Negative gearing will be restricted to new properties as the Federal Government seeks to address intergenerational equity challenges in the housing market.

And the 50 percent capital gains tax discount will be replaced with a discount based on inflation and a minimum tax on capital gains.

Last night, Treasurer Jim Chalmers delivered the 2026/27 Commonwealth Budget.

In terms of building and construction, the budget contained several measures.

1. Property tax.

A key focus of the budget involves reforms to taxation arrangements in an effort to address intergenerational equity in the housing market.

From 1 July 2027, the existing 50 per cent Capital Gains Tax (CGT) discount will be replaced with a discount based on inflation and a minimum 30 per cent tax on gains.

As a result of this reform, property investors will no longer be able to access the current 50 percent capital gains tax discount.

However, they will be able to adjust the value of the gain on which they are assessed for tax purposes by the amount of inflation which occurs between the time they purchase their property and the time of its sale. This means that investors will only pay tax on their real capital gain as was the case with previous announcements which existed prior to the introduction of the CGT discount in July 2000.

The CGT reforms will only apply to gains arising after 1 July 2027. Investors in new builds will be able to choose the 50 per cent CGT discount or the new arrangements.

Also from 1 July 2027 onward, negative gearing will be restricted to new builds.

Existing arrangements will remain unchanged for all properties held before Budget night, and investors who buy new builds will still be able to deduct losses from other income.

Investors who buy established housing after Budget night will still be able to deduct losses against residential property income. They will be able to carry forward unused losses to future years but won’t be able to deduct them against other income like wages.

This reform is aimed at directing tax incentives toward new housing supply only.

Meanwhile, an existing ban on foreign buyers purchasing established homes will be extended until mid 2029.

According to Treasury estimates, the tax changes will support an additional 75,000 Australians to own their own home over the next decade.

However, the changes also represent a broken election promise.

In the leadup to the 2025 election, the government had promised not to interfere with either negative gearing  or the capital gains tax discount.

2. $2 billion for housing related infrastructure

In addition, the government will establish a new $2 billion Local Infrastructure Fund that will help local governments and state utilities to build infrastructure to support new housing.

This will include connecting essential services such as power, water, sewerage and local roads.

According to the government, this funding will support up to 65,000 homes over the decade.

3, Productivity reforms.

Finally, the Government has made several announcements regarding productivity.

Among those which affect building and construction, these include:

• Funding to remove the paywall around Australian Standards and to make those standards which are referenced the National Construction Code and legislation available free of charge.
• Funding to support skilled migration through faster skills assessments for migrant trades workers, a new program of skills assessment for onshore visa holders and reforms to the permanent migration points test.
• Making the $20,000 instant asset write off permanent, and
• Further financial support for the administration of the CFMEU.

In his budget speech, Chalmers said that the budget would help more Australians to get into housing sooner and to build a more resilient and productive economy.

“Tonight, we choose the hard road of reform, not the path of least resistance,” he said.

“By responding to the pressures Australians confront today and fulfilling our obligations and responsibilities to the generations to come.”

Building groups slam tax changes

However, industry lobby groups have slammed the tax changes.

They point out that whilst Treasury does estimate that the reforms will support an additional 75,000 owner occupiers over the next decade, the changes are in fact estimated to prevent an additional 35,000 new homes from being constructed and added to supply.

In a statement, Master Builders Australia chief executive office Denita Wawn welcomed the productivity changes but slammed the changes in taxation.

“The Government’s broken promises on CGT and Negative Gearing dilutes many of the positive features of tonight’s federal budget,” Wawn said.

“The opportunity that exists to turbocharge housing supply has been lost”.

Housing Industry Association chief economist Tim Reardon agrees.

He said that that government is attempting to solve a housing shortage by discouraging the investment which is needed to build more homes.

“Australia’s housing challenge is simple. Consider it as if we are trying to fit 11 million households into around 10 million homes,” said Mr Reardon.

“The solution to a housing shortage is to build more homes. This Budget does the opposite.”

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