Property vs Shares After the 2026 Tax Reform: Negative Gearing and CGT Explained
The 2026 federal tax reform is now law. From 1 July 2027 the 50% capital gains tax (CGT) discount is replaced by cost base indexation with a 30% minimum tax on real gains, and negative gearing on established homes bought after 7:30pm AEST on 12 May 2026 is limited to residential property income. Shares keep negative gearing and franking credits, so the tax gap between property and shares has narrowed. That does not mean one is now the better investment. It changes the maths, and the right answer still depends on your income, borrowing, time horizon and risk. This guide pulls together the official sources and the latest market data so you can see exactly what changed, with worked examples and a calculator.
Everything below was checked against the ATO, the Budget tax explainer, Treasury consultation papers, law firm and accountant summaries and recent news on 30 October 2026. Where sources disagree or a rule is still in draft, we say so. This is general information, not financial or tax advice.
TL;DR: Property vs Shares After the Reform
- It passed. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. The ATO says the measures are now law.
- Negative gearing: for established residential property bought after 7:30pm AEST on 12 May 2026, rental losses can only be used against residential property income or gains, not your salary. Properties you already held, or had contracts for, keep the current rules. New builds are exempt.
- CGT: from 1 July 2027 the 50% discount is replaced for individuals, trusts and partnerships by indexing your cost base for inflation, plus a 30% minimum tax on the real gain. Gains up to 1 July 2027 keep the old discount.
- Shares are affected by the CGT change but not by the negative gearing limit. Interest on money borrowed to buy shares is still deductible against other income, and franking credits are unchanged.
- Who is hit hardest: high-growth assets held long term. On Treasury’s examples, an asset growing 7.5% a year held for 10 years on a $500,000 purchase pays about $58,851 more tax than under the old rules, while an asset that only matches inflation pays nothing on the gain.
- The market has moved. Investor lending fell sharply in the June 2026 quarter and national dwelling values have fallen for six straight months to September, but the RBA also raised rates, so the budget is not the only cause.
What Changed at a Glance
| Rule | Before | After the reform | Who it affects |
|---|---|---|---|
| Negative gearing on established homes | Rental losses reduce your other income, including salary | Losses on homes bought after 7:30pm AEST on 12 May 2026 can only offset residential property income or gains, and carry forward. Applies from 1 July 2027 | Investors buying established residential property |
| Negative gearing on new builds | Allowed | Still allowed, including against salary | Investors in new dwellings |
| Negative gearing on property bought before the cut-off | Allowed | Unchanged for as long as you hold that property | Existing investors |
| Negative gearing on shares | Interest on investment loans deductible against other income | Unchanged | Share investors who borrow to invest |
| CGT discount | 50% off the gain after 12 months | Gone for gains from 1 July 2027, replaced by cost base indexation plus a 30% minimum tax on real gains | Individuals, trusts, partnerships |
| CGT on gains to 30 June 2027 | 50% discount | Still 50% discount, using a deemed sale at market value on 30 June 2027 | Anyone holding assets at that date |
| Main residence | CGT exempt | Still exempt | Home owners |
| Companies and super funds | No discount (companies), one-third discount (complying super funds) | Indexation does not apply to companies or super funds. Super funds are also outside the negative gearing limit | Companies, SMSFs, super funds |
This does not change your 2025-26 tax return
Negative Gearing: What Is Different Now
Negative gearing means your rental costs, mostly interest, exceed your rent, so you make a loss that you can claim against other income. Before the reform that loss reduced your taxable salary. Treasury’s own example shows what is at stake: a rental loss of $14,810 is worth about $4,761 in tax now if your other income is $80,000, and about $6,961 if it is $210,000 (Budget tax explainer).
The new rule for established homes
If you buy an established residential property after 7:30pm AEST on 12 May 2026, you can still claim rental deductions, but only against income from residential property. Any excess is quarantined and carried forward to use against future residential rental income or against the capital gain when you sell. The Act’s own example is $50,000 of rent against $65,000 of deductions: you deduct $50,000 this year and carry forward $15,000.
- Start date: the limit applies from 1 July 2027, to properties you bought (signed a contract for) after the 12 May 2026 cut-off.
- The gap period: Treasury says properties bought between the announcement and 30 June 2027 keep negative gearing only until 30 June 2027.
- Who it covers: individuals, partnerships, companies and most trusts. Widely held trusts and complying super funds, including SMSFs, are outside the limit.
- What it does not cover: shares, commercial property and other investments.
Grandfathering: what existing investors keep
If you owned an investment property at the announcement, including one under a signed contract that had not settled, you stay under the current negative gearing rules until you sell it. The Budget measure sets no cap on how many grandfathered properties you can hold. The catch is that the benefit stays with you, not the property: the next buyer of an established home is under the new limit.
What counts as a new build
New builds are exempt from the negative gearing limit, and investors in them can choose between the old 50% CGT discount and the new rules when they sell. The Budget explainer defines eligible new builds as dwellings on vacant land, or a demolition and replacement that increases the number of dwellings. Knock-down rebuilds and substantial renovations that do not add supply do not qualify, and later buyers lose both the discount and negative gearing on that property.
Treasury’s second-stage draft legislation (exposure draft released in August 2026, consultation closed 21 August) proposes that a property is generally new where it genuinely adds to supply and was acquired within 24 months of a certificate of occupancy, up from 12 months in the Budget. The definition sits in a legislative instrument and the draft would move it into the law, so check the final wording before relying on it.
Capital Gains Tax: Indexation Replaces the 50% Discount
For decades, individuals who held an asset for more than 12 months paid tax on only half of the gain. From 1 July 2027 that discount is replaced, for individuals, trusts and partnerships, by two things:
- Cost base indexation. You increase what you paid by inflation (CPI), so you are taxed only on the real gain above inflation. This is similar to the system that ran from 1985 to 1999. Under the old system indexation was quarterly, and indexation cannot create or increase a capital loss.
- A 30% minimum tax. The tax on your real gain cannot be lower than 30%. If your marginal rate is already 30% or more, nothing changes. If it is lower, you pay a top-up. People who receive means-tested income support such as the Age Pension or JobSeeker in the year they realise the gain are exempt.
The new rules apply to every CGT asset these taxpayers hold for at least 12 months, including property, shares, ETFs and crypto. They do not apply to your main residence, and the four small business CGT concessions are unchanged. The 60% discount for qualifying affordable housing is kept.
How the transition works
You do not pay any extra tax on 1 July 2027. Assets you hold on 30 June 2027 are treated as sold and re-bought at market value, but the gain or loss from that deemed sale is put aside until you actually sell. The result is a split:
- Growth up to 1 July 2027 keeps the 50% discount.
- Growth after 1 July 2027 is taxed under indexation and the 30% minimum, using the 1 July 2027 value as your new cost base.
- Valuing the asset: Treasury says you either obtain a valuation (for shares, quoted prices) or use an ATO apportionment method based on growth over your holding period. The draft apportionment instrument adopts an even growth rate over the time you owned the asset, so if most of your growth happened before 2027 a formal valuation may be worth paying for.
- Pre-1985 assets lose their blanket CGT exemption for growth after 1 July 2027, though gains up to that date stay exempt.
Keep your records now
Why high-growth assets pay more and low-growth assets pay less
The 50% discount gives the same relief whether inflation is 1% or 10%. Indexation gives relief that depends on inflation. When an asset grows more than twice as fast as inflation, indexation is worse than the discount. When it grows slower than that, indexation is better. Treasury’s table of 20-year average effective tax rates shows how this plays out for the top marginal rate (47% including Medicare), compared with an effective rate of 23.5% under the old 50% discount:
| Asset | Hold | Average growth a year | Share of growth that was inflation | Effective rate at 32% | Effective rate at 47% |
|---|---|---|---|---|---|
| House | 5 years | 5.8% | 42% | 18.6% | 27.3% |
| House | 10 years | 6.1% | 36% | 20.5% | 30.1% |
| Unit | 5 years | 4.1% | 59% | 13.1% | 19.3% |
| Unit | 10 years | 4.8% | 50% | 16.0% | 23.5% |
| Shares (S&P/ASX 200) | 5 years | 4.4% | 53% | 15.0% | 22.1% |
| Shares (S&P/ASX 200) | 10 years | 4.3% | 56% | 14.1% | 20.7% |
On these historical averages, houses would have paid more under indexation than under the discount, units the same or less, and shares less. That is a backward-looking average, not a forecast, and it excludes dividends. It is also why economist Saul Eslake said the new system could be more generous to share investors than the discount, depending on performance. If you are still deciding what to buy, our house vs townhouse vs unit guide compares the property types.
Worked Examples From Treasury
These examples come from the Budget tax explainer and the Act summaries. They use 2.5% inflation and the top 47% rate unless stated.
| Example | Old 50% discount | New rules | Difference |
|---|---|---|---|
| Shares: $100 bought 1 July 2027, sold for $125 five years later | Taxable gain about $13 | Taxable gain $12 (indexed cost base $113) | About the same |
| Property, existing investor: worth $500,000 on 1 July 2027, sold two years later for $560,000 | Taxable gain $30,000, tax $14,100 | Taxable gain $34,688, tax $16,303 | $2,203 more |
| Transition: bought 1 July 2022 for $800,000, worth $1,131,371 on 1 July 2027, sold 1 July 2032 for $1,600,000 | Taxable gain $400,000, tax $188,000 | Pre-2027 gain $165,685 plus post-2027 gain $319,958 = $485,643, tax $228,252 | $40,252 more |
| $500,000 asset, 10 years, 5% return ($100,000 other income) | Taxable gain $157,224 | Taxable gain $174,405 | $8,075 more tax |
| Same asset, 2.5% return (matches inflation) | Taxable gain $70,021 | No taxable gain | $24,858 less tax |
| Same asset, 7.5% return | Taxable gain $265,258 | Taxable gain $390,474 | $58,851 more tax |
The minimum tax matters for lower earners. Treasury’s example has someone with $25,000 of other income who realises a $10,000 real gain on an asset bought after the start date: their normal tax on the gain is $1,400 (14%), so they pay a $1,600 top-up to reach 30%, unless they receive income support.
Free CGT Estimator: Old Discount vs New Rules
Use this to compare the tax on the same sale under the old 50% discount and the new rules. It reproduces Treasury’s examples above to the nearest dollar. Enter your own numbers, including a 1 July 2027 value if you already own the asset.
Property vs Shares: How the Comparison Looks Now
| Factor | Established property (bought after 12 May 2026) | New build property | Shares and ETFs |
|---|---|---|---|
| Negative gearing against salary | No, losses carried forward | Yes | Yes, interest on borrowing is deductible |
| CGT on gains after 1 July 2027 | Indexation plus 30% minimum | Choice of old 50% discount or indexation with minimum | Indexation plus 30% minimum |
| Franking credits on dividends | Not applicable | Not applicable | Unchanged |
| Ease of borrowing | Mortgage, commonly 80% or more of the price | Mortgage, commonly 80% or more of the price | Margin loans or investment loans, usually lower gearing |
| Entry and exit costs | Stamp duty, agent fees, legal costs | Same, though some states offer stamp duty concessions on new homes | Brokerage, no stamp duty |
| Liquidity | Weeks to months to sell | Weeks to months to sell | Sell in days |
| Diversification | One asset in one location | One asset, often in outer suburbs | Hundreds of companies via an ETF |
| Main residence exemption | Not applicable to an investment | Not applicable | Not applicable |
A simple illustration of the borrowing gap
MarketIndex ran a simple comparison for a $100,000 loan at a 6.84% interest rate, a 4.3% dividend yield on shares and a 4.69% gross rental yield on property. The interest is $6,840 a year. The shares pay $4,300, leaving a $2,540 shortfall that is still deductible against salary, worth about $1,194 at a 47% rate. The property pays $4,690 in rent, leaving a $2,150 shortfall that, for a home bought after 12 May 2026, is quarantined and carried forward instead. This ignores running costs, franking credits (which add to the share side) and growth, so treat it as an illustration of the tax treatment, not of returns.
What analysts say
- UBS strategist Richard Schellbach said the changes could improve the relative appeal of shares compared with property, and expected income-paying stocks to gain appeal over growth stocks.
- UNSW’s Jeff Coulton expects a structural reallocation of capital, with riskier start-ups hit hardest because they reinvest profits rather than pay dividends.
- Saul Eslake noted that over 25 years, house prices rose about 7.5% a year, units 5.5% and shares 4.5%, against inflation of 2.9% (25-year averages). That is why indexation hurts houses more than shares on history.
- Hudson Financial Planning’s Juanita Wrenn pointed out that property still allows far more leverage than most share portfolios, and that the family home remains CGT-free.
Property can still make sense, especially a new build you plan to hold with negative gearing, or a grandfathered home. Shares can still lose money. The tax change shifts the comparison, it does not decide it for you.
What the Data Shows Since the Budget
Treasury forecast that the changes would slow house price growth by about 2% over a couple of years, add around 75,000 owner-occupiers over a decade and raise median rents by less than $2 a week. Here is what has happened since, with the important caveat that interest rates have also been rising.
| Indicator | Latest figure | Source |
|---|---|---|
| National dwelling values, September 2026 | Down 1.1% in the month, the sixth straight monthly fall. 5.2% below the March 2026 peak. Flat over 12 months. Median value $899,236 | Cotality Home Value Index, released 1 October 2026 |
| Sydney and Melbourne, 12 months to September | Sydney down 7.0%, Melbourne down 6.2% | Cotality |
| National rents, 12 months to September | Up 5.5%. Gross rental yield 3.85% | Cotality |
| Investor lending, June quarter 2026 | Commitments down 8.6%, the sharpest quarterly fall since September 2022. Value of investor loans down about $4.2 billion, or roughly 10% | ABS Lending Indicators, as reported by Broker News and Canstar |
| First home buyer lending, June quarter 2026 | Loan value up 10% on a year earlier, loan numbers unchanged | ABS, as reported by Mortgage Professional Australia |
| RBA cash rate | Raised to 4.60% in late September 2026, the fourth increase of the year. The Board said further increases remain possible | RBA, as reported by CommBank |
| ETF inflows, May 2026 | Record $2.3 billion into Australian share ETFs, and the strongest month of inflows for yield-focused ETFs ($243 million) | Global X, as reported by Investor Daily |
| ETF inflows, August 2026 | About $7 billion in total, with a record $3.8 billion into international equity ETFs | Betashares August 2026 ETF Review, as reported by The Motley Fool |
| Financial year 2025-26 returns | ASX 200: 2.77% price growth and about 7% total return. National median home value: 7.3% growth and about 11% total return | The Motley Fool citing Cotality |
Ray White’s chief economist Nerida Conisbee found that cheaper homes are now falling faster than expensive ones, a reversal from January. Mortgage Professional Australia links this to investors retreating, though the data does not prove the cause. Ray White modelling also suggests rental yields would need to rise from about 3.95% to 5.15% to offset the budget changes, which is equivalent to rents up roughly 30%, prices down 23%, or a mix of the two. For the household side of the same housing story, see our mortgage stress data guide.
Correlation is not causation
Who Wins and Who Loses
| Situation | Likely effect | Why |
|---|---|---|
| Existing investor with a grandfathered property | Mostly unchanged while you hold it | Negative gearing continues until you sell. Growth after 1 July 2027 faces indexation and the minimum tax |
| New investor buying an established home | Worse than before | Losses cannot reduce your salary income, and the 50% discount is gone for future growth |
| Investor buying a new build | Closest to the old rules | Negative gearing is kept and you choose the better CGT method on sale, but later buyers lose both |
| Long-term share investor in high-growth stocks | Higher tax on large gains | Indexation helps less when growth is well above inflation |
| Income-focused share investor | Little change | Franking credits are unchanged and dividends are taxed as before |
| Low-growth asset holder | Lower tax on the gain | Indexation can remove tax entirely when growth only matches inflation |
| Lower-income investor | Minimum tax may apply | Gains are topped up to 30% unless you receive income support |
| First home buyer or owner-occupier | Indirect benefit expected | Main residence stays CGT-free, and Treasury expects about 75,000 more owner-occupiers over a decade |
| Start-up founder or employee shareholder | Uncertain | The government announced an Innovative Business CGT Concession on 18 June 2026, but it was not in the first Bill |
| Age Pension or JobSeeker recipient | Exempt from the minimum tax | Means-tested income support recipients are excluded in the year of sale |
If You Are a Migrant or on a Temporary Visa
This part matters for many readers of this site. For tax purposes, foreign and temporary residents have been unable to use the full CGT discount for gains made after 8 May 2012, according to the ATO. Under the new law, summaries from Baker McKenzie and Landmark Valuations say the indexation relief is for Australian resident individuals and trusts, and one accountants’ guide says that a single day of non-residency during the testing period would disqualify you. If you are on a temporary visa and expect your tax residency to change, get advice before you buy. Students and recent arrivals can start with our international student tax returns guide for the basics of filing in Australia.
Also note that the foreign buyer ban on established dwellings has been extended by two years, to 2029, according to ABC News, so check your eligibility before you look at property. Our guides on stamp duty, choosing a super fund and the super calculator cover the costs and the long-term alternative that many newcomers use first.
What to Do Before 1 July 2027
None of this is personal advice, and tax should not drive an investment decision on its own. These are the practical steps worth considering:
- Gather your records now: purchase dates, prices, contracts, stamp duty and legal costs for every investment.
- If you own property bought around the 12 May 2026 cut-off, keep the contract date, because it decides whether your negative gearing is grandfathered.
- Plan how you will value each asset at 1 July 2027. Share prices are easy to record. For property, compare the ATO apportionment method with the cost of a formal valuation.
- Do not assume that selling before 1 July 2027 is a bargain. The law already protects the pre-2027 part of your gain with the 50% discount, so selling early mostly brings your tax bill forward.
- Check your residency history if you have lived overseas, because indexation depends on being an Australian resident.
- Speak to a registered tax agent or licensed financial adviser before you buy, sell or restructure.
What Is Still Unsettled
- Second-stage legislation. The Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 exposure draft covers keeping negative gearing when property passes to a spouse through inheritance or a relationship breakdown, exempting genuine testamentary trusts, deceased estates and special disability trusts from the minimum tax, part-year residents, and managed funds (AMITs). Consultation closed on 21 August 2026.
- Family trusts. A 30% minimum tax on discretionary trust income from 1 July 2028 was announced at the Budget but was not in the first Bill and may change.
- The new build definition and valuation rules sit in legislative instruments, and some were still in draft when we checked.
- Politics. The Coalition opposed the changes, and Shadow Treasurer Tim Wilson said they would not support them. A future government could change the rules again, which is one more reason not to make a long-term decision purely for tax.
Where to Check the Official Rules
Start with the ATO’s tax reform page and the Budget’s negative gearing and CGT tax explainer, which include the worked examples used above. The ATO has said it will provide guidance and calculation tools, so expect indexation factors and valuation help closer to 1 July 2027. If you are comparing the cost of borrowing, see our interest rate predictions guide, and if you are working out your tax bracket, our salary calculator helps. For work expenses, see our guide to tax deductions without receipts.
Books for Investors Comparing Property and Shares
If you are weighing up property and shares, a good book is a cheaper starting point than a mistake. These are general reading, not a recommendation to buy any product.
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Sources
- ATO: Tax reform, boosting home ownership, reforming negative gearing and capital gains tax
- Budget 2026-27: Tax explainer on negative gearing and capital gains tax
- Treasury: Capital Gains Tax and Negative Gearing consultation (tranche 2)
- ABC News: Government breaks promise with restrictions to negative gearing and CGT discount
- ABC News: CGT changes could see investment shift from property to shares
- Baker McKenzie: Major changes to CGT and negative gearing
- Landmark Valuations: Treasury Laws Amendment (Tax Reform) Act 2026 explained
- Accountants Daily: Tranche 2 new builds definition and apportionment
- SmartCompany: CGT and negative gearing bill passes into law
- MarketIndex: Property or shares after the new CGT and negative gearing changes
- SBS News: Where to invest after the budget shake-up
- Cotality Home Value Index, September 2026 (via Property Investment Professionals)
- CommBank: RBA cash rate decision, September 2026
- Broker News: Investor lending plunges 8.6%
- Mortgage Professional Australia: Negative gearing changes hit cheaper homes
- Investor Daily: CGT changes drive record month for income-focused ETFs
- ATO: CGT discount
General information only
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