When the Federal Budget was handed down in May, some of the biggest talking points were the proposed changes to negative gearing and Capital Gains Tax (CGT).

At the time, they were announcements. We now have much greater certainty.

The Government's first tranche of tax reform legislation received Royal Assent on 26 June 2026, meaning the key changes to negative gearing and CGT have now been legislated.

For property investors, business owners and anyone holding investments for the long term, now is the time to understand what the new rules may mean.

Negative gearing changes are now law

From 1 July 2027, the rules for negatively geared residential property will change.

Established residential properties acquired after 7:30 pm AEST on 12 May 2026 will generally be subject to the new rules from 1 July 2027. Losses from these properties will generally no longer be available to reduce unrelated income, such as salary and wages or business income.

Instead, relevant losses will generally be quarantined and available to offset residential property income, including relevant capital gains, with excess amounts carried forward for use in future years.

Importantly, existing investors have generally been protected. Established residential properties acquired, or otherwise held in the relevant circumstances, before 7:30 pm AEST on 12 May 2026 are generally grandfathered, subject to the detailed rules.

New residential builds also receive different treatment and can continue to access negative gearing against other income.

This makes the distinction between an existing investment, an established property acquired after Budget night and a qualifying new build increasingly important.

The 50% CGT discount is also changing

Perhaps the more significant long-term change is to CGT.

Under the current rules, eligible individuals and trusts can generally reduce a capital gain by 50% where an asset has been held for at least 12 months.

From 1 July 2027, that system will change.

For affected taxpayers, the existing 50% CGT discount will generally be replaced with cost base indexation for gains accruing from 1 July 2027. Broadly, the cost base of an investment will be adjusted for inflation so that tax is imposed on the real, rather than inflationary, component of the gain.

The reforms also introduce a 30% minimum tax rate for relevant real capital gains. This is not simply a flat 30% CGT rate applying to every capital gain. The detailed calculation depends on the taxpayer's circumstances and there are exceptions and special rules, including for eligible new residential builds.

However, for many individuals and trusts holding shares, property and other investments, the way future capital gains are calculated will look very different.

What about assets you already own?

One of the most important parts of the legislation is the transitional treatment.

The CGT changes do not simply remove the 50% discount from the entire gain on an asset you already own.

Broadly, the new rules apply to gains accruing from 1 July 2027. For assets already held at that date, the legislation provides transitional rules that effectively separate the gain relating to the period before 1 July 2027 from the gain arising afterwards.

The pre-1 July 2027 component generally remains subject to the existing rules, including access to the 50% CGT discount where the relevant requirements are satisfied. The post-1 July 2027 component is generally dealt with under the new indexation rules.

Importantly, this does not mean tax becomes payable on 1 July 2027 simply because you continue to own an asset. The transitional gain is generally deferred until a future CGT event occurs, such as when the asset is eventually sold.

For people holding substantial investments, accurate records and valuations may therefore become increasingly important.

What about pre-CGT assets?

There is also a significant change for assets acquired before 20 September 1985, commonly referred to as pre-CGT assets.

Under the current rules, capital gains and losses from pre-CGT assets are generally disregarded, subject to some exceptions.

From 1 July 2027, this treatment changes.

Pre-CGT assets held at 30 June 2027 will be brought into the CGT system for gains arising from 1 July 2027. Broadly, the legislation treats these assets as being sold immediately before 1 July 2027 and reacquired on 1 July 2027.

Importantly, this does not mean the capital growth accumulated over the previous 40-plus years suddenly becomes taxable. Gains relating to the period before 1 July 2027 will generally remain outside the CGT system.

The legislation provides a market value approach as the default for determining the value at the transition point, with an alternative apportionment method also provided for.

This change is particularly relevant for long-held family businesses, farms, property and investment structures where assets or ownership interests have remained in place since before September 1985.

For affected taxpayers, obtaining appropriate valuations and ensuring historical records are in order before 1 July 2027 could become particularly important.

Does this mean you should sell before 1 July 2027?

Not necessarily.

Tax should rarely be the only reason for selling a good investment. However, these changes mean the timing of a future sale may produce a different tax outcome.

For someone already considering selling an investment property, shares or another significant asset, it may be worthwhile comparing the tax consequences of selling before or after 1 July 2027.

The same applies to business succession planning. If a business owner expects to sell or transfer a business or significant assets in the coming years, the interaction between the new CGT rules and the small business CGT concessions will need to be considered carefully.

The small business CGT concessions have not disappeared under these reforms, but the way they interact with the new CGT framework may make early planning even more important.

There are still pieces of the Budget puzzle to come

While the negative gearing and headline CGT changes have been legislated, not every tax measure announced in the Budget has completed the legislative process.

Further work is continuing on other parts of the Government's broader tax reform package, including measures affecting small businesses and discretionary trusts.

Other measures are also progressing through the legislative process, including the proposed permanent $20,000 instant asset write-off and two-year loss carry-back regime for eligible companies.

The key point is that taxpayers need to distinguish between measures that have been announced, measures progressing through Parliament and measures that have actually become law.

What should you do now?

For most investors, there is no need to make an immediate decision purely because the law has changed. There is, however, a good reason to start planning.

If you own investment properties, shares, a business or other significant assets that may be sold in the coming years, the period leading up to 1 July 2027 provides an opportunity to review your position.

This is particularly important if you hold pre-CGT assets, are considering selling an investment or business, or expect these assets to form part of a longer-term succession or estate plan.

Understanding which rules apply, keeping appropriate records and modelling the tax consequences before making a major transaction could make a significant difference.

If you would like to understand how the new negative gearing or CGT rules may affect you, please contact the Power Tynan team to discuss your circumstances and the planning opportunities available before the changes take effect.