Capital gains tax and negative gearing amendments: key changes and implications

On 28 May 2026 the federal government introduced a Bill to Parliament to give effect to the wide-ranging capital gains tax (CGT) and negative gearing changes that had been announced in the 2026-27 Federal Budget. The Bill deems sales of existing CGT assets, and imposes additional compliance requirements and new layers of complexity – though critical details are yet to come. In this Insight, we explain how the changes will be implemented, the additional compliance burden on taxpayers, and what’s still left to be considered. 

Key takeaways from the capital gains tax and negative gearing amendments 

The key elements and changes within the CGT rules introduced to Parliament are: 

• taxpayers previously eligible for the 50% CGT discount (resident individuals, trusts and partnerships) will instead index their cost bases from 1 July 2027 unless an exception applies;
   
• resident individuals will pay a minimum 30% tax on capital gains accruing from 1 July 2027 unless an exception applies;
   
• relevant capital gains accruing prior to 1 July 2027 will continue to be eligible for the 50% CGT discount;
   
• capital gains accruing on pre-CGT assets for periods from 1 July 2027 will be taxable for all taxpayers (including companies);
   
• as a result of different discounts/indexation and negative gearing quarantining rules (discussed below) applying to assets held before and after 1 July 2027, taxpayers will need to maintain specific records.

We expect the following exceptions will be introduced or maintained: 

• certain assets and taxpayers will not be subject to the changes, including ‘new residential dwellings’ (which is still an undefined concept), affordable housing and complying superannuation funds (which instead receive a 33% discount);
   
• the small business CGT discounts will continue;
   
• companies and foreign residents will continue to be eligible to apply the existing indexation rules for arrangements entered into prior to 30 September 1999;
   
• recipients of certain government payments (which have not been determined yet) will not be subject to the 30% minimum tax; and
   
• further categories of arrangements are intended to be carved out following government consultation (e.g. for start-ups and small business), but no legislative detail has been provided to date.

Additional complex interactions have not been accommodated by the government but should also be considered as a priority. For example, assets are deemed to be disposed of just before 1 July 2027 by relevant taxpayers with any capital gain or loss deferred until an actual realisation event occurs later. However, it could be that some trusts with resident and non-resident beneficiaries may not be eligible to disregard this deferred capital gain even if it does not relate to taxable Australian property. Alternatively, a complex taxable Australian property analysis may be required in relation to both the deemed sale and later realisation event.

Also, from 1 July 2027, net rental losses on some residential dwellings will no longer be able to be offset against other income (i.e. negative gearing). Taxpayers will carry forward and quarantine these losses and apply them against future residential rental income and residential capital gains.

Broadly, the following will be excluded from the negative gearing changes: 

• residential dwellings owned prior to 7:30pm on 12 May 2026 (i.e. when the Budget was announced);
   
• ‘new residential dwellings’ (which are currently undefined) can continue to be negatively geared for tax purposes;
   
• widely held unit trusts will be exempt;
   
• complying superannuation funds will not be subject to the changes; and
   
• other arrangements, as determined by the Minister, may also be excluded.

The Bill to introduce these changes also includes the $250 working Australians tax offset and $1,000 standard deduction. 

The Bill has been referred to the Senate Economics Legislation Committee for review. That Committee is expected to produce its report by the end of June.

Detailed explanation of CGT and negative gearing amendments

On 28 May 2026, the federal government introduced the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 (Cth) to Parliament that included the CGT and negative gearing changes that had been announced in the 2026-27 Budget. For a comprehensive review of the Budget, see Australian Federal Budget 2026-27: corporate tax measures. 

Replacement of the 50% CGT Discount with Cost Base Indexation

From 1 July 2027, the 50% CGT discount will be removed for capital gains made by Australian resident individuals (including individual partners in a partnership) and trusts, except in relation to certain investments such as ‘new residential dwellings’ (currently undefined) and other assets that the government will consult on in the future. In its place, the cost base of eligible CGT assets will be indexed for inflation using the Consumer Price Index (CPI), so that only real (inflation-adjusted) gains are subject to tax. Cost base indexation applies to all elements of the cost base except the third element (costs of owning the asset), provided the asset has been held for at least 12 months. 

The changes do not apply to companies, superannuation funds, life insurance companies, or foreign and temporary residents, who all retain their existing CGT treatment. The absence of any cost base indexation for companies was expected. Companies remain entitled to cost base indexation for any post-CGT assets acquired prior to 30 September 1999, with that indexation frozen as at that date. 

There will be no cost base indexation to determine capital losses. This means nominal capital losses will continue to be offset against CPI-adjusted capital gains. 

Special arrangements will apply for new residential dwellings and affordable housing held by Australian resident individuals and trusts, which may remain eligible for the 50% CGT discount at the choice of the taxpayer.

The rules will also contain mechanics to ensure that gains made by a company or a superannuation fund do not benefit from indexation if those gains are distributed by a trust and the indexation has previously been applied at the trustee level. In that case, the gain would be recalculated in the hands of the beneficiary without indexation. This ensures that superannuation funds will not receive a double benefit from the indexation and the existing 33% discount available to such entities. It also ensures that companies continue to get no direct or indirect benefit from discounting or indexation going forward. 

Transitional deemed disposal and reacquisition

For CGT assets acquired by individuals and trusts before 1 July 2027, a deemed sale will occur just before 1 July 2027 with a deemed reacquisition on that date. Any notional gain or loss from the deemed sale will be disregarded and deferred until an actual realisation event that occurs later. At that point, the taxpayer will recognise two components to a capital gain: a deferred gain, which will be taxed under old CGT law rules (i.e. with the 50% CGT discount if applicable) and a gain accruing from 1 July 2027 (taxed under the new indexation regime). 

The capital proceeds for the deemed sale will generally be the ‘market value’ of the asset immediately before 1 July 2027, though taxpayers may alternatively choose an apportionment method which will be determined by the Minister in a legislative instrument. This apportionment method has not been released yet. Taxpayers will be permitted to make this choice to apply the apportionment method at the time of the later realisation event. 

Transitional assets – practical considerations

Although a taxpayer may not strictly be required to choose how to apportion a capital gain until the time of the realisation event, the way in which the changes to the rules have been constructed may mean that it is prudent for taxpayers to take some actions as at 1 July 2027. A determination of market value generally requires a valuation of the asset as at 1 July 2027. Reliance on a market value may be practically difficult where a valuation report had not been obtained by the taxpayer on or around 1 July 2027, particularly where several years pass until realisation. Therefore, taxpayers may have a practical choice to make at the transition time, if not a statutory one. 

Currently, the important missing piece in making this choice is the lack of certainty concerning the alternative apportionment method. The government has not released any new details of that apportionment method. Instead it proposes to do so under a legislative instrument made at a later date. This lack of detail should be resolved as soon as possible, as the method that ends up being available may sway taxpayers’ approaches to assets held on 1 July 2027. If there is no detail or the alternative method that ends up being prescribed is not considered favourable or practical, taxpayers may be encouraged to obtain a valuation that will inevitably result in increased compliance burdens (including as to time and cost). 

Explanatory material that had been published with the Budget suggests that the apportionment method will estimate the value on 1 July 2027 based on the ‘growth rate’ of the asset. Such a formula is likely to be an imperfect alternative for many taxpayers. A ‘future value’ formula of this nature tends to allocate a smaller value to 1 July 2027 on the assumption that values increase on a compounding basis by a fixed rate of growth, in comparison to a simple allocation based on period of ownership before and after 1 July 2027. Such a formula would not account for volatility and would not account for a scenario in which the asset’s value peaks on or before 1 July 2027. 

For the above reasons, practically many taxpayers may be motivated to not adopt the Minister’s apportionment methodology (once the details are made available) and instead may simply opt for obtaining valuations to enable the optimal choice later – even though there is a time and cost of doing so. It is within this context that the details of the apportionment method remain a critical missing factor. 

Another significant aspect of the proposed changes is that the apportionment method, when it emerges, will not be legislated, but will be prescribed in a legislative instrument. This is a form of delegated legislation that is made by the relevant Minister and is then tabled before both Houses of Parliament. Such instruments are not subject to the same level of debate and are not required to be passed by Parliament (although it can be disallowed by a special motion – if passed). By delegating the detail of key aspects of the CGT and negative gearing changes in this way, there is a risk of replacement or amendment of the method by successive Ministers. 

It is a less than satisfactory position when several critical aspects of the Bill, including the apportionment method but also more fundamental eligibility criteria and exceptions, will be left to legislative instruments that have not been released at the time that Parliament will be expected to vote on the passage of the Bill. It is possible that this aspect will form part of the matters considered by the Senate Economic Legislation Committee when it produces its report by the end of June.   

Pre-CGT assets brought into the regime

All pre-CGT assets (those acquired before 20 September 1985) will also be deemed to be sold and reacquired at market value on 1 July 2027. Capital gains accrued before that date will remain exempt, but gains accruing during the period from 1 July 2027 will be subject to CGT. This will apply to all entities, including companies.

The practical issue identified above in relation to allocation of value just before 1 July 2027, and the motivation to obtain valuations as at that time, is even more acute for pre-CGT assets. This is because the allocated value will dictate the amount of a capital gain that would be exempt from tax. 

New categories of capital gains

The method statement for calculating a net capital gain will be restructured from the existing five steps to an expanded seven steps. In addition, the existing concept of a single capital gain will be split into four new categories: deferred non-residential, deferred residential, non-residential and residential capital gains. These categories are necessary for the proper functioning of the negative gearing rules (described below). For example, quarantined losses from rental properties will, in some cases, only be permitted to be applied against rental income or carried forward and applied against ‘residential capital gains’.

Unlike the existing system where taxpayers can choose how to apply capital losses, going forward, capital losses (including any deferred capital losses from a deemed sale immediately prior to 1 July 2027) and quarantined amounts (in respect of the negative gearing changes) must be applied in a prescribed order across these separate categories. 

Taxpayers will need to maintain records of their deemed gains and losses. 

A deferred residential capital gain is a capital gain that arises from the deemed sale just before 1 July 2027, to the extent the CGT asset is a residential dwelling that was used or held for residential accommodation before 1 July 2027. 

The amount classified as a ‘deferred residential capital gain’ is determined by a formula based on the number of days the property was held for use, or used, to provide residential accommodation during the relevant pre-July 2027 ownership period. 

Like deferred non-residential gains, these gains will be disregarded at the time of the deemed sale and only crystallise when the later realisation event occurs.

A deferred non-residential capital gain is a capital gain that arises from the deemed sale of a CGT asset just before 1 July 2027, to the extent it is not a deferred residential capital gain. This is effectively a residual category to cover all other types of CGT assets. 

These gains crystallise only when a later realisation event occurs. The individual or beneficiary is treated as having made the deferred gain in the income year in which the later realisation event happens.

A residential capital gain is a capital gain that does not arise from the deemed sale just before 1 July 2027. It arises from a CGT event happening in relation to a CGT asset that is or was a residential dwelling, to the extent it has been used or held to provide residential accommodation. 

A non-residential capital gain is a capital gain made during an income year that does not arise from the deemed sale just before 1 July 2027 (i.e. is not a ‘deferred’ gain) and is not a residential capital gain. This covers capital gains arising from all other types of assets, provided the gains arise from assets held on or after 1 July 2027.

Similar to above, the amount of the capital gain that is classified as a ‘residential capital gain’ is also determined by a formula based on the number of days the property was held for use, or used, to provide residential accommodation during the relevant post-30 June 2027 ownership period.

This means only the portion of the gain attributable to residential use during the post-1 July 2027 period is classified as a residential capital gain. The remainder of the gain (if any) that is not residential in character is a non-residential capital gain.

There is no explicit look through provision that provides that the sale of interests in a company or trust which solely held a residential dwelling is itself a type of asset giving rise to a residential capital gain. Instead, the Explanatory Memorandum accompanying the Bill states that gains on membership interests are non-residential gains. 

30% minimum tax on capital gains

A new Division 119 of the Income Tax Assessment Act 1997 (Cth) will introduce a minimum 30% tax on capital gains for Australian resident individuals (not directly to trusts, companies or superannuation funds), subject to some exceptions. The minimum tax will apply to residential and non-residential capital gains (i.e. those accruing after 1 July 2027) but not deferred gains referable to the period before 1 July 2027 or capital gains made on new residential dwellings. 

The absence of a minimum capital gains tax for trustees is a welcome clarification. Such a tax would have created some complex interactions, particularly in the case of trusts with foreign beneficiaries that are ordinarily exempt from certain capital gains distributed by a trustee. However, the government has announced that there will be a separate regime for the taxation of discretionary trusts. The details of this have not yet been released.

This tax will apply as a minimum tax for index-adjusted capital gains and will be assessed against the individual taxpayer’s marginal tax rate for the single year in which the capital gain is made. The government has stated that the minimum tax is intentionally designed to reduce ‘the benefit to taxpayers of deferring realisation to years in which their marginal tax rates are low’. 

There will be a new seven step method statement for determining the minimum tax, which treats the relevant capital gain as the last portion of income that a taxpayer received (i.e. the gain is assessed against the highest relevant marginal rate(s) of that taxpayer). 

Exceptions will be provided for recipients of prescribed income support payments (through another legislative instrument) and for gains from ‘new residential dwellings’ or affordable housing where the taxpayer chooses the CGT discount instead of indexation. 

New residential dwellings and affordable housing 

The existing 50% CGT discount will remain available for capital gains arising in relation to new residential dwellings, and the existing discount of up to 60% will continue for affordable housing. Individuals and trustees may choose between applying the relevant CGT discount or the new indexation-plus-minimum-tax regime for these assets. 

The definition of ‘new residential dwelling’ has not been released. It will not be enacted by primary legislation but will instead be published by legislative instrument. This is another example of a critical feature of the proposed law remaining outstanding and subject to delegated legislation, with a risk of replacement or amendment by successive Ministers. 

The explanatory material that was published with the Budget indicates that the concept of a ‘new residential dwelling’ will include new dwellings that ‘genuinely add to supply’. For example, a dwelling that is built within a project to replace a smaller number of dwellings on the same land may qualify as a new residential dwelling, whereas a knock down and rebuild of a single dwelling would not. That explanatory material also indicates that such a dwelling purchased from the builder and not previously occupied for more than 12 months would qualify, whereas a subsequent sale would result in the property losing its status as a new residential dwelling. Unless clearly drafted, this definition appears prone to interpretative questions and uncertainty as to how it may apply to a particular set of circumstances. Many taxpayers are likely to invest in an asset on the understanding that it is a new residential dwelling. The categorisation will remain essential throughout the holding period of that asset to facilitate ongoing eligibility for the 50% CGT discount and availability of negative gearing. By contrast, the intention of delegated legislation (as opposed to fixing a rule within an act of Parliament) is to allow flexibility in contexts where technical or procedural changes may be required over time. Once assets have been acquired by taxpayers on the understanding that they will qualify as new residential dwellings under an existing legislative instrument, questions remain as to where the benefit lies in giving the Minister a pathway to change that definition. 

Additional trustee reporting requirements

Trustees will be required to apply the method statement appropriately in relation to their various categories of capital gains and provide relevant information to their beneficiaries to enable them to meet their own tax obligations. An administrative penalty will apply for non-compliance. Trustees will need to review their standard distribution statements and reporting to ensure they appropriately declare relevant amounts to beneficiaries. Systems may also need to be updated for large trusts.

Beneficiaries will need to separately reapply the method statement against their own eligibility criteria (as is currently done). 

Negative gearing changes

Net rental losses from residential dwellings (other than new residential dwellings) acquired on or after 12 May 2026 (i.e. when the Budget was announced) will be quarantined from 1 July 2027. These losses will not be able to be deducted against non-residential rental income or non-residential capital gains. Instead, quarantined amounts can be offset against other residential rental income or carried forward and applied against future residential capital gains. 

These changes will apply to all taxpayers unless specifically carved out. Entity-level carve-outs will apply to:

• widely held unit trusts (which the government intends to cover ‘most’ managed investment trusts);
   
• complying superannuation entities; and
   
• other entities as determined by the Minister (but not yet announced). 

Whilst attribution managed investment trusts (AMITs) are deemed to be widely held unit trusts (and therefore not subject to the negative gearing changes), for other trusts, the requirements to be a widely held unit trust include that the trust is a ‘fixed trust’ within the meaning of the trust loss rules. It is exceedingly difficult for many trusts to meet the requirements to be a ‘fixed trust’. It will be important for the government to undertake careful consultation and drafting to ensure managed investment trusts (that are not AMITs) and other trusts are appropriately treated under these new laws. 

The rules also include a look-through provision for some trusts. Trust distributions referable to residential accommodation will maintain their character in the beneficiary's hands and will also be subject to the negative gearing changes. AMIT members will not be subject to this look through treatment. 

A similar look through rule is not currently included in respect of companies. 

Key takeaways and unresolved questions

Expected additional changes, including for AMITs, start-ups and others

The changes as introduced are extensive and very complex. If legislated, the amendments will introduce heavy compliance burdens on a large pool of taxpayers (effectively anyone holding a CGT asset that has not been excluded – with those exclusions not yet known). Treasury estimates the additional compliance burden will cost taxpayers $88.4 million per year over at least 10 years. 

However, this is not the end of the story. Critical aspects of the changes have not been included in the Bill that has been presented to Parliament. Those details are expected to follow later and be introduced by way of legislative instruments. This means that Parliament will be expected to consider a Bill in circumstances where critical concepts underpinning the amended rules are not available. 

The government has also noted that there will be further changes, with further consideration being given to carveouts and clarifications. Further rules, changes and consideration are intended by the government in respect of: 

• apportionment methods and taxpayers excluded from the 30% minimum capital gains tax (as discussed above);
   
• AMITs;
   
• small and startup businesses;
   
• the meaning of a ‘new residential dwelling’ (which retains access to the 50% discount and can be negatively geared). 
   
• the tax consolidation framework;
   
• residency changes;
   
• trustee reporting requirements; and
   
• ‘other relevant issues’.

Deemed disposals and reacquisitions

The deemed sale just before 1 July 2027 and reacquisitions on 1 July 2027 will produce two components of a gain in the income year of the eventual realisation event. This mechanism creates considerable practical complexity:

• Valuation: The capital proceeds of deemed sales are generally taken to be the market value of the asset immediately before 1 July 2027. The alternative apportioning method has not yet been released, which raises substantial uncertainty. This is particularly concerning given that, when that method emerges, it will not be embedded in statute but will be published by legislative instrument. Taxpayers holding illiquid, hard-to-value, or volatile assets will face significant compliance costs and practical difficulties in establishing market values. Further, contemporaneous evidence, especially in relation to valuation matters, is typically best as the ATO may challenge historical valuations. Going forward, there will be significant scope for disputes with the ATO on market valuations, with some taxpayers incentivised to obtain high market valuations just before 1 July 2027 rather than rely on an apportionment method.
   
• Records: Many taxpayers may wish to seek market valuations for their assets just before 1 July 2027. Taxpayers will need to maintain valuation evidence for each relevant CGT asset until a later realisation occurs. This could be complex, especially for large trusts which hold many CGT assets.
   
• Non-residents: while the changes do not generally apply in respect of non-resident taxpayers, some trusts with resident and non-resident beneficiaries appear to be included, and will be deemed to have disposed of, and reacquired, CGT assets. It is unclear if the taxable Australian property rules, which disregard capital gains derived by non-residents in relation to property that is not taxable Australian property, would operate appropriately in relation to any deemed capital gains. Further, even if those rules do appropriately apply, there could be a need for detailed asset analyses to be undertaken in relation to both the deemed sale and later realisation event.

No look-through for membership interests: sale planning considerations

The absence of a CGT look-through approach for membership interests could have structural sale implications for some investors holding residential property through interposed entities. For example, a capital gain on the sale of all membership interests in a trust or company which solely holds a residential dwelling would be classified as a non-residential capital gain. Any quarantined amounts (carried forward net rental losses) would not be able to be applied against such gains. 

Taxpayers holding residential property through companies or trusts should carefully consider the relative impacts of an entity or asset sale. 

Next steps and clarity around the tax reform

The government has suggested that legislating significant tax reform where broad overarching rules are implemented but critical concepts, carveouts and clarifications are left to subsequent tranches, will provide ‘certainty to taxpayers and the market’ and is a ‘standard approach, consistent with how other governments have undertaken tax reform’. In the absence of critical details, we are not yet in a place of certainty regarding these measures. Ideally the suite of changes, including the critical concepts identified above, would have been released in their entirety and preferably after a period of genuine consultation. This is especially important in respect of the way in which the changes are to interact with existing rules to ensure that there are no unintended consequences.

This approach could be a trend from the government. For example, the recent draft laws in respect of the non-resident CGT rules were also drafted extremely broadly, including to retrospectively apply to CGT events happening as far back as 12 December 2006. The ATO was then required to reassure taxpayers that the laws would not actually be applied in the way that was evident from the draft legislation presented for consultation.

The report from the Senate Economics Legislation Committee may provide further clarity on the above issues.