Australian property investors may face a smaller tax increase than initially feared under the federal government’s reported changes to negative gearing and capital gains tax (CGT). New economic modelling suggests 53 per cent of landlords could pay more tax, while the remaining 47 per cent may pay the same amount or less.
The findings challenge concerns that the reforms would increase tax bills for nearly every property investor. However, the financial impact could vary significantly depending on property values, investment debt, rental losses and the profit made when a property is sold.
New Tax Rules
The reported reforms involve two major changes to the taxation of residential property investments.
The first would replace the existing 50 per cent capital gains tax discount with a system that adjusts gains for inflation.
The second would gradually restrict negative gearing deductions, changing how investors claim losses from rental properties.
Under the proposed CGT arrangements described in the September 2026 reporting, the changes would begin on July 1, 2027.
The new approach would also introduce a minimum 30 per cent tax rate on certain capital gains.
These measures could significantly change how investors calculate the after-tax returns from residential property.
However, the final legal position and commencement arrangements should be checked against enacted legislation.
53% Pay More
Economic research institute e61 examined the potential financial impact of the reforms using historical investment data.
Its analysis covered approximately 920,000 individual housing investments held between 2008 and 2025.
Researchers applied the proposed tax settings to those investments to estimate how investor liabilities might change.
The modelling found that 53 per cent of investors would face higher overall tax costs.
The remaining 47 per cent would experience either no change or a reduction in their tax burden.
This suggests the reforms could have a more uneven impact than some property investors expected.
The results are based on simulations rather than actual future tax assessments, meaning individual outcomes could differ.
CGT Changes
One of the more surprising findings involved capital gains tax.
Under existing arrangements, eligible individuals can generally receive a 50 per cent discount on capital gains from assets held for at least 12 months.
The reported replacement system would instead adjust the purchase cost for inflation, effectively focusing taxation on gains above inflation.
According to e61, this approach could benefit investors whose properties experienced relatively modest growth.
Its modelling found 54 per cent of property investors would pay less CGT, while approximately 4 per cent would pay a similar amount.
Investors with substantial real capital gains could face higher tax bills.
The results indicate that the inflation adjustment could be more favourable than the existing discount for some investments, particularly where property prices have increased slowly relative to inflation.
Negative Gearing
The proposed negative gearing changes would have a different effect.
Negative gearing occurs when the deductible expenses associated with an investment property exceed the rental income it generates.
Under current general tax arrangements, eligible investors may offset these losses against other assessable income.
The reported reforms would restrict the immediate use of certain rental losses, particularly for established residential properties.
Instead, affected losses would be carried forward for later use under the proposed arrangements.
The e61 analysis found 49 per cent of investors would face higher tax costs from the negative gearing changes, while 22 per cent would experience little or no difference.
Delaying deductions can create a financial disadvantage because tax savings received several years later are generally worth less than savings available immediately.
Biggest Losers
The financial impact would not be distributed equally among property investors.
According to the research, the top 20 per cent of investors facing the largest increases would experience the most significant additional tax burden.
Highly leveraged landlords could be particularly exposed.
These investors generally have larger outstanding mortgages and higher interest expenses, increasing the likelihood of rental losses.
If deductions cannot be used immediately, their annual cash flow could deteriorate.
Retirees and investors with relatively low taxable incomes could also face disadvantages under the proposed minimum CGT rate.
Their final tax liability would depend on the detailed exemptions, transitional arrangements and personal circumstances.
Who Benefits?
Investors with lower capital gains could be among the main beneficiaries of the inflation-adjusted CGT system.
For example, someone who purchased a property many years ago and experienced only moderate growth might receive a larger effective deduction for inflation than under the existing 50 per cent discount.
This could reduce the taxable portion of their capital gain.
Landlords who do not rely heavily on negative gearing may also experience a smaller impact from restrictions on rental loss deductions.
However, a lower CGT bill does not necessarily mean an investor will pay less tax overall.
The combined effect of rental income deductions and capital gains taxation must be considered.
Property holding periods, inflation and mortgage costs could all influence the outcome.
Property Market
The proposed reforms have also raised questions about their potential impact on Australia’s housing market.
Some investors may reconsider purchasing established properties if rental losses become less attractive for tax purposes.
Others could place greater emphasis on rental yields, debt levels and long-term capital growth.
The changes may also encourage investors to compare property with other asset classes.
However, the e61 findings suggest the tax consequences would not be uniformly negative across the market.
The research also argues that linking capital gains taxation more closely to inflation-adjusted profits could improve how investment gains and risks are treated.
Whether the reforms ultimately affect property prices, rental supply or investor demand would depend on market conditions and the final legislation.
What Happens Next?
Australian landlords should review the potential effects of the proposed reforms before making major investment decisions.
Investors considering selling property may need to examine the timing of their sale, their expected capital gain and the tax treatment applying to different ownership periods.
Those relying on negative gearing should also consider whether changes to deductions could affect their ability to meet mortgage repayments and other property expenses.
Professional tax advice may help investors understand their exposure.
The central finding from e61 is that 53 per cent of landlords could pay more tax, but 47 per cent may pay the same or less.
For Australia’s property investors, the impact of the reported reforms could depend less on simply owning an investment property and more on how that investment is financed and how much profit it generates.
