The 2026-27 Federal Budget, handed down on 12 May 2026, confirmed two of the most significant tax reforms in a generation: restrictions to negative gearing on established residential properties and the replacement of the 50% CGT discount with CPI cost-base indexation. For Australian business owners, these changes are not just a property story - they have direct and material consequences for business cash flow, capital planning and growth.
Disclaimer: This article is general information only and does not constitute financial, tax or legal advice. The information below is based on the 2026-27 Federal Budget announcements of 12 May 2026. Final legislation may differ. Always consult your accountant, tax adviser or financial planner before making decisions based on proposed or announced policy changes.
The Government confirmed that from 1 July 2027, negative gearing will be restricted for established residential investment properties purchased after 7:30pm AEST on 12 May 2026 (budget night).
Under the new rules, rental losses on these properties can only be offset against rental income or residential property capital gains - not against salary, business income or other sources of income. This is a fundamental shift from the current system where rental losses can reduce your total taxable income.
| Detail | What Changes |
|---|---|
| Effective date | 1 July 2027 for properties purchased after 7:30pm AEST 12 May 2026 |
| What is restricted | Rental losses on established residential investment properties |
| Loss offset rule | Losses can ONLY offset rental income or residential property capital gains |
| New builds | EXEMPT - negative gearing continues as normal for new builds |
| Existing owners | Grandfathered - current holdings not affected |
| Commercial property | NOT affected by negative gearing changes |
| Super funds | Exempt from restrictions |
| Widely held trusts | Exempt from restrictions |
| Build-to-rent | Exempt from restrictions |
Key point: If you already own investment properties, your negative gearing arrangements are grandfathered. These changes only apply to established residential properties purchased after budget night.
Alongside the negative gearing reforms, the Government confirmed sweeping changes to the capital gains tax framework. For a detailed breakdown of how these CGT changes specifically impact business sales, restructuring and succession, see our companion article: Proposed CGT Changes 2026 - How They Impact Australian Business Owners.
| CGT Change | Detail | Effective |
|---|---|---|
| 50% CGT discount replaced | CPI cost-base indexation replaces the flat 50% discount for assets acquired after the cut-off | 1 July 2027 |
| 30% minimum tax on capital gains | New 30% minimum tax on net capital gains for assets held 12+ months | 1 July 2027 |
| Applies to | Individuals, trusts, partnerships | - |
| Small business CGT concessions | Division 152 concessions UNCHANGED | - |
| Discretionary trusts | 30% minimum tax on distributions from discretionary trusts | 1 July 2028 |
| Grandfathering | Assets acquired before the cut-off retain the 50% discount | - |
Many Australian business owners wear two hats: they run a business and they hold investment properties. The interaction between the negative gearing restrictions and CGT changes creates a compounding cash flow problem that most commentary has overlooked.
Under the current system, a business owner with a negatively geared investment property can offset rental losses against their salary, business distributions or other income - reducing their overall tax bill and putting more cash in their pocket. From 1 July 2027, that offset disappears for newly acquired established properties.
| Scenario | Current Rules | New Rules (from 1 July 2027) |
|---|---|---|
| Business income | $180,000 | $180,000 |
| Rental loss (established property) | -$15,000 | -$15,000 |
| Taxable income | $165,000 | $180,000 (loss quarantined) |
| Tax saving from rental loss (at 37% marginal rate) | $5,550 | $0 (loss carried forward against rental income only) |
| Impact on annual cash flow | - | $5,550 less cash per year |
For a business owner already running tight margins, losing $5,000-$15,000 in annual tax savings is not trivial. That money often goes toward payroll, stock, equipment or simply surviving a slow month.
When you sell business assets - equipment, goodwill, shares in a company, or the business itself - the shift from a flat 50% discount to CPI indexation means a higher taxable gain for fast-growing assets. Combined with the new 30% minimum tax rate on capital gains, the after-tax proceeds from a business sale could be materially lower.
This means less capital to reinvest in your next venture, less retirement runway, and more pressure to find bridging finance if you need to cover the tax bill before your next income stream kicks in.
While commercial property is not affected by the negative gearing restrictions, it is affected by the CGT changes. Business owners who hold commercial premises (warehouse, office, shopfront) in their own name or through a trust will face CPI indexation instead of the 50% discount when they sell.
For a commercial property that has appreciated well above inflation, the tax bill on sale could be significantly higher than under the current rules.
The negative gearing restrictions are expected to shift investor sentiment away from established residential property and toward commercial property and new builds. While this is positive for the housing market, it may push up commercial property values and, consequently, rents for SMEs leasing office, retail or warehouse space.
If you are a business that leases premises, higher rents are a direct hit to cash flow - and one that compounds over time through lease escalation clauses.
The CGT changes could dampen the incentive for angel investors and founders to invest in high-growth Australian startups. A higher effective tax rate on capital gains - especially with the 30% minimum tax - reduces the after-tax return on successful exits. This could push some founders and capital offshore, or slow the pace of early-stage funding in Australia.
For startups relying on equity funding rounds, a thinner pool of domestic investors means more competition for capital and potentially worse terms.
These changes do not hit in isolation. A business owner who simultaneously loses rental loss offsets, faces higher CGT on asset sales, and sees commercial rents rise is dealing with a cash flow squeeze from three directions at once. This is where access to flexible business finance becomes critical.
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Talk to us today →This is an important distinction that has been lost in much of the media coverage:
If you are a business owner who holds your commercial premises in a trust or in your personal name, the CGT changes are the ones to focus on. Speak to your accountant about whether your current ownership structure is still optimal.
OverdraftMe gives you access to 50+ lenders through one application. Business overdrafts from $10,000 to $500,000. Fast approvals. No upfront fees. We specialise in helping SMEs manage cash flow - including tax liabilities.
Get a quote →From 1 July 2027, if you purchased an established residential investment property after 7:30pm AEST on 12 May 2026, rental losses can only offset rental income or residential property capital gains - not your salary, business income or other income. This means less disposable cash flow, which can directly pressure your ability to fund business operations, payroll or growth.
No. The negative gearing restrictions apply only to established residential investment properties. Commercial property - including offices, warehouses, retail premises and industrial buildings - is not affected by the negative gearing changes. However, the CGT changes (CPI indexation replacing the 50% discount) do apply to commercial property sales.
The 50% CGT discount is being replaced with CPI cost-base indexation for assets acquired after the cut-off date. Additionally, a new 30% minimum tax applies to net capital gains on assets held for 12 months or more. This affects individuals, trusts and partnerships. Small business CGT concessions under Division 152 remain unchanged.
Potentially yes. If you sell a business acquired after the cut-off date, you will use CPI indexation instead of the 50% discount, likely resulting in a higher taxable gain for fast-growing businesses. However, Division 152 small business CGT concessions are unchanged and can still substantially reduce your tax. Read our detailed CGT analysis for business owners.
A business overdraft provides flexible, on-demand access to working capital without needing to sell assets. If reduced rental loss offsets or higher CGT liabilities create a cash squeeze, an overdraft can bridge the gap - covering payroll, supplier payments, tax bills or growth spending while you restructure your finances.
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