Labor’s CGT & Negative Gearing Proposals: How Property Investors Could Be Affected

The Federal Government has introduced proposed changes to capital gains tax (CGT) and negative gearing that could significantly impact property investors. While the measures are not yet law, they are worth understanding.

What’s changing with CGT?

From 1 July 2027, a minimum 30% tax rate will apply to realised capital gains accruing after this date (this excludes people receiving means-tested income support). In practice even if your taxable income is below the tax-free threshold, any realised capital gain during the year could be hit with a minimum 30% tax. To put that in perspective, a 30% average tax rate aligns with an individual earning about $200,000.

The CGT calculation method will also be changing. For gains accruing after 1 July 2027, the 50% discount will no longer apply. Instead the cost base indexation method is being revived for assets held for at least 12 months.

An apportionment calculation will therefore need to be prepared to consider:

• Application of the 50% discount on the portion of the gain accrued up until 1 July 2027

• Application of cost base indexation to the portion of the gain accruing after 1 July 2027 up until the sale

Investors will be required to determine the property valuation at 1 July 2027 in order to appropriately split the gain. The ATO has advised more guidance and a tool will be issued to assist with this.

What about residential property negative gearing?

In a nutshell, from 1 July 2027 negative gearing on residential property will be restricted exclusively to new builds. This will be grandfathered for established properties purchased prior to 12 May 2026. So, if you purchased a property prior to 12 May 2026 and it was negatively geared, you can continue to negative gear the property.

If the new rules apply to your property, the tax losses (negative gearing) arising from the property will be quarantined and can be applied against future property income.

This change does not apply to commercial properties.

Are other assets affected?

At this stage almost all asset classes will be impacted by the CGT changes. However, investors selling new builds will keep the option of applying the 50% CGT discount. The Government is also in talks regarding carve-outs for the tech sector and other start-ups.

Pre-CGT assets (those acquired before 20 September 1985) will lose their full tax-exempt status for sales on or after 1 July 2027. Under a 'deemed sale and reacquisition' rule, the asset's cost base resets to market value on 1 July 2027. Any growth before that date stays tax-free, but any growth occurring after will be taxable under the new rules.

Who do these changes affect?

These rules will apply broadly to individuals, partnerships, companies, and most trusts. However, complying superannuation funds—including Self-Managed Super Funds (SMSFs) -

and widely held trusts (like large managed investment trusts) are specifically excluded from these CGT changes.

Non-Residents

For foreign resident property owners navigating Australian Capital Gains Tax (CGT) requires careful planning. Non-residents generally cannot claim the full 50% CGT discount on assets acquired after 8 May 2012, though an apportioned discount may apply for periods of prior Australian residency. The Main Residence Exemption when selling while overseas was removed for properties sold after 30 June 2020, unless satisfying the life events test.

The recently proposed legislation indicates that indexation will not be available to non-residents, but this will be subject to a review of residency status in a ‘test period’. Negative gearing for existing properties appears to be still available due to grandfathering.

This is a complicated area, but we are happy to provide advice and assist with estimating possible capital gains tax on sale if you require.

What should you do next?

It depends on your circumstances, your goals and your timeline. The Treasurer noted these changes are designed to discourage purely tax-driven decisions in favour of broader economic choices. Ultimately, if you are considering selling an asset over the next few years tax is going to have an impact.

If you require assistances mapping out how these proposals might affect you, or if you need help running some preliminary CGT projections, please feel free to reach out.