Government to reform housing tax

According to Treasury, since 1999, housing prices have risen more than twice as fast as average full-time earnings, and since 2001, the home ownership rate for households 25–34 years old has declined by 7 percentage points. Around 44 per cent of households aged 25–34 years old owned their own home in 2021.

In one of the largest housing tax changes in years, the budget 2026–27 includes a range of measures aimed at improving housing supply and freeing up supply, which will run in tandem with the government’s existing home-buying measures, such as the 5 per cent Deposit Schemes (which have turbocharged demand among first home buyers, particularly in the more affordable price brackets) and Help to Buy schemes.

Delivering his budget speech, Chalmers said it was the “most important and ambitious budget in decades”.

Notably, the budget 2026–27 includes lifting total investment in housing to a record $47 billion.

CGT changes

In a major policy shift, the government announced reforms to negative gearing and capital gains tax (CGT), saying that the system must better support first home buyers over speculative investors.

Following months of rumours, the Treasurer has revealed that the government will restrict negative gearing to newly built properties only, in order to “level the playing field”, given that many feel that buying a home is “impossible”.

From 1 July 2027, the 50 per cent CGT discount will be replaced by cost base indexation for assets held for more than 12 months, with a 30 per cent minimum tax on net capital gains.

Transitional arrangements will limit the impact on existing investments by ensuring the changes only apply to gains arising on or after 1 July 2027.

The 50 per cent CGT discount will continue to apply to gains arising before 1 July 2027.

Capital gains on pre-1985 assets arising before 1 July 2027 will remain exempt from CGT.

However, to maintain incentives for new housing supply, investors in new residential properties will be able to choose either the 50 per cent CGT discount or cost base indexation and the minimum tax. Income support payment recipients, including age pension recipients, will be exempt from the minimum tax.

This aims to effectively reduce what is perceived to be a benefit for property investors for high-growth assets.

Negative gearing

The government will also limit negative gearing for residential property to new builds.

From 1 July 2027, losses from established residential properties will only be deductible against rental income or the capital gains from residential properties.

Excess losses will be carried forward and be able to be offset against residential property income in future years.

These changes will apply to established residential properties acquired from 7:30pm AEST on 12 May 2026. Properties acquired prior to this time (including contracts entered into but not yet settled) will be exempt from the changes until disposed of.

Eligible new builds will be exempt from the changes, ensuring the benefits of negative gearing are directed to investment that increases the housing stock. Properties in widely held trusts and superannuation funds will be excluded, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs.

Why make the change?

The moves come after the government teased earlier this week that “the housing market and the tax system is not working for a lot of Australians” and that change needed to be made to address the “very real concerns that a lot of Australians have about their ability to get a toehold in the housing market”.

The budget papers read: “The 50 per cent capital gains tax discount and negative gearing provide generous incentives for investors, which have added to demand for property and contributed to higher housing prices over time. This has come at the expense of owner-occupiers, making it harder for more Australians to own their own home.

“These tax settings distort investment toward more leveraged investment in existing homes and are poorly targeted when it comes to supporting new housing supply. The 50 per cent discount also poorly approximates the inflation component of returns, meaning investors can be undercompensated or overcompensated for inflation across a range of asset types.”

Treasury modelling suggests housing prices will temporarily grow by 4 per cent (around 2 per cent less over a couple of years relative to no tax policy change). For comparison, housing prices have – on average – grown at 6 per cent per year since 2000. This means that a buyer purchasing a home at the current national median price would save around $19,000.

This improvement in affordability and lower investor demand is therefore expected to shift the ownership mix towards more owner-occupiers, Treasury estimates, resulting in around 75,000 additional owner-occupiers over the next decade.

This is equivalent to reversing around 10 years of declines in the home ownership rate, it said.

Announcing the changes, Chalmers commented: “This is about one goal: More Australians in a home – whether they own or rent.

“We’re backing this plan with serious investment, lifting our total housing commitment to a record of over $47 billion.

“This is the largest and most comprehensive housing plan Australia has seen in generations.

“It’s too hard for too many Australians to buy their own home and get ahead.

“These housing reforms go to the core of our Budget strategy.

“Dealing with the very real pressures on people right now – While taking responsibility for the challenges facing the next generations.”

Bringing online more housing supply

As well as reforming housing tax to improve supply, the budget includes more initiatives that aim to support housing supply.

The government’s Housing Accord target aims to bring into being 1.2 million new homes by 2029, but supply has been slow to bring online amid high costs, a dearth of construction trades, long approval times, and challenges between local and federal governments, among other barriers.

Other measures relating to housing in the budget 2026–27 include:

• An additional $2 billion infrastructure fund to support the connection of sewerage, water, and electricity infrastructure, which the Treasury estimates could unlock up to 65,000 new homes.

• Reducing red tape and planning delays that could unlock tens of thousands more homes. Access to the Local Infrastructure Fund will be linked to further state‑based reforms to improve productivity in the housing sector – including faster and simpler approvals, making more land available and ready to build homes, and delivering a genuinely national construction code.

• Investing $85.2 million to accelerate skills assessments for skilled migrants in trades industries and to better integrate occupation licensing with the assessment process.

• Extending the ban on foreign investors buying existing homes until mid-2029 to take pressure off the market.

• Investing $59.4 million to supplement rental income for community housing providers delivering social housing for over 4,000 young people, aged 16–24, who are in receipt of the away from home rate of Youth Allowance or ABSTUDY and who are at risk of, or experiencing, homelessness.

• Starting 1 July 2028, the government will apply a 30 per cent minimum tax to discretionary trust income to fund worker tax cuts while offering various exemptions for specific trust types and three years of rollover relief to help entities restructure.

In his budget speech, Chalmers said: “Our tax reforms will help workers, create a fairer housing market, and drive more productive investment across our economy.

“They build on the significant reforms we’ve already delivered, and they complement our other efforts to increase housing supply, boost productivity and reduce compliance costs.

“The new revenue raised will be returned to workers and businesses over the next four years – So more Australians can earn more and keep more of what they earn.”

Support for small businesses

The 2026–27 budget provides long-term certainty for the engine room of the economy: small businesses.

As announced last weekend, the Treasurer confirmed that the $20,000 instant asset write-off (IAWO) will become a permanent feature of the Australian tax system, as has been widely called for by the finance broking industry.

Small businesses with an annual turnover under $10 million will be assured that they can permanently deduct the full cost of eligible assets up to $20,000, ending the cycle of year-to-year extensions that previously left businesses feeling in limbo. The provisions that prevent small businesses from re‑entering the simplified depreciation regime for five years after opting out will continue to be suspended until 30 June 2027.

Plus, as of 1 July 2026, companies with aggregated annual global turnover of less than $1 billion will be able to carry back a tax loss and offset it against tax paid up to two years earlier. Loss carry back will apply to revenue losses only and will be limited by a company’s franking account balance.

The government will also introduce loss refundability for small start‑up companies. For tax years commencing on or after 1 July 2028, start‑up companies with aggregated annual turnover of less than $10 million that generate a tax loss in their first two years of operation will be able to utilise the loss to generate a refundable tax offset. The offset will be limited to the value of fringe benefits tax and withholding tax on wages paid in respect of Australian employees in the loss year.

The government will also provide $10.9 million to the Australian Taxation Office to expand its pilot of dynamic pay as you go (PAYG) instalment calculations and will expand access to monthly payments.

From 1 July 2027, small and medium-sized businesses will be able to opt in to reporting and paying PAYG instalments monthly and to using an ATO-approved calculation embedded in accounting software to calculate and vary their instalments.

This will support businesses by enabling tax instalments to better reflect real-time business activity. Taxpayers with a demonstrated history of non‑compliance will be required to report and pay PAYG instalments monthly.

Chalmers said the core of this budget was an economic strategy with five main parts:

• Getting through the global oil shock and building resilience.
• Taking the pressure off people where government can.
• Making the economy more productive to lift living standards over time.
• Reforming the tax system for workers, businesses, and future generations – including a new tax cut for every working Australian taxpayer. Starting in late 2027, the $250 Working Australians Tax Offset provides an automated annual tax cut for workers that permanently increases the effective tax-free threshold and contributes to a total weekly benefit of up to $54 for average earners.
• Making the budget stronger, more sustainable, and helping take the pressure off inflation by saving more than we spend.

[Related: Budget preview: Industry waits with bated breath for housing tax]