Let's start with the basics
If you own or are thinking about buying an investment property in Australia, you've probably heard the phrases "capital gains tax" and "negative gearing" thrown around a lot. Politicians argue about them every election. But what do they actually mean for you as a buyer or investor?
Here's the plain-English version.
What is Capital Gains Tax (CGT)?
When you sell a property for more than you paid for it, the profit is called a capital gain. The government taxes that profit as part of your income — that tax is called Capital Gains Tax, or CGT.
Simple example:
You buy an investment property for $600,000. Five years later you sell it for $800,000. Your capital gain is $200,000.
You add that $200,000 to your other income for the year, and you pay tax on the combined total at your marginal rate.
But here's the important part: if you've owned the property for more than 12 months, you only pay tax on half of the gain. This is called the 50% CGT discount.
Key rule today: Hold the property for over 12 months → only 50% of your capital gain is taxable. The other half is tax-free.
What is Negative Gearing?
A property is "negatively geared" when it costs you more to own it than it earns in rent. In other words, your expenses (mortgage interest, rates, maintenance, property management fees) are higher than your rental income.
Under current Australian tax law, you can deduct that loss from your other income — typically your salary — which reduces how much tax you pay overall.
Simple example:
Your investment property earns $24,000 rent per year, but costs $32,000 in interest and expenses. You're $8,000 in the red.
You can deduct that $8,000 from your salary. If you're on a 37% marginal tax rate, the government effectively chips in about $2,960 through your reduced tax bill.
The idea is that you're betting on the property's value going up over time — so the short-term rental loss is offset by a long-term capital gain. That gain also benefits from the 50% CGT discount mentioned above, which is why the two policies are often talked about together.
What's been changing?
Both CGT and negative gearing have become hot-button policy topics, particularly as housing affordability has deteriorated. Here's a straightforward summary of what's been debated and what's actually happened.
The 2023–2024 debate
During 2023 and into 2024, there was significant pressure on the Albanese Labor government to wind back negative gearing and reduce the CGT discount. The argument from housing advocates was simple: these concessions make it more attractive for investors to buy existing homes, pushing up prices for first-home buyers.
The counter-argument, favoured by property industry groups, was that restricting negative gearing would push rents up by discouraging investment in rental housing.
Labor ultimately did not change negative gearing or the CGT discount during its first term. The policy stayed exactly as it had been since the Howard government introduced the 50% discount in 1999.
What about 2025 and 2026?
The 2025 federal election returned Labor with a stronger majority. In 2026, the government has indicated it is considering targeted changes — though no legislation has yet passed at the time of writing. The proposals under discussion include:
- Limiting negative gearing to new properties only, so investors buying established homes could no longer deduct losses against their salary
- Reducing the CGT discount from 50% to 25% for investment properties (the family home remains fully exempt from CGT)
- Grandfathering existing investors — meaning anyone who already owns an investment property would keep the current rules
Important: These proposals are still under consideration. No legislation has been passed. The rules as of mid-2026 remain the same as they have been since 1999 — but this could change. Talk to your accountant before making any investment decisions based on the current rules.
What does this mean if you're buying a home to live in?
If you're buying your own home (not an investment), CGT doesn't apply when you sell it — your principal place of residence is fully exempt. Negative gearing also doesn't apply, because you're not renting it out.
What these changes might affect is the property market around you. If fewer investors are chasing established homes, that could ease competition in suburbs popular with investors. On the other hand, if rental supply drops, rents could rise — which matters if you're renting while you save for a deposit.
What does this mean if you're buying an investment property?
Under current rules, buying an established property and negatively gearing it still works exactly the same way it has for decades. If proposed changes pass, the calculus shifts:
- New builds could become more tax-effective than established homes (negative gearing preserved for new builds)
- A lower CGT discount means a bigger tax bill when you eventually sell — so the expected capital gain needs to be higher to make the investment worthwhile
- Cash flow matters more: if you can't offset losses against your salary, you need the rent to actually cover your costs
The bottom line
As things stand right now, the rules haven't changed. Negative gearing and the 50% CGT discount are both still in place. But there's a real possibility they look different in a year or two.
If you're buying soon, it's worth asking your accountant two questions: "What does my return look like under the current rules?" and "What would it look like if the CGT discount dropped to 25% and negative gearing was restricted to new builds only?" If the investment only works under the current rules, that's a risk worth knowing about.