Treasurer Jim Chalmers announced reforms to limit negative gearing for residential properties to new-build homes and overhaul capital gains tax rules.

These changes aim to shift investor behavior away from established homes to boost the overall housing supply. By altering the tax advantages of property investment, the government seeks to improve housing affordability for younger Australians.

Under the new plan, the existing 50% [1] capital gains tax discount will be replaced with inflation-adjusted indexation. This move is designed to ensure that investors are taxed on the actual profit made from a sale rather than receiving a flat discount. Chalmers said the goal is to "restore the taxation of real gains" [1].

To support the transition and encourage construction, the government will establish a $2 billion [2] housing fund dedicated to new builds. This fund is intended to offset the impact of the tax changes by incentivizing the creation of new residential stock.

While some reports suggested an immediate end to negative gearing, the official plan specifies that the tax break will remain available for new-build properties under strict criteria [3]. This ensures that the incentive to build new homes remains while removing the advantage for those buying existing properties.

The reforms will not take effect immediately. The government has scheduled the implementation for July 2027 [4], providing a one-year grace period for investors to adjust their portfolios before the new rules apply.

Chalmers said the overhaul is necessary to create a fairer system for those attempting to enter the property market. The administration believes that reducing the tax advantages for established property investors will lower demand for existing homes and potentially stabilize prices.

“"restore the taxation of real gains"”

The shift from a flat capital gains discount to inflation-adjusted indexation represents a fundamental change in how Australian property wealth is taxed. By coupling these restrictions with a $2 billion incentive for new construction, the government is attempting to decouple the investment market from the primary residential market to lower the barrier to entry for first-time buyers.