Whether you are considering your first investment property or thinking about adding to an existing portfolio, the recent Federal Budget may influence how you assess your next move.
Proposed changes to negative gearing, capital gains tax and trust structures could affect cash flow, tax planning, property selection and long-term investment strategy.
For investors, the key message is not to panic or make a decision based on headlines alone. The fundamentals still matter. Location, tenant demand, rental return, holding costs, asset quality and your broader financial position should remain central to any investment decision.
That said, when tax settings change, the way you compare opportunities may also need to change.
What has been proposed in the Federal Budget?
As part of the 2026–27 Federal Budget, the Government announced proposed reforms to negative gearing, capital gains tax and discretionary trusts. According to the Budget papers, negative gearing will be limited to new builds from 1 July 2027, while existing arrangements will remain unchanged for properties held before Budget night. Investors who buy new builds would still be able to deduct losses against other income.
The Government has also proposed changes to capital gains tax, including replacing the 50% CGT discount with cost base indexation for affected assets. The Australian Taxation Office has published guidance on the announced reforms, noting they are part of the Government’s broader housing and tax reform package.
For investors using discretionary trusts, the Budget also includes a proposed 30% minimum tax on discretionary trusts from 1 July 2028. The ATO says this tax would be paid by the trustee, with beneficiaries still required to declare trust income in their own tax returns.
While these changes are significant, investors should remember that tax reform can involve transitional rules, exemptions and further detail before implementation. Professional advice is essential before buying, selling or changing ownership structures.
What this could mean if you are buying your first investment property
For first-time investors, the proposed changes may make it even more important to understand the difference between a property that looks affordable and a property that genuinely works as an investment.
In the past, some investors have relied on negative gearing to help manage the gap between rental income and holding costs. If the rules change, first-time investors may need to be more careful when assessing cash flow, particularly on established properties where expenses may exceed rent.
This does not mean first-time investors should avoid established homes altogether. It simply means the numbers need to be clearer from the start.
Before buying, you may need to consider:
• How much rent the property is likely to achieve
• Whether the property is likely to be positively, neutrally or negatively geared
• How interest rates, insurance, maintenance and compliance costs affect cash flow
• Whether the property has strong tenant appeal
• How the property could perform over the long term
• Whether the purchase still makes sense without relying heavily on tax benefits
A first investment property should not be chosen for tax reasons alone. The stronger approach is to understand how the property performs before tax, after tax and over time.
What this could mean if you already own an investment property
For existing investors, the Federal Budget may prompt a broader review of your portfolio strategy. This is especially relevant if you have been thinking about purchasing another property, refinancing, using equity or changing the way you hold your investments.
If you already own an investment property, your current arrangements may not change in the same way as future purchases. The Budget says existing negative gearing arrangements will remain unchanged for properties held before Budget night.
However, your next purchase may need to be assessed differently.
Questions worth asking include:
• Does your next property still support your long-term goals?
• Would a new build or established property make more sense under the proposed rules?
• How would reduced tax deductibility affect cash flow?
• Are you relying too heavily on capital growth to make the numbers work?
• Does your borrowing capacity still support your plans?
• Should your ownership structure be reviewed before buying again?
For many investors, this may be less about abandoning plans and more about improving the quality of the decision.
Why negative gearing changes could affect investor cash flow
Negative gearing occurs when the cost of holding an investment property exceeds the income it generates. This can happen when loan interest, management fees, insurance, maintenance, strata levies and other expenses are higher than the rent received.
Under current arrangements, many investors have been able to use that loss to reduce other taxable income. The proposed changes would limit this treatment for residential property, with the Government aiming to focus the benefit on new housing supply.
This could change the way investors assess established properties.
An established property with strong land value, renovation potential or long-term growth prospects may still be attractive, but the cash flow position may need closer attention. Investors may need to stress-test the purchase against different interest rate scenarios, possible vacancies, repairs and future compliance costs.
Gross rental yield is only part of the picture. What matters is how the property performs after all costs are considered.
New builds could become more attractive
One clear policy direction from the Budget is a preference for encouraging investment in new residential supply. If negative gearing benefits are limited to new builds, some investors may naturally shift their attention towards newly built apartments, townhouses and houses.
New builds can offer several advantages. They may have lower immediate maintenance needs, modern layouts, stronger energy efficiency and depreciation benefits. They may also appeal to tenants looking for convenience, comfort and lower running costs.
However, new does not automatically mean better.
Investors still need to assess location, developer quality, floor plan, body corporate costs, rental demand and resale appeal. In some locations, oversupply can limit rental growth and capital growth. In others, a well-positioned new property may perform strongly because it matches tenant demand and benefits from newer infrastructure.
The right question is not simply, “Is it new?” It is, “Does this property make sense as a long-term investment?”
Established properties may still have a place in your strategy
While the proposed changes may increase interest in new builds, established properties may still play an important role in investment strategy.
Established homes are often located in areas where infrastructure, schools, transport links, shopping precincts and community amenity are already in place. They may also offer stronger land value, proven rental demand and opportunities to add value through renovation or improved presentation.
For some investors, the long-term growth potential of a well-located established property may outweigh the loss of certain tax advantages. For others, cash flow pressure may make a new build more suitable.
This is where local market knowledge becomes important. The best investment decision is rarely made by looking at tax treatment alone. It comes from weighing rental demand, buyer demand, land value, property condition, likely expenses and future resale appeal.
Capital gains tax changes and your exit strategy
The proposed capital gains tax changes may also encourage investors to think more carefully about their exit strategy before they buy.
If the 50% CGT discount is replaced by cost base indexation for affected assets, investors may need to model their expected after-tax return differently. The Budget papers describe the CGT reforms as part of a broader shift designed to reduce distortions that favour highly leveraged investment in existing housing.
For investors, this means the purchase decision and the sale decision are more connected than ever.
Before buying, it may be worth considering:
• How long you plan to hold the property
• Whether the property is likely to deliver capital growth
• What selling costs may apply
• How tax could affect your final return
• Whether the asset suits your broader portfolio strategy
A property can increase in value and still deliver a weaker result than expected if holding costs, tax, vacancies and selling costs are not properly considered.
What if you hold your investment property in a trust?
For investors who hold property through a discretionary trust, unit trust or company structure, the proposed Budget changes may require careful review.
The Government has announced a proposed 30% minimum tax on discretionary trusts from 1 July 2028. The ATO says the tax would be paid by the trustee, while beneficiaries would still declare trust income in their own tax returns, with non-refundable credits applying in some circumstances.
For property investors, this may affect the way income is distributed, how losses are treated and whether the structure remains suitable for future purchases.
Trusts are often used for reasons that extend beyond tax, including asset protection, estate planning, succession and family investment structures. That means investors should avoid restructuring based on tax headlines alone.
Before buying, selling or changing ownership, investors should speak with their accountant, solicitor or tax adviser. The cost of getting this wrong can be far greater than the cost of getting advice.
What this means for your next investment decision
The Federal Budget does not remove the need for smart property investment. It simply raises the importance of doing the work before you buy.
For your next investment decision, it may be worth reviewing:
• Your borrowing capacity
• Your cash flow assumptions
• The difference between new builds and established properties
• Likely rental demand
• Vacancy risk
• Maintenance and compliance costs
• Potential capital growth
• Your ownership structure
• Your long-term exit strategy
Most importantly, avoid buying purely for tax reasons. Tax treatment can support an investment decision, but it should not be the foundation of one.
A good investment property should still stand up when tested against the fundamentals.
Why professional guidance matters in a changing property market
In a changing tax environment, local market insight becomes even more valuable. A property may look strong on paper, but its investment performance depends on how it is positioned in the property market.
A real estate professional or Property Manager can help you understand what tenants are looking for, what rent may be achievable, how similar properties are performing and what improvements may increase appeal. They can also help identify potential costs that investors sometimes overlook, from maintenance and compliance to vacancy risk and presentation.
The difference between a good property and a good investment often comes down to the detail.
Speak with JDH about your next investment move
Federal Budget changes may influence how you approach your next investment, but the right decision still comes back to the property, the numbers and your long-term goals. If you are thinking about buying, selling or reviewing an investment property, speak with the team at JDH Real Estate for local insight, practical guidance and a clearer view of your next move.
