Legislative History — CGT & Negative Gearing
Every regime since introduction, with the 2026–27 Budget changes in context.
Why history matters
The new CGT indexation regime is essentially a return to the 1992–1999 approach abandoned by John Howard. Understanding the mechanics of that era is essential to modelling the new rules correctly.
Capital Gains Tax — full regime history
Pre — 20 Sep 1985
No CGT
Capital gains from assets acquired before 20 September 1985 were fully exempt from income tax. These are commonly referred to as "pre-CGT assets". There was no discount, no indexation — simply exempt. Introduced by the Hawke government's 1985 Budget, CGT only applied to assets acquired from that date forward.
Fully exempt
20 Sep 1985 — 10 Aug 1992
Nominal gain — full inclusion
CGT introduced under s.160 ITAA 1936 (now Pt 3-1 ITAA 1997). The full nominal capital gain (proceeds minus original cost base) was included in assessable income and taxed at the individual's marginal rate. No inflation relief. Companies and individuals treated symmetrically — no discount for either.
100% of gain — marginal rate
11 Aug 1992 — 20 Sep 1999
Indexation regime (Keating)
Cost base indexed quarterly to CPI (base: September quarter 1985). Only real (inflation-adjusted) gains were taxable. Assets held less than 12 months: no indexation, full nominal gain assessed. Assets held 12+ months: cost base indexed; only the real gain assessable. Superannuation funds taxed at 2/3 of gain (effective ~15% on indexed gain for complying funds). Companies still received no discount.
CPI-indexed cost base
21 Sep 1999 — 30 Jun 2027
50% discount (Ralph Review)
Howard government adopted the Ralph Review recommendation, replacing indexation with a flat 50% discount for individuals and trusts on assets held 12+ months. Superannuation funds: 33⅓% discount. Companies: no discount. Indexation frozen at 30 September 1999 CPI. Taxpayers with pre-1999 assets could elect indexation or the 50% discount — in practice nearly all elected the discount. This regime has operated for over 25 years.
50% discount (individuals & trusts)
★ From 1 July 2027 — New Budget announcement
CPI indexation + 30% minimum tax
50% CGT discount abolished for gains accruing from 1 July 2027. Replaced with CPI cost base indexation (akin to 1992–1999) plus a new 30% minimum tax on net capital gains after indexation. Applies to individuals, trusts, and partnerships. Pre-CGT assets (acquired before Sep 1985) brought into system for gains arising after 1 July 2027. Investors in new residential property may elect the old 50% discount instead. Income support recipients exempt from minimum tax. Superannuation fund CGT discount (33⅓%) confirmed unchanged.
CPI indexation + 30% minimum tax
All periods — Companies
No CGT discount — all eras
Companies have never received a CGT discount in any regime. Capital gains are taxed at the applicable corporate rate (30% general rate; 25% for base rate entities with aggregated turnover < $50M). No change under the 2026–27 Budget.
No change — 30%/25% rate
Negative Gearing — legislative history
Pre-1985 – longstanding common law
Full deductibility — general income tax principles
Under s.51(1) ITAA 1936 (now s.8-1 ITAA 1997), all losses and outgoings necessarily incurred in gaining assessable income were deductible. Rental losses — including interest — were deductible against any income. Negative gearing had no specific statutory authority; it was a natural consequence of general deductibility principles applied to leveraged property investment. This had operated without restriction for decades prior to 1985.
July 1985 — September 1987
Keating quarantining — brief and reversed
Treasurer Paul Keating quarantined rental losses in July 1985 (alongside the introduction of CGT), such that net rental losses could only be deducted against rental income — not other income. The policy had an immediate and severe contractionary effect on the rental market, particularly in Brisbane and Perth, where rents rose sharply and vacancy rates tightened. The measure was repealed in September 1987 by Keating himself, with full deductibility restored. This 1985–1987 episode is directly relevant to assessing the likely economic impact of the 2026 Budget changes.
September 1987 — 11 May 2026
Full negative gearing — unrestricted for all residential property
Net rental losses fully deductible against all income — salary, wages, business income, and other passive income. This applied to established and new residential dwellings alike. Approximately 2.5 million Australians claimed rental deductions in the 2022–23 income year. Around 83% of investor loans in 2025 were for established properties rather than new builds — the primary policy justification cited by Treasury for restricting negative gearing to new supply.
12 May 2026 (Budget night) — in force from 1 July 2027
New restrictions — established residential property only
For established residential properties contracted after 7:30pm AEST 12 May 2026: net rental losses ring-fenced to residential rental income only from 1 July 2027. Unused losses carry forward indefinitely and may be offset against future rental income or gains from the same or other residential rental properties — but cannot offset wages, salary, or business income. New builds: fully negatively gearable. Grandfathered: properties contracted before Budget night. Excluded: SMSFs, widely held trusts (incl. MITs), commercial property, shares, build-to-rent, private investors in government housing programs.
Key grandfathering dates
CGT: gains accrued to 1 July 2027 remain taxed under the old 50% discount. The asset's market value at 30 June 2027 becomes the new cost base for gains accruing after that date.
Negative gearing: properties contracted (exchange of contracts) before 7:30pm AEST 12 May 2026 are grandfathered under existing rules indefinitely until the property is sold.
Negative gearing: properties contracted (exchange of contracts) before 7:30pm AEST 12 May 2026 are grandfathered under existing rules indefinitely until the property is sold.
CGT Calculator — Before vs After 1 July 2027
Compare your capital gains tax liability under the old 50% discount regime and the new CPI indexation + 30% minimum tax. Australian resident individual taxpayer assumed.
Asset details
Original cost incl. stamp duty, legal fees, and capital improvements
Net proceeds after agent commission and selling costs
Tax & indexation assumptions
Factor to apply to cost base (e.g. 1.35 = 35% CPI increase since acquisition). ATO will publish official quarterly factors. Between 1985–1999 indexation was applied quarterly using CPI.
Negative Gearing — Cash Flow Impact
Determine whether your property is affected and model the after-tax cash flow change from 1 July 2027.
Critical dividing line — 7:30pm AEST 12 May 2026
The grandfathering rule applies at the time of exchange of contracts, not settlement. Properties under binding contract before that precise time are grandfathered under current rules indefinitely until sold. Settlement date is irrelevant.
Property & investor details
Loan interest on borrowings used to acquire the property
Rates, insurance, agent fees, repairs, depreciation (Div 43 & Div 40)
Relevant because under new rules, losses offset against total rental income across all rental properties
Side-by-Side Reference — Old vs New Rules
Comprehensive rule-by-rule comparison for advisers and investors. Based on Budget announcements only — legislation not yet enacted.
Capital Gains Tax
| Issue | Old rules — to 30 June 2027 | New rules — from 1 July 2027 |
|---|---|---|
| CGT discount — individuals & trusts Assets held ≥ 12 months |
50% discount Assessable gain = 50% of nominal gain. Remainder permanently excluded from assessable income. No inflation adjustment. |
50% discount abolished Replaced with CPI cost base indexation. Only the real (above-inflation) gain is assessable. 30% minimum tax applied to the indexed gain. |
| Companies | No discount Full nominal gain taxed at corporate rate (30% or 25% SBE). This has applied in all eras. |
No change Companies are unaffected by the new regime. Full gain taxed at corporate rate as before. |
| Superannuation funds Incl. SMSFs — accumulation phase |
33⅓% discount Effective CGT rate ~10% on gain for complying fund in accumulation phase. Pension phase: fully exempt. |
No change — confirmed Government has confirmed the 33⅓% superannuation discount is not changing. SMSFs and complying funds retain current treatment. |
| 30% minimum tax floor | No minimum tax Low-income earners could pay 0% on the discounted gain if within the tax-free threshold. No floor. |
30% minimum — new After indexation applied, minimum 30% tax on net capital gain. If marginal rate produces a higher effective rate on the indexed gain, marginal rate prevails. Income support recipients exempt. |
| Pre-CGT assets Acquired before 20 Sep 1985 |
Fully exempt All capital gains on pre-CGT assets are exempt regardless of quantum. This has been the position since CGT was introduced in 1985. |
Partially brought into CGT Gains accrued to 1 July 2027 remain exempt. Gains accruing from 1 July 2027 onwards subject to new regime. Market value at 1 July 2027 becomes the new cost base for these assets. |
| New residential property Acquired post Budget night |
50% discount Standard 50% discount applies to eligible new builds held 12+ months. |
Investor's choice on disposal May elect either the 50% CGT discount (old rules) or CPI indexation + 30% minimum tax (new rules) at time of disposal. Designed to incentivise investment in new housing supply. |
| Main residence exemption | Full exemption Principal place of residence fully exempt from CGT (with partial exceptions for rental use, large land, etc.). |
No change — fully retained Main residence exemption is unchanged. No impact on owner-occupiers. |
| Transitional arrangement | N/A | Transitional split For assets held at 1 July 2027 and sold after: the 50% discount applies to gains accrued to that date (based on market value at 30 June 2027). New rules (indexation + min tax) apply only to gains accruing post-1 July 2027. Requires valuation at 30 June 2027. |
| Rollover relief | Standard CGT rollovers apply (scrip-for-scrip, marriage breakdown, deceased estates, etc.) | Expanded rollover — 3 years Additional rollover relief available from 1 July 2027 to 30 June 2030 to facilitate restructuring out of discretionary trusts and other entities. |
Negative Gearing
| Asset / scenario | Old rules — existing owners / pre-Budget night | New rules — established property contracted post Budget night |
|---|---|---|
| Established residential — new purchase Contracted after 7:30pm AEST 12 May 2026 |
Full deductibility Net rental losses fully deductible against all income including salary and wages under s.8-1 ITAA 1997. |
Ring-fenced from 1 Jul 2027 Rental losses deductible only against total rental income (across all residential properties). Unused losses carry forward indefinitely. Cannot offset wages, salary, or business income. |
| Existing property holdings Contracted before 7:30pm AEST 12 May 2026 |
Full deductibility — grandfathered Existing investors retain full negative gearing indefinitely until the property is disposed of. |
Grandfathered — no change No change to existing investors. Grandfathering applies at the contract date (exchange), not settlement. A property under contract before Budget night is protected even if settled later. |
| New residential dwellings Eligible new builds |
Full deductibility | Full deductibility retained New builds are exempt from ring-fencing restrictions. Fully negatively gearable against all income. An integrity rule ensures the exemption applies only where net new dwellings are added to housing stock. |
| Commercial property | Full deductibility | No change — fully deductible Commercial property is entirely outside the new restrictions. Losses deductible against all income as before. |
| Shares, managed funds, other assets | Full deductibility | No change — fully deductible Investment in shares, ETFs, managed funds, and other non-property assets are unaffected. Margin loan interest and other investment losses remain deductible against all income. |
| SMSFs & widely held trusts Incl. MITs, REITs |
Full deductibility | Excluded — no change SMSFs and widely held trusts (including most managed investment trusts) are explicitly excluded from the ring-fencing rules. Existing treatment preserved. |
| Build-to-rent developments | Full deductibility | Exempt — full deductibility Build-to-rent developments receive a specific exemption. Negative gearing fully available. |
| Carry-forward of unused losses | Deductible in year incurred Losses offset in the income year they are incurred — no carry-forward required. |
Carry-forward only for affected properties Unused losses accumulate and carry forward indefinitely. May offset future residential rental income or rental gains. Cannot offset salary, wages, or business income in any future year. |
| Positive / neutral gearing | Rental income assessed normally | No impact Properties that are neutrally or positively geared are completely unaffected by the new restrictions. |
Discretionary trusts — 30% minimum tax (from 1 July 2028)
While not CGT or negative gearing per se, this closely interacts with both measures for property investors using family trust structures. From 1 July 2028, a 30% minimum tax applies at the trustee level on the taxable income of discretionary trusts — neutralising income-splitting strategies. Non-refundable credits flow to beneficiaries. Expanded rollover relief (1 July 2027 – 30 June 2030) is available for restructuring out of discretionary trusts. Excluded: fixed and widely held trusts, complying super funds, special disability trusts, deceased estates, charitable trusts, primary production income, income relating to vulnerable minors.
This reference guide is based on Budget announcements of 12 May 2026 only. All measures require legislation before they become law. The ATO has not yet released guidance on the CPI indexation methodology for the new CGT regime. Design of the 30% minimum tax on capital gains and its interaction with the existing CGT framework remains subject to further consultation and legislative drafting. This tool does not constitute legal, tax, or financial advice. © Budget 2026–27 — always refer clients to seek individual advice from a registered tax agent or legal practitioner.