving co-owner or a former spouse after a separation, under the Treasury Laws Amendment (Tax Reform No. 2) Act 2026 (assented 26 August 2026, applying from the 2027-28 income year). The CGT changes will apply only to gains accruing from 1 July 2027. This makes accurate tax records, depreciation reports and market valuations more important for property investors.
What changes for negative gearing?
Under the old tax system, if an investment property made a rental loss, that loss generally reduced the investor’s other income, such as salary or wages. This allowed many negatively geared investors to lower their taxable income by claiming eligible property deductions, including depreciation.
For example, under the old rules:
Item | Amount |
Salary income | $120,000 |
Rental income | $30,000 |
Interest, rates, insurance and other expenses | -$35,000 |
Depreciation deductions | -$8,000 |
Net rental loss | -$13,000 |
Taxable income after rental loss | $107,000 |
In this example, the depreciation schedule increases the rental loss. Under the old rules, that loss reduces the investor’s personal taxable income and improves after-tax cash flow.
From 1 July 2027, this outcome changes for established residential investment properties purchased after 7:30 pm AEST on 12 May 2026. Losses linked to these properties will only be deductible against other residential property income, including residential property capital gains. Excess losses will be carried forward and used against future residential rental income or residential property gains.
Using the same numbers under the new rules:
Item | Amount |
Salary income | $120,000 |
Rental income | $30,000 |
Interest, rates, insurance and other expenses | -$35,000 |
Depreciation deductions | -$8,000 |
Net rental loss | -$13,000 |
Amount deductible against salary | $0 |
Loss carried forward | $13,000 |
The deduction is not removed. The timing and use of the loss changes. Instead of reducing salary income straight away, the loss will be carried forward and used against future residential rental income or residential property capital gains.
This makes depreciation records more important, not less important. Investors still need to support every valid deduction, even when a loss is carried forward instead of claimed against wages in the same income year.
Why depreciation schedules still matter
After the Federal Budget 2026 tax changes, depreciation schedules still matter because they identify and support the annual decline in value of eligible building works and plant and equipment.
A tax depreciation schedule will help investors:
Reduce taxable income for grandfathered properties, new dwellings, commercial properties and eligible SMSF-held properties
Offset current and future residential rental income
Offset current and future residential property capital gains
Track unused residential property losses carried forward to later income years
For grandfathered properties, depreciation deductions will continue to support annual rental property claims under the existing negative gearing treatment. For new builds, depreciation will remain especially important because investors who buy new dwellings will still be able to deduct losses from other income.
For established properties purchased after the Budget night cut-off, a depreciation schedule will still help calculate the correct rental result. Even when losses are carried forward, investors and accountants will need accurate records to support the amount deferred and the future year it is used.
This means property investors should keep clear records of construction costs, renovation dates, plant and equipment items, ownership dates and income-producing use. These details will help accountants apply the correct rules at tax time.
What changes for CGT?
The Budget also changes capital gains tax. Under the old system, many investors who held an asset for more than 12 months used the 50 per cent CGT discount. From 1 July 2027, that discount will be replaced with cost base indexation for individuals, trusts and partnerships.
Under cost base indexation, the cost base is adjusted for inflation. Tax is then applied to the real capital gain above inflation, rather than the full nominal gain.
A 30 per cent minimum tax rate will also apply to real capital gains from 1 July 2027. This does not mean investors pay 30 per cent of the sale price. It applies to the taxable real capital gain after the relevant cost base and inflation adjustments.
The CGT changes apply to gains accruing from 1 July 2027. For assets already owned before that date, the gain will be split between the pre-reform period and the post-reform period.
Feature | Scenario 1: Old rules | Scenario 2: New rules | Scenario 3: Transitional |
Relevant dates | Purchased 1 July 2017 Sold 1 July 2027 | Purchased 1 July 2027 Sold 1 July 2037 | Purchased 1 July 2024 Sold 1 July 2034 |
CGT method | 50% CGT discount | Cost base indexation | 3 years at 50% CGT discount 7 years at cost base indexation |
Purchase price | $500,000 | $500,000 | $500,000 |
Sale price | $1,000,000 | $1,000,000 | $1,000,000 |
Nominal gain | $500,000 | $500,000 | $500,000 |
Indexed cost base | Not applicable | $657,770 based on 2.78% inflation per year | Phase 2 base starts at $650,000 based on value at 1 July 2027 |
Phase 1 taxable gain | $250,000 based on 50% of nominal gain | $0 | $75,000 based on 50% of the $150,000 gain accrued to 2027 |
Phase 2 taxable gain | $0 | $342,230 based on sale price less indexed cost base | $212,487 based on sale price less indexed Phase 2 base |
Total taxable capital gain | $250,000 | $342,230 | $287,487 |
Tax payable at 47% | $117,500 | $160,848 | $135,119 |
Effective tax rate | 23.5% of total gain | 32.2% of total gain | 27.0% of total gain |
These figures are examples only. Actual CGT outcomes will depend on the property’s cost base, ownership structure, sale date, capital improvements, ownership history, available losses, tax rate and valuation evidence.
Why CGT valuations are now more important
CGT valuations are now more important because many investors will need to determine a property’s market value at 1 July 2027.
For assets owned before 1 July 2027 and sold after that date, the gain will be split. The 50 per cent CGT discount will apply to the gain between the original cost base and the value at 1 July 2027. Indexation and the 30 per cent minimum tax rule will apply to gains accruing from 1 July 2027, using the asset’s value at that date as the starting point.
This creates a clear need for reliable evidence. A property owner who sells after 1 July 2027 will need to support the property’s transition-date value. That value will affect how much of the gain falls under the old CGT discount method and how much falls under the new indexation method.
A capital gains tax valuation will help when:
a property is sold after 1 July 2027
a property changes from a main residence to an investment property
a property is transferred between related parties
an accountant needs support for a CGT calculation
The ATO expects tax valuations to be objective and supportable. A valuation report should identify the purpose, scope, asset details, valuation date, inspection date where relevant, supporting evidence and final assessed value.
For investors, this means a simple estimate or agent appraisal will not always be enough. A properly prepared capital gains tax valuation will provide stronger support if the ATO reviews the CGT calculation.
Why clients need both a tax depreciation schedule and a capital gains tax report
A tax depreciation schedule helps during ownership. It identifies deductions linked to the building and eligible assets. These deductions will reduce rental income, increase a rental loss, or support a carried-forward residential property loss.
A CGT valuation helps when market value matters for tax. It supports the calculation of a capital gain when a property is sold, transferred, inherited, or changes use.
Together, these reports help investors and accountants keep better tax records. They also help separate annual rental deductions from capital gains tax calculations.
Investors who own property before 1 July 2027 and sell after that date will need clear records across both periods. A depreciation schedule will support rental property deductions during ownership. A CGT valuation will support the market value used when calculating the capital gain.
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Final takeaway
The passed Federal Budget 2026 tax changes do not remove the need for depreciation schedules or CGT valuations. They change how investors use rental losses and calculate capital gains.
For existing investors, depreciation schedules will continue to support annual deductions. For new build investors, they will remain especially valuable because new builds receive more favourable negative gearing treatment. For established property buyers affected by the new rules, depreciation deductions will still matter because excess losses will be carried forward instead of reducing salary income straight away.
For CGT, the 1 July 2027 transition date makes property valuations more important. Investors who own property before that date and sell later will need to support the property’s market value at the transition point.
The Working Australians Tax Offset (WATO) also forms part of the broader Federal Budget tax package. While WATO is aimed at easing tax pressure for working Australians, property investors still need to assess how the wider tax changes affect their rental income, deductions, carried-forward losses and future capital gains.
In short, a Tax Depreciation Schedule helps investors claim and document eligible deductions during ownership. A CGT valuation supports the cost base calculation under both the 50 per cent discount method and the indexation method. Under the passed Federal Budget 2026 tax changes, many property investors will need both reports to keep stronger records and support their tax position.
Speak with your accountant or registered tax adviser before making tax decisions. For property reports, Duo Tax can assist with tax depreciation schedules and capital gains tax valuations prepared for Australian property investors.
