Federal Budget 2026: what it means if you own a Sydney rental

Federal Budget 2026: what it means if you own a Sydney rental

The Treasurer handed down the Budget on Tuesday night. Here is what we think landlords need to know.

Tuesday's Budget made two changes that genuinely matter for residential property investors. Negative gearing is being narrowed. Capital gains tax is being reworked. Both start on 1 July 2027.

 

This is not tax advice. We are a property management firm, not your accountant. But our landlords have been asking what these changes mean for them, so we have done the work to summarise it properly.

The two dates that matter

7:30 pm AEST, 12 May 2026. This is the line in the sand. Any residential investment property you already owned at this moment is grandfathered under the old rules. Anything purchased after this time is caught by the new ones.

 

1 July 2027. This is when the new rules actually come into effect. You still have over a year before anything practical changes.

 

If you bought after Tuesday night, the new rules will apply to that property. If you owned it before, you keep the existing regime.

 

What is changing with negative gearing

 

Right now, if your rental property runs at a loss, that loss reduces your salary or other income dollar for dollar. That is the version of negative gearing that has been part of Australian property investment for decades.

 

From 1 July 2027, for established residential properties bought after the 12 May 2026 cutoff, the rule narrows. Losses can only be used against other residential property income or gains. Any excess carries forward to future years rather than offsetting your salary in the current year.

 

Worth noting: new dwellings, commercial property, properties held in SMSFs, and anything grandfathered before the cutoff are not affected.

 

What is changing with capital gains tax

The 50% CGT discount is being replaced for assets sold from 1 July 2027.

 

Under the new method, your cost base will be indexed for inflation (so you only pay tax on the real gain, not the inflated nominal one), and there will be a 30% minimum effective tax rate on the gain.

 

For properties already owned at 1 July 2027, the rules are split:

• Gains that accrued before 1 July 2027 are still subject to the 50% discount
• Gains that accrued after 1 July 2027 use the indexation method
• The split is determined by the property's value at 1 July 2027

 

This is the bit most people are missing. Whether you sell in 2030 or 2045, the value of your property at 1 July 2027 will be locked in as the dividing line. That makes a valuation at that date genuinely important.

Why valuations next year are going to matter

Here is an example. A property bought in July 2024. Sold a decade later in July 2034. Total gain of $500,000 over the period.

 

• Gain accrued July 2024 to July 2027: $150,000. The 50% discount applies. $75,000 is taxable.
• Gain accrued July 2027 to July 2034: $350,000. Indexation applies. Around $212,000 is taxable.
• Total taxable amount: roughly $287,000. Effective rate around 27%, compared to about 23.5% under the old system.

 

The numbers will be different for every property. The point is that the 1 July 2027 valuation determines where the line is drawn. Get that wrong and you either overpay or end up arguing with the ATO later.

 

A few practical things, none of them urgent, all worth thinking about over the next twelve months.

1. Speak to your accountant. Every owner's situation is different. The numbers above are illustrative.
2. Confirm what is grandfathered. If you owned before 7:30 pm on 12 May 2026 you are under the old rules. Worth getting confirmed in writing.
3. Plan a 1 July 2027 valuation. If you own residential investment property and may sell it within the next twenty years, the value at that date will matter. Diarise it.
4. Get a depreciation schedule if you don't have one. Especially for newer dwellings. The deductions don't go away under the new rules, they just work slightly differently.
5. Don't panic-sell. Nothing changes for fifteen months. The old rules apply to everything you do until 1 July 2027.

 

Where we sit

We manage Sydney residential property. Our job is to keep your asset earning, leased and looked after, regardless of what is happening in Canberra. If you would like to talk through what these changes mean for your portfolio, or you are thinking about your investment property for the first time, we are here.