The Labor party has confirmed that there will be sweeping changes to property taxes across Australia in the upcoming federal budget.
In front of the House on Tuesday evening, Treasurer Jim Chalmers addressed a range of economic challenges facing Australia, including inflationary pressures, rising living costs and the impact of the conflict in the Middle East, stating that “Australians have been paying a hefty price for this war” as higher oil prices continue to weigh on the economy. He also confirmed market rumours about negative gearing and capital gains tax (CGT).
Under the new budget, the government will eliminate the blanket CGT discount and restrict negative gearing to newly built properties.
Chalmers said the changes would better support more Australians, particularly first-time homebuyers and younger people working towards home ownership, rather than investors.
"These changes will level the playing field for workers and first homebuyers to support investment in productive assets, including new housing supply," he said.
CGT Discount
Starting 1 July 2027, investors will no longer be able to use losses from existing rental properties to reduce the amount of tax paid on personal income. The new budget is forecasted to help roughly 75,000 young Aussies and renters jump on the property ladder.
In addition, the government will get rid of the blanket 50% capital gains tax discount for assets held more than 12 months. The move is intended to free up supply for homeowners. Starting 1 July 2027, the existing 50% capital gains tax discount for assets held longer than 12 months would be scrapped and replaced with a system that adjusts the asset’s purchase price for inflation, alongside a minimum 30% tax rate on net capital gains.
Transitional measures will soften the effect on existing investments by applying the new rules only to capital gains accrued from 1 July 2027 onwards. The current 50% CGT discount will still apply to gains made before that date, while capital gains on assets acquired before 1985 and realized before 1 July 2027 will remain exempt from capital gains tax.
"This will help rebalance a system which is more generous to assets than it is to labor and help rebalance a system where house prices have decoupled from incomes," Chalmers said.
Negative gearing
Starting 1 July 2027, negative gearing for residential properties will only apply to new builds. After that, losses from existing residential properties will only be deductible against rental income or the capital gains from residential properties.
Any excess losses would be rolled over and could be used to offset income earned from residential property investments in later years. The measures will apply to established residential properties purchased on 12 May 2026 or thereafter. Properties bought before that time, including those under contract but yet to settle, would be grandfathered in and remain exempt until they are sold.
Some new-build properties will be exempt if they meet eligibility requirements. The Labor party said it is aiming to preserve negative gearing incentives for investment that adds to housing supply.
