Negative Gearing Overhaul: What Property Investors Face Now

Labor's CGT and negative gearing reforms are before a Senate inquiry — and major banks have already updated their lending rules for investors.

Australia's most significant tax overhaul in decades is now under formal parliamentary scrutiny, and the consequences for property investors and aspiring homeowners are already flowing through the lending market. On 15 June, a Senate economics committee opened a two-day inquiry into Labor's proposed changes to capital gains tax (CGT) and negative gearing — reforms announced in the Federal Budget on 12 May 2026 that have already prompted several major lenders to update how they assess investor loan applications.

If you own an investment property, are thinking about buying one, or are a first-home buyer trying to understand whether the changes might work in your favour, here is what you need to know.

What Labor Is Proposing

Under the Budget package, the existing 50% CGT discount for individuals, trusts, and partnerships would be replaced with cost-base indexation — essentially an inflation-linked discount — combined with a 30% minimum tax on net capital gains. Negative gearing benefits would be preserved only for new builds, meaning investors who purchase established properties after 12 May 2026 can no longer use rental losses to offset their taxable income. Discretionary trusts would face a 30% minimum tax rate on taxable income.

The Budget bill has already passed the House of Representatives. Treasurer Jim Chalmers is consulting on possible carve-outs, likely for startups and some small business owners who pay CGT when selling their businesses. No widespread changes to the core package have been confirmed.

What Economists and Industry Groups Told the Senate

The first day of hearings saw qualified support from independent economists alongside strong opposition from business bodies.

ABC News reports that Michael Brennan, former Productivity Commission chair and chief executive of the e61 Institute, called the inflation discount "a principled approach" and said: "If you ask me what does an ideal capital gains tax system look like, it has inflation indexation at its heart." He disagreed with the 30% minimum tax on discounted gains and argued for income averaging — allowing taxpayers to spread capital gains tax liability over several years — to improve the package.

Independent economist Saul Eslake argued the proposal would improve equity by bringing the taxation of investment income closer to that of wage income: "Why should people earning a similar amount of income be asked to contribute different proportions of that income to the cost of providing schools, hospitals, policing and other public services simply because they earn it in different ways?" He was pointed about the current system: "The current CGT regime turned Australia into even more of a nation of leveraged property speculators than we already were."

Robert Varela from the ANU's Tax and Transfer Policy Institute described Australia's current arrangements as "a mess" and said the reforms were "a step in the right direction," though they "remove some but not all of the distortions across investment types."

On the other side, the Business Council and the Council of Small Business Organisations Australia signed a joint statement urging parliament to reject the bill. Master Builders Australia chief executive Denita Wawn warned the changes would "stifle business and are likely to cause a private investment strike." The National Housing Supply and Affordability Council acknowledged the reforms could result in approximately 35,000 fewer new homes being built — though its chair supported the overall reform as a worthwhile equity trade-off.

One significant risk flagged in testimony: superannuation funds retain their existing one-third CGT discount, exempt from the new regime. Melbourne Law School associate professor Kathryn James warned this creates a growing incentive for property investors to use self-managed superannuation funds as a tax shelter, cautioning: "There will need to be a discussion had around the use of superannuation as a tax-minimisation vehicle."

Per Capita executive director Wesa Chau told the committee the combined changes "will make it easier for first-time buyers to enter the property market and will have little to no impact on rents." Property and construction industry groups dispute that view strongly.

How Lenders Have Already Changed the Rules

The inquiry is ongoing, but the lending market has not waited for the outcome. Since the 12 May budget, CBA, ANZ, NAB, Macquarie, Great Southern Bank, Suncorp, and ING have all updated their investor serviceability policies, removing negative gearing add-backs for established properties purchased after 12 May 2026. In practical terms, those lenders will no longer count negative gearing benefits when calculating how much an investor can borrow on an established property purchase.

Westpac has forecast that new investor activity could fall by as much as 34% in the near term. Industry modelling warns that a full removal of negative gearing — broader than what Labor has proposed — could cut 45,500 dwelling starts and $3.1 billion from GDP over five years.

The early market signals are already appearing. Active sales listings nationally have climbed to approximately 607,000, with Melbourne up 5.3% and Sydney up 2.2% year-on-year. Meanwhile, Sydney's rental listings have fallen 9.8% over the same period — a direct reflection of the tension that Ray White Group chief economist Nerida Conisbee summarised plainly: "If more homes go to owner-occupiers, fewer remain available to rent."

If you are an investor, now is the time to [compare investment home loan options](/home-loans/investor) and understand how the updated serviceability rules affect your next purchase or refinance. If you are a first-home buyer watching to see whether the market shifts in your favour, explore your options on our [first-home buyer hub](/home-loans/first-home-buyer).

The second and final day of Senate hearings takes place Tuesday, with the Tech Council, the ACTU, and Treasury expected to appear. Watch for any government announcements on small business carve-outs that could affect the final shape of the legislation.

ABC News' economics reporter Tom Crowley covered the first day of Senate hearings. Read the [full report from ABC News](https://www.abc.net.au/news/2026-06-15/economists-defend-capital-gains-changes/106800112).