TAX B0MBSHELL DROPS: $2 a week, the PM has made a heroic claim about the housing market

After years of playing safe, the Prime Minister and Treasurer have ripped up the rule book in tonight’s budget, breaking an election promise not to touch tax breaks for property investors.

There will be a ban on new investors negatively gearing rentals unless it is a new build, a 30 per cent minimum capital gains tax on all investments and family trusts will be slapped with a 30 per cent minimum tax.

Choosing to beg forgiveness from voters rather than ask permission at an election, new property investors will be told they can buy a new house or cop rental losses without claiming a tax discount.

$2-a-week increase for renters, house prices to slow

Treasurer Jim Chalmers told Parliament on budget night that he expected the changes will help 75,000 more Australians into their first home.

“This is all about backing the Australian ambition of owning your own home,’’ the Treasurer said.

“Right now, it’s too hard for too many Australians to get into the housing market and get ahead”

Arguing younger generations of Australians are the biggest losers under the status quo, the budget warns that existing negative gearing and capital gains tax rules distort investment decisions and incentivising cashed up baby boomers to buy existing houses and rent them out.

But the fine print suggests that rents could rise by a modest $2 a week – a heroic prediction that may be tested by furious property investors who are losing tax concessions. It also says house price growth could come off by 2 per cent.

The budget states that “the reforms are likely to have a small impact on rents, with an expected increase of less than $2 per week for households paying the current median rent.” That is based on the idea that existing property investors can continue to negatively gear and new investors can negatively gear new builds.

“The combination of the government’s policies in the budget will add to housing supply, which will exert downward pressure on rents.”

The tax reform package is expected to reduce investor demand. This reduced demand is likely to lead to a modest and temporary slowing in housing market price growth that improves affordability.

“Treasury modelling suggests housing prices will temporarily grow by around 2 per cent less over a couple of years relative to no tax policy change. For comparison, on average prices have grown by 6 per cent a year since 2000.”

The big changes

For new investors, it’s build or bust if you want to claim negative gearing and there’s also big changes to capital gains tax in what is being billed as the biggest reforms in a quarter of a century.

The capital gains tax changes don’t apply to the family home, which remain CGT free.

“We are providing tax relief to workers and delivering reforms to give more Australians the opportunity to own their own home by making our tax system fairer,’’ the Treasurer said.

“These changes build on our existing housing reforms to help level the playing field for first home buyers, help preserve the gains investors have made and incentivise productive investment in areas like new housing supply.

“They will bring tax outcomes for trusts closer to the rates that apply to the vast majority of Australian workers, help pay down debt and help fund tax relief for every Australian worker and the services they rely on.”

Negative gearing

Here’s exactly how the changes will work for negative gearing.

Despite predictions the budget would come after baby boomers, they have been largely spared the pain with generous grandfathering ensuring that existing investors and gen Xers who already negatively gear can hang onto their tax concessions.

So, if you own an existing rental property right now you can keep negatively gearing.

Negative gearing will be preserved in the future for new builds only.

What if you are buying an investment property right now?

Even if you have a contract that has been entered into, but not yet settled, you will be allowed to negatively gear it in future years.

Properties purchased between budget night and 30 June 2027 may be negatively geared during this period, but not from July 1, 2027.

Properties purchased from July 1, 2027 will not be able to be negatively geared if they are existing housing stock.

The government insists these changes “will help level the playing field for first home buyers, preserve the gains investors have made, and support investment in new housing supply.”

The Prime Minister pointed to the fact that house prices have exploded 20 times since 1981 from $44,250 to $851,300 in 2025.

At the same time, average full-time earnings haven’t kept pace, rising from $14,200 in 1981; $105,600 in 2025 – around 7.4 times by comparison to house prices.

Since the Howard Government changed Capital Gains Tax in 1999, the government will argue house prices have increased by more than 400 per cent – almost twice as fast as average full-time earnings.

As a result, the average age of a first homebuyer has jumped from 27 years in 1981 to 35 years in 2020

“Buying your first home shouldn’t feel impossible, but right now, too many young people feel locked out of the housing market,” Mr Albanese said.

“This is about doing the right thing to help more young Australians buy a home of their own.”

Capital Gains Tax

From 1 July 2027, the Government will replace the 50 per cent CGT discount for individuals, trusts and partnerships with cost base indexation and a 30 per cent minimum tax rate on capital gains.

The current 50 per cent CGT discount was introduced in 1999, allowing taxpayers to reduce their taxable capital gain by half rather than adjusting for inflation, if they owned the asset for more than 12 months.

The budget argues that returning to indexation based on the Consumer Price Index (CPI) aligns with the original intent of the CGT regime and supports productivity over time by ensuring that investment decisions are taken for economic reasons, not due to tax outcomes.

Indexation will be calculated using CPI in a similar manner to arrangements previously in place between 1985 and 1999.

The changes will apply to all CGT assets (including property and shares) held by individuals, partnerships and trusts for at least 12 months.

New minimum 30 per cent tax on capital gains

A minimum tax rate of 30 per cent will apply to real capital gains accruing from 1 July 2027

There is no tax impact until the income is realised, in other words until the property or shares are sold.

This will not affect people whose capital gains are already taxed at rates of at least 30 per cent.

Transitional arrangements

For eligible CGT assets other than new residential properties there will be no changes in arrangements for assets purchased and sold prior to 1 July 2027.

Assets purchased after 1 July 2027 will be treated wholly under the new arrangements.

Assets owned prior to 1 July 2027 and sold after 1 July 2027 will be treated under current arrangements on gains made prior to this date, and under the new arrangements for gains made after this date.

You don’t need to pay any tax until you have sold the asset or investment property.

CGT doesn’t apply to the family home.

Exemptions

Recipients of means-tested income support payments, such as the Age Pension or JobSeeker, will be exempted from the minimum tax if they receive any payment in the financial year in which they realise the capital gain.

How assets will be valued

An asset’s value on 1 July 2027 will be determined by taxpayers as part of their tax return in the year the asset is realised.

Taxpayers can either seek a valuation of the asset as of July 1, 2027 which will include using quoted prices for assets such as shares; or use a specified apportionment formula that estimates the asset’s value on July 1, 2027 based on its growth rate over the asset’s holding period. The ATO will provide tools to estimate this value for taxpayers.

New build exemption for CGT

Investors who buy new builds will be able to choose either the 50 per cent CGT discount or indexation and the minimum tax when they sell the property.

These investors will also continue to have access to negative gearing. This means if they make a rental loss on a new build, they can still use that loss to reduce their taxable income (including salary and wages).

New builds are defined as dwellings constructed on vacant land, or where existing properties are demolished and replaced with a greater number of dwellings.

Knock-down rebuilds or substantial renovations that do not increase supply will not be eligible.

A new build cannot have been previously sold, unless first owned by the builder and not occupied for more than 12 months.

Commercial property

Changes to negative gearing will only apply to residential property. Commercial property and

other asset classes, such as shares, will remain subject to existing arrangements.

Further exemptions to the negative gearing changes will also be available for private

investors who support government housing programs, for example, through the provision

of affordable housing.

Family trusts

Mr Chalmers is set to slap a 30 per cent minimum tax on discretionary trusts from July, 2028.

The measure is expected to raise $4.5 billion in extra revenue over the forward estimates.

A discretionary trust is a legal structure in which a trustee holds assets or business income on behalf of a group of beneficiaries, typically a family, and has discretion each year over how much each beneficiary receives.

The new tax will be paid by the trustee and beneficiaries will still have to declare the income in their tax returns.

From January, 2027, the Small Business and Family Enterprise Ombudsman will be able to help small businesses consider their options, for example restricting out of a trust into a company structure.

The proposed reforms would target that entirely legal practice, which allows the wealthy to pay far less tax than wage earners on identical incomes.

The budget argued that while there are many legitimate uses of trusts the current rules allow some wealthy families to reduce their taxes, reducing the fairness of the tax system.

The number of discretionary trusts has doubled in the last 20 years. As a result, Australia now has around 1 million trusts,

New effective tax-free income threshold of $19,985

Australians will be able to earn up to $19,985 without paying income tax under a modest new tax cut for wage-earners in the budget.

But it won’t kick in until you lodge your 2027 tax return.

By delivering a permanent $250 a year tax cut for all workers, the government will raise the effective tax-free threshold when combined with previously announced tax cuts by an estimated $1,800.

Called the Working Australians Tax Offset, the tax cut will leave 13.3 million workers better off, but it won’t come into force until the second half of 2027.

That means you won’t actually get to claim it until you lodge your tax return in 2028.

Of the 13 million Australian workers who are eligible for the tax relief, 97 per cent are expected to claim the full amount.

New income tax cuts that will deliver an ongoing $250 a year tax bonus will raise the tax relief for average workers to $2,816 a year by 2028.

$1000 Instant tax deduction

The government has also announced a range of tax changes ahead of the budget, and there’s more on the way.

First, millions of Australians will be able to claim an instant $1000 tax deduction without receipts for the first time.

Long promised by governments but never delivered, the big change will finally be enshrined in law later this year.

The election promise is designed to allow taxpayers to choose to claim the instant tax deduction instead of keeping a box of receipts for individual work-related expenses.

Around 6.2 million workers – around 42 per cent of taxpayers – will benefit from the reforms designed to simplify tax returns.

“We’re helping Australians earn more and keep more of what they earn, and this is another key way we’re delivering for millions of Australian workers,” Mr Chalmers told news.com.au.

Mr Chalmers is also set to make the $20,000 instant asset tax write-off permanent for small businesses, allowing tradies to claim on their tools, laptops and other equipment.

The current scheme runs until 30 June 2026, at which point the threshold is set to drop back to just $1000.

However, under the changes, the scheme will now remain in place permanently, delivering certainty to small businesses.

The instant asset write-off allows eligible small businesses to immediately deduct the full purchase cost of an eligible asset in the same financial year rather than spreading it out as depreciation over multiple years, delivering a cash flow boost.