CGT and negative gearing on the table — what May Budget changes could mean for borrowers

The federal Budget on 12 May is the first realistic window for changes to capital gains tax and negative gearing. Here's the broker view on what to do now — and what to ignore.

The federal Budget on Tuesday 12 May is the first realistic window for changes to the capital gains tax (CGT) discount and negative gearing rules. Speculation has been building for months, with Domain chief economist Dr Nicola Powell noting the government has dropped "very strong hints" about modifications. Industry bodies including the Finance Brokers Association of Australia (FBAA), the Property Investment Professionals of Australia (PIPA) and the Housing Industry Association (HIA) have all warned that broad changes risk reducing rental supply at a time when the market is already tight. As of today nothing is locked, and the policy detail will determine whether this is a marginal change or a structural one.

What's actually being floated

Two reforms are most often discussed:

- **CGT discount**: currently 50% on assets held more than 12 months by individuals. Possible changes include a reduction to 25-40%, or removal entirely for residential investment property. - **Negative gearing**: currently allows property investors to offset rental losses against other taxable income. Possible changes include limiting it to one property, restricting it to new builds only, or removing it for existing dwellings.

Powell has publicly suggested a "targeted approach" — limiting changes to new developments and grandfathering existing investors — would minimise the disruption while still hitting policy goals. Whether that's what lands in the Budget papers, nobody knows yet.

Why borrowers are watching

Powell has warned: "If we do see sweeping change, it will impact investment activity, will deter investors and that will make it more expensive to rent." That captures the industry view. The counter-argument from policy advocates is that the current settings funnel capital into existing housing stock rather than new supply, and that 65% of outright-owned homes already have two or more spare bedrooms — pointing to a structural under-utilisation problem that tax changes alone won't fix.

For investors with current loans, the practical question is whether a change would be grandfathered. Past Australian tax reforms in this space (most notably the 1985 CGT introduction and the 1999 50% discount) both used grandfathering or transitional rules. A reform without grandfathering would be unusual.

What you should do now

If you're an existing investor: don't sell pre-emptively based on speculation. Some investors are already exiting positions — that's a market signal, not advice. The actual policy detail matters and could swing the cost-benefit either way.

If you're considering an investment purchase before the Budget: the build-vs-buy calculus may shift. New-build investments are most likely to retain favourable treatment under any reform scenario being floated. Talk to your accountant and a broker before signing anything between now and 12 May.

If you're an owner-occupier or first-home buyer: this round of speculation doesn't directly affect you. The First Home Guarantee Scheme, stamp duty concessions, and FHB grants are separate frameworks. Use our [borrowing power calculator](/calculators/borrowing-power) to model your numbers without trying to predict tax policy.

This article references coverage from MPA Australia and Domain, plus public-record commentary from FBAA, PIPA, and HIA. We'll publish a follow-up with specific policy detail within 24 hours of the Treasurer's Budget speech on 12 May.