Federal Budget 2026: What the Negative Gearing and CGT Changes Mean for Victorian Landlords
The 12 May 2026 Budget changed negative gearing and CGT for Victorian landlords. Plain-English guide to grandfathering, 2027 rules, and what to do now.
On 12 May 2026 at 7:30pm AEST, the Treasurer drew a line through every investment property in Australia. If you're a Victorian landlord, the changes affect you — but probably not in the way you've been told.
This is the most significant reform to property taxation in 26 years. There's a lot of noise about it. This post explains what actually changed, who's affected, and what it means for landlords with one to three Victorian rental properties.
The short version
Two major changes take effect from 1 July 2027: negative gearing on established residential property is being limited, and the 50% CGT discount is being replaced with cost-base indexation plus a 30% minimum tax floor.
Anyone who owned an investment property — or was under contract for one — before 7:30pm AEST on 12 May 2026 is grandfathered. Existing arrangements continue, but only while the property is held.
For most existing landlords, the rational response is to hold and improve rather than sell. For buyers after 12 May 2026, established property economics have materially changed. None of this affects Victoria's 2027 minimum rental standards, the $11,982 per-breach CAV fine, or the 13 October 2026 record-keeping deadline.
What actually changes
Change 1: Negative gearing limited to new builds
From 1 July 2027, investors who buy an established residential property after 7:30pm AEST on 12 May 2026 can no longer offset rental losses against salary or other non-rental income. Rental losses can only be applied against income from other residential property. Excess losses carry forward to future years.
This applies to established properties only. New builds remain fully exempt — investors who buy new builds will continue to deduct rental losses against any other income, exactly as the current rules allow. Build-to-rent developments, widely held trusts, superannuation funds, and private investors supporting government housing programs are also exempt.
Change 2: The 50% CGT discount is being replaced
From 1 July 2027, the 50% CGT discount that has applied to assets held longer than 12 months since 1999 is being replaced with cost-base indexation plus a 30% minimum tax floor on net capital gains.
How indexation works. Instead of halving the gain, the cost base of the asset is adjusted upward for inflation. Only the real gain above inflation is taxable. This restores the pre-1999 model that operated between 1985 and 1999.
The 30% minimum tax floor is the critical nuance most coverage skips. It is not a flat 30% rate. It is a floor. If your marginal rate on the gain would be higher than 30%, you pay your marginal rate as normal. If your marginal rate would be lower — for example because you've retired, or your taxable income happens to be low in the year of sale — the minimum tax kicks in and the gain is taxed at no less than 30%.
The intent, as the Budget papers state, is to deter taxpayers from deferring capital gains into low-income years.
The CGT changes apply to all CGT assets held more than 12 months, not just property. The main residence exemption is unchanged. Income support recipients (Age Pension, JobSeeker) are exempt from the minimum tax. Superannuation funds keep the existing one-third CGT discount. Pre-CGT assets (acquired before 20 September 1985) become subject to CGT on gains accruing from 1 July 2027 onwards.
Who's grandfathered, and what that actually means
If you owned an investment property — or had exchanged contracts on one even if not yet settled — before 7:30pm AEST on 12 May 2026, your existing arrangements continue. Negative gearing against any source of income continues. The 50% CGT discount applies to growth accruing up to 1 July 2027. After that date, indexation and the minimum tax apply to subsequent growth under a transitional method that splits the gain between the two regimes.
Two things to understand about grandfathering.
It sits with the property, not with you. When you sell, the grandfathering ends. The buyer faces the new regime in full. There is no way to transfer the protection to a different property you might buy later.
It doesn't shield you from anything except these specific changes. Victoria's 2027 minimum rental standards still apply. The existing land tax regime still applies. The Emergency Services and Volunteers Fund Levy still increases for non-PPR residential property from 1 July 2026. The state-level reforms — 90-day notice periods, the prescribed rental application form from 31 March 2026, the ban on no-fault evictions, the pre-advertising compliance requirement — all still apply.
What this means for existing Victorian landlords
If you already own one or more investment properties in Victoria, the practical effect of the Budget is that your tax position is now structurally better than the tax position available to anyone buying established stock from 13 May 2026 onwards.
The implication is concrete: selling a grandfathered property to buy another established one is now structurally irrational from a tax perspective. You would walk away from negative gearing access against salary, and from a better CGT regime on growth up to 1 July 2027. You'd replace both with a regime that limits losses to other residential property income.
There are still legitimate reasons to sell — estate planning, lifestyle changes, capital release, sale to an owner-occupier — but rotating a portfolio of established investment properties for tax reasons no longer makes the same sense it did a month ago.
For most landlords with one to three properties, the practical implications are:
Your hold horizon just lengthened. You're more likely to keep this property longer than you originally planned. That changes how capital works on the property should be evaluated. Upgrades you might have deferred — assuming you'd sell before having to deal with them — now need to be priced into your actual hold period.
Compliance upgrades remain deductible. Capital works deductions on improvements continue. Depreciation on plant and equipment installed by the owner continues. The 2027 minimum standards — cooling, R5.0 insulation, electric hot water, draught-proofing — attract VEU rebates that reduce net cost by 30 to 50 per cent in many cases.
Yield matters more than capital, now. With CGT growth taxed under the new rules from 1 July 2027, and with grandfathering tied to continued holding, the income side of the equation carries more weight. Properties that aren't keeping pace on rent because they're below current standards become a clearer operational drag.
What this means for buyers after 12 May 2026
If you're buying an established residential investment property from 13 May 2026 onwards, your economics are structurally different from the investor who bought next door in April.
Rental losses on the property cannot be applied against salary or other non-property income. They sit as a carry-forward until you have residential property income (or capital gains from residential property) to absorb them.
For high-income investors who were relying on negative gearing to make the early-year cash flow math work, the after-tax holding cost of an established property is materially higher than it was.
Three practical implications follow.
Pre-purchase due diligence matters more. Every dollar of unanticipated compliance cost on an established property is now real cash out of after-tax income. There is no tax buffer absorbing it. Knowing what the property will actually cost to bring up to the 2027 standards is no longer optional analysis.
New builds become more attractive on tax grounds alone. New build investors retain full negative gearing access against any income, and the choice between the 50% CGT discount and the new indexation method. The policy is explicitly steering investor capital into new supply.
Established property prices may soften. With investor demand partially suppressed, established investment-grade prices may moderate over time. Whether that moderation offsets the worse tax treatment depends on the specific property, location, and the buyer's marginal rate.
What hasn't changed: Victoria's compliance picture
The Budget changed nothing about Victoria's rental compliance regime. Every existing obligation still applies.
The 15 current minimum rental standards remain enforceable. Since 25 November 2025, every property must meet every standard before it can be advertised for rent. Consumer Affairs Victoria is actively inspecting.
From March 2027, the new energy efficiency standards roll in. End-of-life gas heating and hot water must be replaced with electric. New leases require cooling in main living areas, R5.0 ceiling insulation, and 4-star rated showerheads. From July 2027, new leases require draught-proofing on external doors, windows, and wall vents.
From July 2030, efficient cooling becomes required in every rental property — not just new leases.
From 13 October 2026, landlords must keep records proving compliance when a property is advertised.
The CAV per-breach fine sits at $11,982. Multiple breaches stack.
The 2027 standards now coincide with the period the Federal tax changes begin to bite hardest. Owners who plan upgrades through 2026 pay standard pricing and access VEU rebates. Owners who leave it to 2027 face deadline pressure, tight trade availability, and emergency pricing.
What I'd be doing as a Victorian landlord right now
Three things, in order.
First, confirm your grandfathering status. If you owned an investment property — or had exchanged contracts on it — before 7:30pm AEST on 12 May 2026, you're grandfathered. Have a brief conversation with your accountant to confirm and to make sure your records support the position.
Second, plan your 2027 compliance upgrades on a 12 to 18 month timeline. The standards are not new. The deadlines are not moving. Properties assessed in 2026 plan upgrades at normal pricing and access VEU rebates that materially reduce net cost. Properties left to 2027 will pay more under tighter conditions.
Third, reconsider any thoughts of rotating the portfolio. If your plan was to sell one investment property to fund another, the new regime makes that rotation structurally worse than it was a month ago. Sales to owner-occupiers are unaffected. Investor-to-investor rotation of established stock is now harder to justify on tax grounds alone.
My take
The stated Federal Government objective is to direct investment toward new housing supply and away from established stock. Whether the policy achieves that is a separate question. The immediate effect on existing landlords is to lock them more tightly into their current portfolios. The Victorian state minimum standards then provide a clear push to bring those properties up to a long-term operational standard.
For landlords with one to three Victorian properties, the message is consistent. Stay. Plan the upgrades. Use the rebates. Treat the property as the long-term yield asset it now structurally is.
Frequently asked questions
Does the negative gearing change apply to properties I already own?
No. If you owned the property — or were under contract for it — before 7:30pm AEST on 12 May 2026, you're grandfathered. Existing arrangements continue while you hold the property.
What happens if I sell a grandfathered property and buy another investment property?
You lose grandfathering on the property you sell. The new property — assuming it's established residential rather than a new build — is subject to the new regime. Rental losses can only be applied against residential property income, not salary.
When does the 30% minimum tax on capital gains apply?
To gains accruing from 1 July 2027 onwards. Growth up to that date remains under existing rules, including the 50% discount for grandfathered properties.
Are new builds completely exempt?
New builds retain full negative gearing access against any income and a choice between the 50% CGT discount and the new indexation method. Government policy is explicitly directing investment toward new supply.
Are superannuation funds affected?
No. Super funds keep the existing one-third CGT discount, unchanged.
Does any of this affect Victoria's 2027 minimum rental standards?
No. Victoria's compliance regime is independent of the Federal tax changes. The 2027 standards, the 13 October 2026 record-keeping deadline, and the $11,982 CAV per-breach fine all still apply.
Is the 30% really a flat tax on all capital gains?
No — it's a floor. If your marginal rate on the gain would be higher than 30%, you pay your marginal rate. If your marginal rate would be lower, the minimum tax pulls the effective rate up to 30%. Income support recipients are exempt.
Want clarity on where your property actually stands?
Safehaus is an independent Victorian rental compliance assessor. We don't sell equipment, install anything, or quote for works. One inspection, one photo-documented report — current minimum standards, 2027 readiness, cost estimates, and VEU rebate eligibility mapped to your specific property.
Book a Rental Readiness Report →
This article is general information and does not constitute tax, legal, or financial advice. The Federal Budget measures described are proposed and remain subject to legislation. For advice specific to your circumstances, consult a registered tax agent or financial adviser.
Keith is the founder of Safehaus, an independent rental compliance assessment service serving Melbourne metro. His background includes managing a residential investment portfolio and prior experience as a Chartered Accountant.