The short answer: the 2026-27 Budget changes to negative gearing and capital gains tax are now law. From 1 July 2027, negative gearing on residential property is limited to new builds, and the 50% capital gains tax (CGT) discount is replaced by inflation indexation and a 30% minimum tax on gains that accrue from that date. Properties held before 7:30pm AEST on 12 May 2026 keep their existing negative gearing treatment. For Aussie expats there are a few extra layers, mainly because foreign residents were already outside the full 50% discount.
Here's what changed, what the official papers say, and where the expat questions sit. The tax side of every point below belongs with a registered tax agent. Our part is how it plays into your borrowing and your next purchase.
What changed in the 2026-27 Budget
The Government announced the changes on Budget night, 12 May 2026 (Budget 2026-27, Negative Gearing and Capital Gains Tax Reform), and they were legislated in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Federal Register of Legislation). From 1 July 2027:
- Negative gearing is limited to new builds. Losses on established residential investment properties bought from 7:30pm AEST on 12 May 2026 can only be deducted against income from residential property, including capital gains. Excess losses can be carried forward to later years.
- The 50% CGT discount is replaced for individuals, trusts and partnerships by cost base indexation using the Consumer Price Index, plus a 30% minimum tax rate on capital gains that accrue from 1 July 2027.
The Budget also announced a separate measure: a 30% minimum tax rate for discretionary trusts from 1 July 2028, with some exceptions (Treasury, Budget 2026-27 tax system changes). Unlike the negative gearing and CGT changes, this one isn't law yet.
Negative gearing: what's grandfathered and what counts as a new build
If you owned an investment property before 7:30pm AEST on 12 May 2026, including one where you'd signed a contract that hadn't settled yet, you can keep negatively gearing it in future years until you sell. An established property bought between that time and 30 June 2027 can be negatively geared up to 30 June 2027, but not from 1 July 2027 (Budget factsheet).
New builds keep negative gearing before and after 1 July 2027. The factsheet defines a new build as a residential property that genuinely adds to supply, for example an apartment bought off the plan, anything built on vacant land, or a knock-down that replaces one house with more dwellings. A knock-down rebuild that replaces one house with one house doesn't qualify. A subsequent buyer of a new build also doesn't get the new-build treatment, so a "near new" property bought from a previous owner generally won't qualify (same source). Under the Act, the final test for a new build is set by the Minister in a legislative instrument, so check a specific property against that test before relying on it.
Capital gains tax: why the expat read is different
For Australian residents, the change swaps the 50% discount for indexation on gains from 1 July 2027. Gains made up to that date still get the 50% discount, with the asset's value at 1 July 2027 used as the dividing line (Budget factsheet).
Foreign residents start from a different place. The ATO says foreign and temporary resident individuals aren't entitled to the full 50% CGT discount on taxable Australian property acquired after 8 May 2012, and get a reduced discount on property acquired before then. You can claim an apportioned discount for periods when you were an Australian resident (ATO, CGT discount for foreign residents).
Indexation: what the Act says today
As the Act reads today, the new CPI indexation doesn't extend to foreign or temporary residents. Section 114-25, inserted into the Income Tax Assessment Act 1997 by the Act, says you must be neither a foreign resident nor a temporary resident at any time during a testing period. That period starts on 1 July 2027 (or the day you bought, if later) and ends on the day of the sale (Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Schedule 1). On that wording, a single day as a foreign resident in the testing period is enough to lose indexation on the sale. This is what's often called the one-day rule.
The one-day rule is being redrafted, but it hasn't changed yet
In August 2026 Treasury released an exposure draft of a second tranche of legislation, the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026. The draft would repeal section 114-25 and instead pro-rate indexation and the CGT discount by the number of days you were an Australian resident (and not a temporary resident) during the testing period (Treasury, CGT adjustments (tranche 2) exposure draft explanatory memorandum). Public consultation closed on 21 August 2026 (Treasury, Capital Gains Tax and Negative Gearing: Tranche 2 Legislation).
An exposure draft is a proposal. It isn't law, it can change before a bill goes to Parliament, and it may not pass in this form. So, as at 18 September 2026: confirmed is the all-or-nothing rule in the Act; proposed is the pro-rated version in the draft. If you've read that the one-day rule has been repealed, that's ahead of where the law is.
The 30% minimum tax applies to individuals who are Australian residents at some time in the income year of the sale, and the Parliamentary Library notes that the detail for people who are foreign or temporary residents for part of a year is left to a second tranche of legislation (Parliamentary Library, Bills Digest). So don't assume the change leaves you better or worse off. If you're selling Australian property while you're overseas, or planning to, raise it with a registered tax agent before you settle on a timeline.
Trusts
If a discretionary trust is part of how you hold Australian property, the announced (not yet legislated) 30% minimum tax for discretionary trusts from 1 July 2028 is worth raising with your accountant early. Structure is their call, not ours.
What this changes if you already own Australian property
Negative gearing on a property you held before 7:30pm AEST on 12 May 2026 is unchanged. The CGT change only applies to gains that accrue from 1 July 2027, and only matters when you sell. So for most expat owners, the loan itself doesn't need to change because of the Budget.
It's still a sensible moment to review your loan structure (offset balance, fixed and variable split, repayment type) and your equity position, particularly if a sale or another purchase is on the horizon.
What this changes if you're planning your next purchase
If negative gearing matters to your plan, the new rules point investors toward new builds. That makes lender policy on off-the-plan purchases and construction more important than it used to be.
Lender policy on off-the-plan purchases and construction loans varies from lender to lender. The lender that suits an established property isn't always the one that suits a new build. For an expat whose foreign income is already shaded, that narrows the field further, so it's worth mapping the lender options before you sign a contract. Our guide to capital gains tax for Australian expats covers the existing tax picture in more detail.
Want to talk through your situation?
If you'd like to talk through what the changes mean for what you already own or what you're planning, book a call with our team.
Sources
- Budget 2026-27: Negative Gearing and Capital Gains Tax Reform (factsheet) (accessed 18 September 2026)
- Federal Register of Legislation: Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (accessed 18 September 2026)
- Treasury: Budget 2026-27 tax system changes (accessed 18 September 2026)
- Parliamentary Library: Bills Digest, Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 (accessed 18 September 2026)
- ATO: CGT discount for foreign residents (accessed 18 September 2026)
- Treasury: Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, CGT adjustments (tranche 2), exposure draft explanatory memorandum (accessed 18 September 2026)
- Treasury consultation: Capital Gains Tax and Negative Gearing, Tranche 2 Legislation (3 to 21 August 2026) (accessed 18 September 2026)
Aussie Expat Home Loans holds Australian Credit Licence 509125. This article is general information only and doesn't take your personal circumstances into account. It isn't tax advice: negative gearing, capital gains tax and trust questions belong with a registered tax agent. Lender policies vary and change over time. Before acting, consider your own situation and seek advice specific to it.
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