Negative Gearing & CGT: May 2026 Budget Outlook

The May 2026 federal budget is only weeks away, and Treasurer Jim Chalmers has confirmed that Treasury is actively modelling changes to negative gearing and the capital gains tax discount. If any of these changes are announced and pass parliament, they would be the most significant property investment tax reforms since the Howard government introduced the 50% CGT discount in 1999. For first home buyers thinking about rentvesting or buying their first investment property, the next few weeks matter. Here is what is on the table, what it would actually mean for your numbers, and how to respond without panicking.

What is currently being modelled

Two specific reforms have been confirmed as inside the Treasury modelling brief. Neither has been announced and neither has been legislated. Both are being canvassed publicly enough that buyers should understand what they would do.

• Negative gearing cap: deductions limited to two investment properties per person. Losses from a third or later property could only be quarantined against future rental income from that same property, not offset against your salary.
• CGT discount reduction: the discount for assets held more than 12 months would drop from 50% to 33%. The discount itself would remain, but the taxable share of any capital gain would rise.

As of late April 2026, that is all that has been publicly confirmed. Anything beyond this is speculation. The budget itself may include both reforms, one of them, neither, or modified versions. Even if announced, legislation must pass both houses before anything binds.

What negative gearing actually does today

Negative gearing is straightforward arithmetic. If your rental property earns approximately $24,000 a year in rent but costs around $38,000 a year in interest and expenses, the $14,000 loss reduces your taxable income. On a $120,000 salary at the 39% marginal tax rate, that translates to around $5,460 in tax saved each year. The cash shortfall is still real, but the tax system softens it.

Importantly, the proposed cap of two properties only affects investors owning three or more. Most first-time investors and rentvestors will own one property. They are unaffected by the negative gearing change as currently modelled. If you are buying your first investment property in 2026, the cap is unlikely to touch you for years, if ever.

What the CGT change would mean on a real sale

The CGT discount change is more meaningful for ordinary investors, because it applies to anyone selling an investment property held for more than 12 months.

Take an example. You sell an investment property for a $200,000 capital gain after holding it for three years. Under the current 50% discount, $100,000 is assessable, and at a 39% marginal rate you would pay approximately $39,000 in CGT. Under the proposed 33% discount, $134,000 becomes assessable, lifting the tax bill to roughly $52,260. That is about $13,260 more on the same sale. On a $300,000 gain, the gap grows to roughly $19,800.

For long-term holders this is a real cost, paid only at sale. For anyone planning to sell within the next decade, it is worth running scenarios at both 50% and 33% before signing.

How investors say they would respond

Industry surveys give a sense of behavioural impact. In Money.com.au's 2026 survey, around 39% of property investors said they would step back or sell if the CGT discount was cut, and roughly 22% said they would pull back if the negative gearing cap was introduced. The Housing Industry Association's modelling estimates approximately 46,000 fewer new homes being built over five years and around 4,300 construction jobs lost if both reforms were passed.

Those numbers come from people whose investment strategies depend on these tax settings, so they should be read alongside independent modelling. The Grattan Institute, looking at the same proposed reforms, estimates a roughly 1% to 2% reduction in house prices compared with the no-reform baseline. That is a modest cooling, not a crash. The two views are not inconsistent. Fewer new homes can sit alongside slightly lower prices because the underlying driver is fewer investors competing for established stock.

What this means for first home buyers

The most useful way to read these reforms as a first home buyer is to separate the impact on you as a buyer from the impact on you as a future investor.

• As a first home buyer of an owner-occupier property: the negative gearing cap and CGT discount reform do not affect your principal place of residence. The CGT main residence exemption is untouched. FHOG, stamp duty concessions, and the First Home Guarantee remain unchanged. If you are buying somewhere to live, your plan does not need to shift.
• As a rentvestor or first investment buyer: the negative gearing cap is not relevant unless you are stacking three or more properties. The CGT change matters if you plan to sell within ten years. Run your numbers at both discount levels and see how sensitive your returns are.
• If you already own three or more investment properties: speak to a tax adviser before budget night. Restructuring after the fact is much harder than ahead of time, and any announced transitional rules will reward people who acted early.

What this means for you

Most readers do not need to do anything dramatic. The reforms are not legislated, the impact on owner-occupiers is essentially nil, and even rentvestors with one or two properties are largely unaffected by the negative gearing change. Practical steps for the next few weeks:

• Watch the budget on the night, but ignore the headlines for 48 hours and read the Treasury papers once they are public.
• If you are running scenarios on a potential investment property, model your CGT outcome at both 50% and 33%. The difference tells you how exposed your strategy is to the reform.
• If you are weighing rentvesting against owner-occupation, remember that owner-occupier schemes are not on the reform table. The grants, stamp duty concessions, and guarantees you can stack as a first home buyer are unchanged.
• A 1% to 2% softer market, if it materialises, makes it easier, not harder, for first home buyers to enter. Less investor competition in established suburbs is generally good news for owner-occupier buyers.

Run the numbers

Use these tools to understand how the proposed changes, and the existing rules, affect your specific situation:

• Rentvesting Calculator - models negative gearing, depreciation, and CGT on an investment property so you can see how the proposed CGT change shifts your long-run return.
• Rent vs Buy Calculator - compares owner-occupation against renting plus investing, useful for stress-testing whether the reform tilts your decision either way.
• Scheme Comparison Tool - shows which first home buyer schemes you may be eligible for, since these remain unchanged by anything in the reform discussion.
• Borrowing Power Calculator - checks how investor or owner-occupier rates change what you can actually finance before settling on a strategy.

None of this is financial advice. It is a starting point. For decisions involving large numbers, work with a qualified mortgage broker, accountant, or financial adviser who knows your full picture.