The 2026 Federal Budget delivered the most significant overhaul of Australia's capital gains tax system since the 50 per cent discount was introduced in 1999. For property investors, the reforms compress decision-making into a defined window and reshape which strategies make sense going forward.
This article covers what is changing, who is affected, and where private lending becomes a practical tool for investors managing the transition. The tax content is summarised for context. Specific decisions should always be made with a qualified accountant or tax adviser.
A note before we go further. The measures discussed below are announcements. They are not yet law. Draft legislation has not been released and the rules may change before they pass Parliament. Nothing here is tax, financial, legal, or credit advice.
What changed on Budget night
Treasurer Jim Chalmers handed down his fifth Federal Budget on 12 May 2026. The CGT reforms apply from 1 July 2027 and replace the existing 50 per cent CGT discount with two new mechanisms working together.
Cost base indexation. The cost base of an asset held longer than 12 months is multiplied by an indexation factor (CPI at sale divided by CPI at purchase). The capital gain becomes the sale proceeds less the indexed cost base. Only the real (above-inflation) gain is taxed. This is broadly a return to the pre-1999 system that applied between 1985 and 1999.
A 30 per cent minimum tax rate. Even if your marginal rate is lower than 30 per cent in the year of sale, you will pay at least 30 per cent on the net capital gain. Investors with a marginal rate above 30 per cent still pay at their marginal rate, so the change effectively removes the ability to time disposals into low-income years.
The new regime applies to individuals, trusts, and partnerships. Companies are not included, since they do not currently access the 50 per cent discount. Indexation cannot generate a capital loss, only reduce a gain.
Transitional rules: what protects existing assets
The CGT reforms only apply to gains accruing on or after 1 July 2027. Assets you already own are not retrospectively swept up.
For assets purchased before 1 July 2027 but sold after that date, the 50 per cent discount continues to apply to the portion of the gain that accrued before 1 July 2027. The new indexation and 30 per cent minimum tax rules apply to the gain accrued after that date. The asset's value on 1 July 2027 is established either through a market valuation at that date or by using a formula the ATO will provide.
For pre-CGT assets (acquired before 20 September 1985), the blanket exemption that has existed for over four decades is ending. Gains accrued before 1 July 2027 remain exempt. Gains accrued from 1 July 2027 onward become taxable under the new regime, with the cost base reset to the asset's market value at that date.
What is not changing
- •The main residence exemption stays. The family home remains CGT-free.
- •Superannuation funds, including SMSFs, keep the one-third CGT discount on assets held longer than 12 months.
- •New residential builds can choose between the existing 50 per cent discount and the new indexation and minimum tax regime on disposal, whichever produces a better outcome.
- •Small business CGT concessions remain in place.
- •The 60 per cent CGT discount for qualifying affordable housing remains.
- •Income support recipients are exempt from the 30 per cent minimum rate.
The negative gearing change you cannot separate from CGT
The Government announced the CGT reforms alongside a tightening of negative gearing on residential investment property. From 1 July 2027, rental losses from established residential property purchased after 7:30 pm AEST on 12 May 2026 can only be deducted against other residential property income or capital gains, not against wages, salary, or other unrelated income. Excess losses carry forward indefinitely.
New builds are exempt. Commercial property, shares, and ETFs are not affected by the negative gearing change. Existing residential investments held at the cut-off, including contracts entered into but not yet settled, are grandfathered.
The two reforms are designed to work together. They reduce the tax appeal of buying established residential property as an investment, and direct investor capital toward new construction.
What this means for property investors
For investors holding existing residential property, the immediate position is comparatively comfortable. Gains accrued up to 1 July 2027 still attract the 50 per cent discount, and grandfathering protects existing negative gearing arrangements until you sell.
The pressure points sit elsewhere:
- •Long-held property and pre-CGT assets face a real decision about whether to crystallise gains before 1 July 2027.
- •Investors planning to buy established residential property lose access to negative gearing against unrelated income on anything bought after 12 May 2026.
- •New builds become the only residential pathway that preserves the full set of tax concessions.
- •Commercial property becomes relatively more attractive because it is untouched by the negative gearing changes.
Each of these creates funding scenarios where mainstream bank finance is often too slow, too restrictive, or unable to accommodate the structure of the transaction. That is where private lending comes in.
Where private lending fits into the new CGT landscape
Private lending is not a replacement for traditional mortgage finance. It is a strategic tool for moments where flexibility, speed, and structural creativity matter more than headline interest rate.
The reforms create five clear scenarios where that matters.
1. Funding a sale before 1 July 2027
For investors choosing to crystallise gains under the existing 50 per cent discount, selling well takes time. Preparing a property for market, completing renovations, settling a related purchase, or covering tax-planning costs all require liquidity that is often locked inside other properties.
Bridging finance allows an investor to settle a new purchase before the existing property has sold, or to complete value-add works that materially improve sale price, without rushing the disposal.
Caveat loans release short-term equity from an existing property to fund pre-sale costs, advisory fees, or interim cash flow needs while the transaction plays out.
Second mortgages enable equity release without disturbing a favourable first mortgage rate.
2. Development finance for new builds
The new build carve-out is the single most important policy lever the Government has preserved for residential investors. A genuine new build retains both negative gearing access and the option to choose the more favourable CGT method on disposal.
Private development finance funds land acquisition, construction, and short-term holding costs for projects that do not fit mainstream bank criteria, including smaller developments, dual occupancy, and infill construction.
Bridging finance during construction covers gaps between progress draws, settlement of pre-sold stock, and refinancing into longer-term debt once construction is complete.
3. Pivoting toward commercial property
Commercial property remains entirely outside the negative gearing changes. Investors with the appetite and capacity may want to redeploy capital into commercial assets.
Commercial property loans from private lenders often fit borrowers who fall outside major bank policy: trusts with complex structures, SMSFs, lease profiles that banks discount heavily, or borrowers whose income is not PAYG.
Bridging finance funds the acquisition of a commercial asset before disposal of a residential investment, allowing an orderly transition between asset classes.
4. Managing CGT liabilities and ATO tax debt
Larger CGT liabilities during the transition period, particularly on long-held or pre-CGT assets being crystallised before 1 July 2027, can create real cash flow strain. The ATO is not a patient creditor, and tax debt rapidly accumulates general interest charges if left unpaid.
ATO tax debt loans secured against property allow investors to settle a tax liability on time, replacing high-cost ATO interest with property-secured private debt at a known rate and term.
Second mortgages raise the funds required to meet a CGT payment without forcing the sale of the underlying asset that generated the gain.
Caveat loans provide short-term liquidity to cover tax instalments while longer-term refinancing is arranged.
5. Funding feasibility, advisory, and structuring costs
Modelling the optimal disposal strategy, obtaining valuations as at 1 July 2027, restructuring ownership, and engaging professional advisers all create costs that need to be funded somewhere. Short-term, property-secured private lending often makes more sense than disturbing long-term facilities or drawing down redraw and offset positions tied to investment property tax planning.
Key dates at a glance
| Date | What happens |
|---|---|
| 12 May 2026, 7:30 pm AEST | Cut-off for grandfathered negative gearing on established residential property. |
| 1 July 2027 | New CGT regime begins. 50 per cent discount replaced by cost base indexation plus 30 per cent minimum tax. Negative gearing on established residential property bought after 12 May 2026 is restricted. Pre-CGT asset blanket exemption ends for post-1 July 2027 gains. |
The takeaway
The 2026 CGT reforms reward investors who plan deliberately around timing, structure, and asset class. The grandfathering window closes over the next 12 to 24 months, and the strategies that make most sense in the new environment — timely sales, new construction, commercial pivots, and managing tax liability cash flow — often require funding flexibility that mainstream banks are not designed to provide.
If you are working through the implications of the CGT changes for a specific deal or portfolio, our team is available to discuss bridging finance, caveat loans, second mortgages, commercial property funding, development finance, and ATO tax debt lending. We can usually move quickly, including on transactions that need to settle before the 1 July 2027 changes take effect.
For the related changes to discretionary trusts announced in the same Budget, see our companion article on the new trust tax rules.
Disclaimer: This article is general information only and does not constitute tax, financial, legal, or credit advice. It has been prepared based on Federal Budget 2026 announcements as at 14 May 2026. The measures described are proposed and have not been enacted into law. The rules may change before legislation is passed. Readers should obtain independent advice from a qualified tax adviser, accountant, financial planner, and credit professional before making any decision based on this material.
