Tax Reform
Capital Gains Tax: The 50% Discount Is Gone
From 1 July 2027, the long-standing 50% CGT discount on investment properties held for more than 12 months will be scrapped for established homes. It's being replaced with inflation-adjusted indexation — you only pay tax on the "real" gain above the Consumer Price Index.
A new 30% minimum tax floor has also been introduced, preventing high-wealth investors from using low-income years to minimise what they pay.
New residential builds get to choose between the 50% discount or indexation — whichever is more favourable. Established homes get indexation only.
| Feature | Established Home | New Build |
|---|---|---|
| CGT discount available? | No — indexation only Changed | Yes — choice of 50% discount or indexation Retained |
| 30% minimum tax floor | Yes | Yes (if indexation chosen) |
| Commencement | 1 July 2027 | 1 July 2027 |
| Main residence | Fully exempt — no change | Fully exempt — no change |
| Existing properties | Grandfathered to June 2027 | Grandfathered to June 2027 |
Indexation becomes less favourable than the old 50% discount when annual house price growth exceeds roughly 4.8% per year over a 10-year holding period — which Melbourne's Inner North has historically beaten. If you're an investor, get tax advice specific to your property and holding period.
Investment Reform
Negative Gearing: Only for New Builds Now
For any investment property purchased after 7:30pm AEST on 12 May 2026, you can no longer immediately deduct rental losses against your salary or wages. Those losses must be "quarantined" and carried forward until you have rental income or sell.
New builds are fully exempt from this change — they retain complete negative gearing deductions by design, to encourage supply.
Economists estimate the quarantine rule is the equivalent of a 0.9% to 1.55% increase in your effective mortgage rate. For a leveraged investor holding an established property, the annual cash-flow hit is immediate and real.
What this means for established investors already in the market
Properties purchased before 12 May 2026 are grandfathered — you keep the old rules. This creates a powerful reason to hold, not sell. The moment you sell a grandfathered property and buy another established one, you step into the new regime permanently.
For Home Buyers
Government Support Schemes: Expanded and Ongoing
If you're a first-home buyer struggling with your deposit, there is meaningful help on the table. Three schemes are running side-by-side:
Help to Buy
Government co-purchases up to 40% of a new build or 30% of an established home. Income caps apply: under $100k individual, $160k couple. You repay their share when you sell — at market value.
Home Guarantee
No Lenders Mortgage Insurance required. Regional coverage expanded. 81,000 places have already been utilised. Best for buyers with income but limited savings.
Family Home Guarantee
For single parents. Integrates with the 26-week Paid Parental Leave entitlement. A genuinely useful pathway for single-income households who are often squeezed out.
Around $685 million in scheme funds went unspent last year. High interest rates mean many people qualify for the deposit help but still can't borrow enough to buy in the suburbs they want. These schemes work best in affordable price brackets. Don't assume approval means you can borrow what you need — get pre-approval first.
Fewer investor competitors — but also fewer listings
The removal of immediate negative gearing is good news for owner-occupiers competing at auction. But existing investors are grandfathered and have every reason to hold rather than sell. Expect less competition at auction in some pockets, but also fewer quality listings coming to market. The two effects partially cancel each other out.
For Home Sellers
Sellers: Strategic Holding Has Never Mattered More
Selling your main home? You're protected.
The CGT main residence exemption is fully intact. If the property you're selling is your primary place of residence, none of the new CGT changes affect you. This is the most important thing most homeowners need to know.
Selling an investment property? Think very carefully.
Once you sell a grandfathered investment property — one acquired before 12 May 2026 — you lose the old rules forever. Any replacement established property immediately falls under the new, less favourable tax regime. Many investors will rationally choose to hold, which will reduce the supply of investment-grade stock on the market.
Sellers now pay for building and pest inspections upfront under new Victorian regulations. Factor this cost into your selling budget. On the upside, the off-the-plan stamp duty concession has been extended until April 2027 — a genuine tailwind if you're selling a new apartment or townhouse.
The "lock-in" effect on Melbourne's market
Expect turnover in the established market to slow. Properties with strong owner-occupier appeal — near schools, tram lines, parks, and employment hubs — will hold their value better than generic investor-grade apartments. Sellers in Melbourne's Inner North are relatively well-insulated, because this is precisely the demographic that owner-occupiers compete hardest for.
The rent warning
If investors pull back from the established rental market, the supply of rental stock shrinks. Victoria already saw this play out: after earlier landlord-unfriendly policy changes, over 20,000 rental properties left the market in a single year (2023–24). Melbourne house prices rose just 11% over five years — but rents jumped 35%. Treasury's own modelling flags rents rising. This is the policy's uncomfortable trade-off.
Infrastructure Investment
Where Property Values Should Rise: The Infrastructure Winners
Significant federal capital is flowing into projects that will directly lift property values in specific corridors. Here's the shortlist that matters most for Melbourne and Australian buyers:
Economic Context
Interest Rates: Don't Expect Relief Just Yet
Treasury forecasts inflation peaking at 5% this financial year before falling to 2.5% in 2026–27. The budget is assessed as neutral to mildly expansionary — meaning it's unlikely to give the RBA reason to cut rates soon. Some analysts are forecasting another cash rate increase in September 2026 if inflation stays sticky.
Tax relief that will arrive
While mortgage relief is on hold, the government is delivering tax cuts that will cushion household cashflow:
| Measure | When | Benefit |
|---|---|---|
| Income tax rate cut (16% → 15%) | 1 July 2026 | For income $18,201–$45,000 |
| Income tax rate cut (15% → 14%) | 1 July 2027 | Same bracket, further saving |
| $1,000 instant work deduction | 2026–27 year | No receipts needed, 6.2M workers |
| Working Australians Tax Offset ($250) | From 2027–28 | 13 million+ workers eligible |
For an average worker earning around $81,000, the combined benefit is roughly $1,978 this year, rising to $2,496 from 2027–28. It won't transform your borrowing capacity, but it's genuine cost-of-living relief while energy and fuel prices remain elevated.
Retirement Planning
Older Sellers: The Downsizer Strategy Is Still Powerful
If you're 55 or over and selling your main home, the downsizer contribution lets you put up to $300,000 (or $600,000 per couple) from the sale proceeds directly into superannuation — outside the normal contribution caps.
Crucially, the new CGT and negative gearing rules do not apply inside superannuation. This makes super one of the most tax-efficient destinations for property sale proceeds under the new regime.
Contribution caps rising from 1 July 2026
- Concessional cap: $30,000 → $32,500
- Non-concessional cap: $120,000 → $130,000
- Bring-forward limit: $360,000 → $390,000
- Transfer Balance Cap: $2.0M → $2.1M
If you're planning to downsize in the next few years, the combination of the main residence CGT exemption and the downsizer contribution remains an exceptionally tax-effective exit. Review this strategy with your financial adviser before you list — timing your sale relative to contribution deadlines matters.
Your Next Move
What You Should Actually Do
If you're buying
- Explore Help to Buy and Home Guarantee before ruling them out — the deposit bar is lower than many realise
- Target established homes where investor competition has softened since 12 May
- Be patient with listings — expect fewer quality properties as investors hold
- Consider new builds seriously: they retain superior CGT treatment and full negative gearing
- Get pre-approval sorted before scheme applications — income qualification alone isn't enough
If you're selling an investment
- Do not sell a grandfathered property without a compelling reason — your old-rules status is genuinely valuable
- If you do sell, get detailed tax advice before reinvesting in another established property
- Properties with owner-occupier appeal will hold value better than investor-grade apartments
- Review the downsizer contribution if you're 55+ and selling your main home
The suburbs we know best — Brunswick, Northcote, Thornbury, Preston, Coburg, Fitzroy — have strong owner-occupier demand that won't disappear. Supply scarcity may actually support prices in these areas even as investors pull back. The Suburban Rail Loop precincts (Arden, Parkville) are the medium-term opportunity worth watching closely for buyers with a 5–10 year horizon.
This guide is for general informational purposes and does not constitute financial or legal advice.
