Last night the federal government announced its proposed budget. This comes at a time where cost of living has become a major issue felt by most households and house prices are up more than 400% compared to 1999 – which is more than double wage growth. The conditions have been making it harder for younger Australians to purchase their own property, and this became a key focus for the government.
The budget proposed a number of tax changes that impact property investors in a move the government expects will shift 75,000 properties from investors to owner occupiers over the next 10 years. It also anticipates the changes will slow house price growth and eventually lead to lower rents (after an initial increase).
The Treasury’s modelling predicts this will result in 35,000 fewer homes being built over the next ten years due to the dip in private investment, however the government aims to bolster this by investing in infrastructure for new housing lots.
There were a number of announcements that will impact most Australians. Here is a round-up of some of the key proposals.
Investors
Negative gearing
Properties purchased from now will not be able to take advantage of negative gearing strategies from 1 July 2027, excluding new builds. Negative gearing is a tax strategy where the property owner’s expenses (such as mortgage interest, maintenance and rates) are higher than the income from rent. The losses are deducted from their income tax.
This does not impact existing owners who can continue to negatively gear their property.
Anyone purchasing an existing property as an investment from 13 May will still be able to deduct losses against other income from residential properties. When an investor has excess losses, they will be able to carry forward that excess to offset residential property income in future years.
These changes apply to individuals and most trusts, however SMSFs may be excluded. If you have entered into a contract but have not yet settled, it will still be allowed to be negatively geared until sold.
Capital gains tax (CGT) discounts
When an investment is sold, it is required to pay capital gains tax. Currently, when an investment property is sold, any profits count towards that person’s taxable income, but if it had been held for more than a year, only half of the profit is counted. From July 2027, this will change to consider the whole profit minus inflation. For example, if a property’s value increased by 7% in a year and inflation was 4%, tax would be calculated on the 3% value (total growth minus inflation). The tax payable will never be less than 30%.
Pensioners and people on income support are exempt from the minimum 30% rate. Any properties purchased before 1 July 2027 will have a split tax – profits from before July 2027 will be taxed under the current rules and profits made after will be taxed under the new rules.
Investors in new-build residential properties will have the choice between the 50% CGT discount or the new indexation model.
Homebuyers
Changes to taxes on investors
The use of negative gearing was helping investors potentially improve their borrowing capacity, which could have given them an advantage over prospective owner-occupiers. Removing this strategy could even the playing field for bidders.
New infrastructure
The government has committed $2 billion toward new infrastructure, such as sewerage and roads, to unlock new housing lots. It anticipates this will enable an additional 65,000 new homes over four years.
Ban on foreign buyers
The current ban on foreign buyers purchasing existing properties will be extended to mid 2029. This does not apply to new builds.
AI investment
The government is also planning on investing nearly $106 million to develop an AI tool that will help developers navigate environmental red tape, intended to speed up the approval process for new projects.
Households
$1,000 instant tax deductions
From the 2026-2027 financial year, Australian workers can claim up to $1,000 of work expenses as an instant tax deduction without requiring receipts. The government expects this to help about 6.2 million people, an average of $205 in the year.
The Working Australians Tax Offset (WATO)
This one won’t start until the 2027-2028 financial year but is anticipated to save workers around $250 per year on their income tax.
NDIS changes
Following the National Disability Insurance Scheme’s cost blowout, the government aims to reduce its growth rate with measures such as moving more than 160,000 participants off the scheme and instead into state-run support programs. This may financially impact people who currently benefit from the scheme.
Small business owners
Loss carry back policy
This policy was proposed to enable small businesses to reduce the profit they reported over the past two years due to recent losses. This can mean a retrospective tax refund or a smaller tax bill from the Australian Taxation Office.
Instant asset write off
The $20,000 instant asset write-off will become permanent under Labor’s proposal. The instant asset write-off enables eligible businesses to claim an immediate deduction for the “business portion” of the cost of an asset up to the value of $20,000.
Drivers
EV tax exemption
New EV purchases under $75,000 will still be eligible for tax exemptions, where buyers will not need to pay fringe benefits tax on the car and associated expenses. From April 2027, vehicles above $75,000 will need to pay tax, but will get a 25% discount on the fringe benefits tax.
Fuel excise will return
Following the exponential growth of petrol prices this year caused by the ongoing energy crisis, the federal government halved the fuel excise motorists pay at the pump (saving around 23 cents a litre). This discount is not expected to continue beyond July, which could see petrol prices spike again.
Whether you are an investor, aspiring homebuyer or a homeowner, reach out to your Loan Market broker to discuss any changes this could make to your situation. They can review your loan or strategy to help you navigate the current environment.
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