Broken Promises, Higher Rents and Heavier Taxes. 2026 Budget update

The 2026 Federal Budget was handed down on 12 May and, yes, this article is arriving a little late. The delay is mostly because, while watching the Budget coverage, I had to resist the overwhelming urge to channel my inner Billy Idol and throw the television out of my hotel window. Needless to say, I was in no state to write a measured analysis.

This year’s Budget was full of broken promises and political backflips from a Labor government that, not so long ago, swore black and blue during the election campaign that these changes would not happen. Yet here we are.

Instead, we were served a Budget dressed up in buzzwords like “intergenerational equity”, a phrase that sounds noble enough until you strip it back to what it really is: another tax grab.

Older Australians generally hold a greater share of the nation’s wealth because, quite simply, that is how wealth accumulation works. Over a lifetime, people work, save, spend within their means, make sacrifices, invest, and gradually build financial security so they can support themselves later in life. But according to Labor, this is now somehow unfair and the solution appears to be taxing the pants off those who have done exactly what they were encouraged to do.

The proposed capital gains tax changes are a prime example.

And before younger Australians cheer this on, they should take a closer look. For those of us still trying to build wealth, invest for the future, and follow the same path previous generations took, these changes will make the climb even steeper. Investment gains that are already taxed will be taxed harder, leaving less reward for the risk, discipline, and patience required to build long-term wealth.

As if that were not enough, Labor’s own Budget papers acknowledge that the proposed negative gearing changes are likely to push rents higher. In other words, younger Australians trying to get ahead may be hit twice: first through higher taxes on future investment gains, and then through higher rents while they are still trying to get into the market.

But enough of my ranting, let's have a look at the main changes.

Reforming negative gearing

From 7:30pm AEST on 12 May 2026, the Government announced changes to negative gearing for residential property.

Under the proposal, negative gearing will be limited to newly built residential properties. This means investors will still be able to deduct losses from new builds against their other income.

However, from 1 July 2027, losses from established residential properties will no longer be deductible against salary, business income or other non-property income. Instead, those losses will only be able to be offset against:

·        rental income from residential property; or

·        capital gains from residential property.

Any unused losses will not disappear. They will be carried forward and may be used against residential property income or residential property capital gains in future years.

Transitional rules for established properties

The rules will depend on when the property was acquired.

Properties already held when the announcement was made, including properties under contract but not yet settled, will be exempt from the changes until they are sold.

Properties purchased after the announcement but before 30 June 2027 can still be negatively geared during that period. However, from 1 July 2027, losses on those properties will no longer be able to be offset against non-property income.

Properties purchased from 1 July 2027 will not be able to be negatively geared unless they qualify as new builds.

What counts as a new build?

New residential properties will continue to qualify for negative gearing both before and after 1 July 2027.

• A new build includes:

• a dwelling built on vacant land; or

• a development where an existing property is demolished and replaced with a greater number of dwellings.

However, a simple knock-down rebuild or substantial renovation will not qualify if it does not increase the overall housing supply.

A property will generally only count as a new build if it has not previously been sold. An exception applies where the builder was the first owner and the property was not occupied for more than 12 months.

Importantly, the negative gearing benefit will not pass on to later buyers. Once the new build has been sold to its first purchaser, future purchasers will not be able to access negative gearing on that property.

Other exclusions

The Government has also confirmed that the changes will not apply to properties held in widely held trusts, such as most managed investment trusts, or to properties held by superannuation funds, including SMSFs.

Reforming capital gains tax

From 1 July 2027, the Government has announced major changes to the way capital gains tax, or CGT, will be calculated.

Currently, individuals and some trusts can generally reduce a capital gain by 50% if they have owned the asset for more than 12 months. This is known as the 50% CGT discount.

Under the proposed changes, this discount will be replaced with cost base indexation. In simple terms, this means the original purchase price of the asset will be adjusted for inflation before the capital gain is calculated.

A new 30% minimum tax will also apply to net capital gains.

The Government has confirmed these changes will apply to all CGT assets, including property and shares. They will apply to assets held by individuals, trusts and partnerships. They will also apply to pre-CGT assets, which are assets purchased before 20 September 1985.

The indexation adjustment will be based on the Consumer Price Index, commonly known as CPI. This is similar to the system that applied between 1985 and 1999. The ATO is expected to provide guidance and online tools to help taxpayers calculate the adjustment.

Transitional rules

The rules will depend on when the asset was bought and sold.

Assets purchased and sold before 1 July 2027 will continue to be taxed under the current rules.

Assets purchased on or after 1 July 2027 will be fully taxed under the new rules.

Assets owned before 1 July 2027 but sold after that date will be split into two parts:

• gains made up to 1 July 2027 will be taxed under the current rules, including access to the 50% CGT discount where available; and

• gains made after 1 July 2027 will be taxed under the new CPI indexation rules and the 30% minimum tax.

  
  

In practice, taxpayers will need to work out the value of the asset as at 1 July 2027. That value will then be used to separate the pre-1 July 2027 gain from the post-1 July 2027 gain.

For example, if you bought shares before 1 July 2027 and sold them after that date, the gain up to 1 July 2027 may still qualify for the 50% discount. Any growth after that date would be calculated using the new indexation system.

Valuing assets at 1 July 2027

Taxpayers will need to determine the value of relevant CGT assets as at 1 July 2027 when they eventually sell the asset.

There will be two main ways to do this:

• obtain a valuation as at 1 July 2027, including using quoted market prices for listed assets such as shares; or

• use an ATO-approved formula to estimate the asset’s value at that date, based on its growth over the period it was held.

The ATO is expected to provide tools to help taxpayers estimate these values.

What about pre-CGT assets?

The transitional rules will also apply to assets purchased before 20 September 1985, which are currently treated as pre-CGT assets.

Importantly, gains that accrued before 1 July 2027 will remain exempt. However, gains made after 1 July 2027 may be subject to the new CGT rules.

Exemption for new housing

To avoid discouraging investment in new housing, the Government has confirmed special rules for investors in newly built residential properties.

Investors in eligible new builds will be able to choose between:

• using the existing 50% CGT discount; or

• using the new cost base indexation method and the 30% minimum tax.

New build residential properties include:

• dwellings constructed on vacant land; or

• projects where an existing property is demolished and replaced with a greater number of dwellings.

• 
  

However, a simple knock-down rebuild or substantial renovation will not qualify if it does not increase the overall housing supply.

A property will generally only qualify as a new build if it has not previously been sold. An exception applies where the builder was the first owner and the property was not occupied for more than 12 months.

Importantly, the special CGT treatment will not pass on to later buyers. Once the property has been sold to its first purchaser, future purchasers will not be able to access the 50% CGT discount under this exemption.

Income support recipients, including Age Pension recipients, will also be exempt from the 30% minimum tax.

Superannuation funds

Superannuation funds will not be affected by these changes.

They will continue to be eligible for the existing one-third CGT discount on assets held for more than 12 months.

Personal income tax cuts

From 1 July 2026, all individual taxpayers are set to receive a tax cut through a reduction in the lowest marginal tax rate.

The change applies to taxable income between $18,201 and $45,000.

Under the proposed changes:

• from 1 July 2026, the current 16% tax rate will reduce to 15%; and

• from 1 July 2027, the 15% rate will reduce further to 14%.

This means taxpayers could receive a tax cut of up to $268 in 2026–27, increasing to up to $536 in 2027–28, compared with the current tax settings.

In simple terms, anyone earning above the tax-free threshold should receive some benefit.

The new marginal tax rates for individuals are outlined below.

Private Health Insurance Rebate: removing the age-based uplift

From 1 April 2027, the Government proposes to remove the age-based uplift that currently applies to the Private Health Insurance Rebate.

The Private Health Insurance Rebate is a government contribution that helps reduce the cost of private health insurance premiums for eligible Australians. The rebate is income-tested, meaning the amount a person receives depends on their income.

Under the current rules, older policyholders receive a higher rebate percentage than younger policyholders at the same income level. This additional amount is known as the age-based uplift.

For example, for single people with income below $101,000 between 1 April 2026 and 30 June 2026, the rebate rates are:

Age	Rebate
Under 65	24.188%
65 to 69	28.139%
70 and over	32.158%

The Government is proposing to remove this age-based uplift from 1 April 2027. This means older policyholders would no longer receive a higher rebate percentage simply because of their age.

In practical terms, older Australians with private health insurance may see a reduction in the rebate they receive, which could increase their out-of-pocket premium costs unless insurers or policyholders make other changes.

Payday Super

From 1 July 2026, employers will generally be required to pay Super Guarantee contributions at the same time as salary and wages, rather than on a quarterly basis.

This change, known as Payday Super, is designed to make superannuation payments more transparent and timely. It should make it easier for employees to check whether their super has been paid, while also reducing the risk of employers falling behind or failing to meet their obligations.

The new rules will also include a range of supporting changes to help administer the system and encourage timely payments. These include changes to:

• the earnings base used to calculate Super Guarantee contributions and the Super Guarantee charge; and

• the way the Maximum Contributions Base is calculated and applied.

In practical terms, employees should see their super paid more regularly, while employers will need to ensure their payroll and super payment systems are ready for the new requirements.

Division 296 tax

From 1 July 2026, a new tax will apply to the superannuation earnings of individuals with large super balances.

The new Division 296 tax will apply to individuals with a Total Super Balance above $3 million. The first assessments are expected to be issued after 30 June 2027, based on the 2026–27 income year.

Under the new rules, an additional 15% tax will apply to the portion of a member’s super earnings that relates to the amount of their balance above $3 million.

For individuals with a Total Super Balance above $10 million, a further 10% tax will apply to the portion of earnings above that threshold. This means the additional tax on earnings above $10 million will be 25% in total.

The tax will be assessed to the individual, not directly to their super fund. However, affected individuals will be able to choose whether to pay the tax personally or have the amount released from their superannuation account.

Super funds will be required to calculate each affected member’s share of taxable earnings for Division 296 purposes and report this information to the ATO. The way this is calculated will depend on the type of super fund involved, as different rules will apply to different fund structures.

Importantly, the rules are intended to tax only realised capital gains that accrue from 1 July 2026 onwards. However, the method for achieving this will vary depending on the type of fund.

The legislation also includes special rules dealing with indexation of the thresholds, how the tax applies after a member’s death, and transitional relief for the first year of operation in 2026–27