Rule One: Capital Gains Tax (CGT)
Capital gains tax on an investment property now depends on two things: whether you bought it before or after the Budget date - 12 May 2026 - and whether it's a new build or an existing home.
The framework
The Three Buckets
Every investment property fits into exactly one of three buckets. Each bucket gives you a choice between Option 1 and Option 2.
| Bucket | When you bought it | Option 1 | Option 2 |
|---|---|---|---|
| A - Bought before the Budget | On or before 12 May 2026 | With a certified valuation: 50% discount on gains up to 30 June 2027. Gains after that date use indexation instead - your cost base grows with inflation, rather than a flat discount. | Without a certified valuation: the ATO splits the gain by time instead, using its own default method. |
| B - New build, bought after the Budget | After 12 May 2026, brand-new home, never lived in before | 50% discount on the whole gain. | Indexation of your costs instead. |
| C - Existing home, bought after the Budget | After 12 May 2026, second-hand home | Indexation of your costs - the only method available. | Not applicable - there's no second option for this bucket. |
You need to calculate both options to see which one gives the lowest tax. There's no shortcut and no rule of thumb - the better option depends on the numbers for that specific property.
CGT bucket 1: Bought Before the Budget
Most properties sit in this bucket today. Buy on or before 12 May 2026, and part of your gain still gets the 50% discount. There's one new date to remember: 30 June 2027.
- Gain earned before that date: keeps the old 50% discount.
- Gain earned after that date: uses indexation instead. This means your cost base grows with inflation, instead of getting a flat discount.
- Renovations or capital works done after 12 May 2026 are indexed separately, starting from the date you actually paid for them.
Valuation vs. the ATO's default - the valuation is what matters
If you owned the property before the Budget, get a certified valuation of what the property was worth on 30 June 2027.
No valuation? The ATO uses its own default method instead - it splits your gain based on time, not on when the value actually grew. That's your only option.
Get a valuation, and you have two numbers to work with: the valuation-based split, and the ATO's default. You calculate both, and use whichever gives the lower tax in your return.
- Without a valuation, only the ATO's default method is available.
- With a valuation, both methods are available, and you choose the one that results in less tax.
- The two methods can produce a meaningfully different result - sometimes by tens of thousands of dollars - so which one applies depends on whether a valuation was obtained.
Bucket A - plain appreciation, split at 30 June 2027
This example assumes no capital improvements were made at all - just plain appreciation, split at 30 June 2027, to keep this simple.
The facts
| Bought for | $300,000 |
| Bought in | 2019 |
| Value on 30 June 2027 (certified valuation) | $900,000 |
| Sold for | $1,000,000 |
| Sold in | 2030 |
| Tax rate used | 47% (top marginal rate) |
| Total gain before any adjustment | $700,000 |
The calculation
| With a certified valuation | Without one (ATO default) | |
|---|---|---|
| How the split works | Valuer confirms the property was worth $900,000 on 30 June 2027 | ATO splits by time: 8 of the 11 years owned were before 30 June 2027 |
| Gain before 30 June 2027 | $600,000 | $509,100 |
| Taxable gain before 30 June 2027 (50% discount) | $300,000 | $254,550 |
| Taxable gain after 30 June 2027 (indexation applied) | $16,550 | $115,900 |
| Tax owed at 47% | $148,800 | $174,100 |
The gap
With a valuation, this investor calculated both methods and used the valuation-based result, since $148,800 is lower than the ATO's default of $174,100. Without a valuation, only the default method would have been available - $25,300 extra tax, on the same property, same sale price, same total gain.
The size and direction of this gap depends on the purchase price, the CPI over the holding period, how long the property was held, and where the value really grew. There's no set answer - you can't know which method is lower until you've run the numbers for that specific property.
Do
- Get a certified, in-person valuation as at 30 June 2027 - desktop valuations generally don't give the best value.
- Keep that valuation with your original purchase contract - it's now a permanent cost-base record.
- Calculate the tax both ways once you have a valuation, and use whichever is better for you.
- If you also renovate after 12 May 2026, track that cost separately, with its own start quarter.
- Confirm the valuer values the property “as at” 30 June 2027, not the date they actually visit.
Don't
- Assume the 50% discount still covers the whole gain after 30 June 2027.
- Confuse the valuation date with when it was obtained - it must value the property as it stood on 30 June 2027.
- Assume a valuation is the only option once you have one - the ATO's default is still available and may occasionally be lower.
- Combine a renovation's cost with the main valuation split - they're worked out separately.
- Move this property into Bucket B or C - the purchase date alone keeps it in Bucket A.
CGT bucket 2: New Build, Bought After the Budget
Buy a brand-new home after 12 May 2026, and you keep a choice that most other post-Budget buyers lose: work out the gain both ways, 50% discount or full indexation, and use whichever gives the better result. There's no default here. You have to calculate both to know which one wins.
What counts as a new build
| Qualifies as a new build | Doesn't qualify |
|---|---|
| A newly built apartment bought off-the-plan | An existing house or apartment bought second-hand |
| A duplex replacing one house with two (adds to supply) | A knock-down rebuild replacing one house with one house |
| Any new home built on vacant land | A granny flat added next to an existing property |
| A newly built property occupied for less than 12 months before first sale | A new build lived in for more than 12 months before you buy it |
A renovated older home doesn't qualify - no matter how extensive the renovation. That's Bucket C instead.
A quick refresher: indexation grows your cost base with inflation instead of applying a flat 50% discount to the raw gain. Which one wins depends on the numbers below - not a rule of thumb.
Two holding periods, two methods
Same choice, run over two different holding periods. Watch which method wins each time.
The facts
| 10-Year Hold | 25-Year Hold | |
|---|---|---|
| Bought (new build) | 2027 - $500,000 | 2027 - $400,000 |
| Sold | 2037 - $900,000 | 2052 - $1,100,000 |
| Raw gain | $400,000 | $700,000 |
| Tax rate used | 47% (top marginal rate) | 47% (top marginal rate) |
| CPI assumed | 3% p.a. (34% cumulative) | 3% p.a. (109% cumulative) |
The calculation
| 10-Yr Discount | 10-Yr Indexation | 25-Yr Discount | 25-Yr Indexation | |
|---|---|---|---|---|
| Cost base after indexing | n/a | $672,000 | n/a | $837,500 |
| Taxable gain | $200,000 | $228,000 | $350,000 | $262,500 |
| Tax owed at 47% | $94,000 | $107,200 | $164,500 | $123,400 |
| Better result? | Yes - $13,200 less tax | No | No | Yes - $41,100 less tax |
Same rule, opposite answers
Over 10 years, the discount wins by $13,200. Stretch the same property type to a 25-year hold, and indexation wins instead - by a much larger $41,100, because the same inflation rate compounds for so much longer. Nothing about the rule changed between the two columns; only the holding period did. That's why you need to run both numbers every time. Assuming last time's winner will win again is how the wrong method gets used.
Do
- Confirm the property genuinely qualifies as a new build - check the occupation history and first-sale date - before assuming you have this choice.
- Work out both methods before you lodge. Don't guess which one wins.
- Recalculate at the time of sale, not at purchase - the winner depends on inflation and price growth that actually happened.
Don't
- Assume the 50% discount is always the better choice. It isn't, and won't always be.
- Use one indexation number for costs spent at different times - each one needs its own.
- Confuse this bucket with Bucket C - existing homes bought after 12 May 2026 don't get this choice.
CGT bucket 3: Existing Home, Bought After the Budget
Buy an existing or second-hand home after 12 May 2026, and indexation of your costs is the only method available - there's no discount to choose instead. You apply indexation to each cost separately, because each one was spent at a different time and grows by a different amount.
Indexing each cost on its own
The facts
| Cost | Amount | When spent |
|---|---|---|
| Purchase price + stamp duty | $525,000 | July 2026 |
| Paint and flooring | $40,000 | 2029 |
| Kitchen upgrade | $25,000 | 2031 |
| New deck | $12,000 | 2033 |
| Agent & legal fees on sale | $15,000 | 2036 (at sale) |
| Sold for | $900,000 | 2036 |
| Tax rate used | 47% (top marginal rate) | - |
| CPI assumed | 3% p.a. | - |
The calculation - indexing each cost on its own
| Cost | Years indexed | Value at sale |
|---|---|---|
| Purchase price + stamp duty | 10 years | $705,600 |
| Paint and flooring | 7 years | $49,200 |
| Kitchen upgrade | 5 years | $29,000 |
| New deck | 3 years | $13,100 |
| Agent & legal fees on sale | 0 years | $15,000 |
| Total indexed cost base | $811,900 |
Sale price: $900,000. Gain = $900,000 − $811,900 = $88,100. Tax at 47% = $41,400.
The trap
Each cost runs on its own clock, because it was spent at a different time. Blend these into one average figure instead of indexing each one separately, and you get the wrong cost base - usually a lower one, which means more tax than you actually owe.
Do
- Keep every cost dated - indexation applies per item, not to the total.
- Record the exact date for every single cost - not just the purchase and sale dates. Indexation is applied quarterly, so the specific quarter matters, not just the year.
- Apply CPI to each cost separately, using the right period for that cost.
- Confirm early that the home is second-hand - this bucket has no discount to fall back on.
- Redo the indexed cost base whenever a new cost is added - it changes the total, not just adds to it.
- Keep a record of every capital cost. Without it, you lose the cost itself from your base, plus the inflation uplift it would have earned - both gone at once.
Don't
- Leave the comparison until tax time - it affects how you should be keeping records from day one.
- Use one blended indexation number for the whole cost base - it will be wrong for any property held more than a couple of years.
- Assume the 50% discount applies as a fallback - it doesn't, ever, in this bucket.
- Forget to index improvement costs separately from the original purchase price.
- Treat sale-time costs as indexable - they're spent at the very end, so they generally aren't.
- Assume a rough estimate of a capital cost is good enough - indexation needs the actual invoice amount and date, not a guess.
Rule Two: Negative Gearing
Negative gearing now depends on two things: when you bought the property, and whether it's a new build or an existing home. The next three sections go through each bucket, one at a time.
| Bucket | When you bought it | Negative gearing treatment |
|---|---|---|
| A - Grandfathered | Owned, or under contract, before 7:30pm AEST on 12 May 2026 | Nothing changes. Rental losses can still reduce your salary income, exactly as they always have. |
| B - New build | Bought after 12 May 2026, new construction that adds to housing supply | Nothing changes here either. New builds keep full negative gearing - losses can still reduce your salary income. |
| C - Established, bought after the Budget | Bought after 12 May 2026, existing / second-hand home | From 1 July 2027, losses can no longer reduce your salary income. They're quarantined - carried forward for use against future rental profit, or against the capital gain when you sell. |
Negative gearing bucket 1: Grandfathered Properties
Own a property - or had a signed contract - before 7:30pm AEST on 12 May 2026, and nothing changes. Rental losses on that property can still reduce your salary income, the same as always.
But that only covers the interest on funds used to purchase the property itself. If you borrow more money against it later, the new borrowing follows its own rules.
Worked example - splitting a refinanced loan
Loan interest is usually the biggest deduction on a rental property. If you refinance to buy a second property, what you can claim depends on what the new money was spent on. It depends on what the second property is:
- New build (Bucket B): the new interest is still fully deductible, same as before.
- Existing home (Bucket C): the new interest must be quarantined instead - set aside, not claimed against your salary.
This example uses an existing home, since that's the trickier case.
Splitting a refinanced loan
The facts
| Property 1 (grandfathered) | Bought 2020 |
| Property 1 loan | $600,000 at 6% |
| Property 1 interest | $36,000/year |
| Extra borrowing in 2027 | $400,000 at 6%, for Property 2 |
| Property 2 (this example) | Existing home, bought 2027 (Bucket C) |
| Extra interest | $24,000/year |
Split correctly: the $36,000 for Property 1 stays fully deductible, same as always. The $24,000 for Property 2 must be quarantined, because Property 2 is an existing home.
The overclaim risk
Claim the full $60,000 against your salary without splitting it, and you've overclaimed $24,000. That's worth $11,280 in tax you shouldn't have saved. If the ATO checks the loan - and refinancing is one of the first things they look at - you'll need to pay that $11,280 back, often with interest and penalties on top.
Do
- Check the exact date and time of your signed contract against 7:30pm AEST, 12 May 2026 - this one detail decides the bucket.
- Keep the signed contract, not just the settlement date - the bucket is decided by when you signed.
- Keep claiming losses against salary as normal - nothing new to do here.
- If you refinance to fund a new purchase, split the interest by what the money was actually used for.
Don't
- Assume “around the same time” is close enough - the cutoff is a specific time on a specific night.
- Think the property's records don't matter anymore just because nothing's changing - you'll still need the contract and date if ever asked.
- Confuse a grandfathered property with a new build - they end up in the same place, but for different reasons. Mixing up the records causes problems later.
- Claim the full refinanced loan's interest without checking what the new property is.
Negative gearing bucket 2: New Builds
Buy a new build after 12 May 2026, and full negative gearing still applies - losses can reduce your salary income exactly as before. This is to keep the incentive to build new homes, not just buy existing ones.
Only the first buyer qualifies
Buy a new build second-hand from someone else - even if it's only a year or two old - and this benefit doesn't carry over. You land in Bucket C instead.
What counts as a new build
| Qualifies as a new build | Doesn't qualify |
|---|---|
| A newly built apartment bought off-the-plan | An existing house or apartment bought second-hand |
| A duplex replacing one house with two (adds to supply) | A knock-down rebuild replacing one house with one house |
| Any new home built on vacant land | A granny flat added next to an existing property |
| A newly built property occupied for less than 12 months before first sale | A new build lived in for more than 12 months before you buy it |
Do
- Check you're genuinely the first owner - look at the occupation certificate and first-sale date. If it's a knock-down rebuild, also confirm it adds to supply (one home becoming two or more) - a rebuild alone doesn't qualify.
- Keep proof of when the build was finished and first lived in - the 12-month window matters.
- Track every expense from settlement day - every deduction counts from day one, same as any property.
Don't
- Assume any modern-looking property qualifies - age alone doesn't decide it.
- Assume a knock-down rebuild automatically qualifies - it only counts if it adds to supply, like one home becoming two.
- Buy a new build second-hand and assume the benefit carries over - it doesn't.
Negative gearing bucket 3: Established Properties Bought After the Budget
Buy an existing or second-hand home after 12 May 2026, and from 1 July 2027 your rental losses can no longer reduce your salary income. Instead, they're quarantined - carried forward, year by year, until the property turns a profit or you sell it.
Quarantined doesn't mean lost - if you declare it
- Old rule: rental loss reduces your salary → you pay less tax this year.
- New rule: rental loss is set aside → saved for later, used against future property profit or the eventual capital gain.
The loss doesn't disappear on its own. But the tax saving is delayed - sometimes for years - and it only survives that long if you declare it correctly, every single year.
Worked example 1 - the 2-year amendment window
The ATO generally only lets you amend a tax return within 2 years of lodging it. Miss declaring a loss in the year it happened, and once that 2-year window closes, the loss for that year may be gone - permanently, even though it was completely real.
The 2-year amendment window
The facts
| Property | Established, bought October 2026 |
| Tax rate used | 47% (top marginal rate) |
| Year 1 loss (2027–28) | $15,000 |
| Year 2 loss (2028–29) | $14,000 |
| Year 3 loss (2029–30) | $13,000 |
| Year 4 loss (2030–31) | $10,000 |
| Year 5 loss (2031–32) | $9,000 |
| Total losses over 5 years | $61,000 |
The calculation
| Declared every year | Left undeclared until sale | |
|---|---|---|
| Years 1–3 ($42,000) | Kept - declared on time, inside the window | Lost - the 2-year window has closed by the time you try to claim them |
| Years 4–5 ($19,000) | Kept | Kept - still inside the 2-year window |
| Total losses kept | $61,000 | $19,000 |
| Tax value at 47% | $28,670 | $8,930 |
The $19,740 gap
Same property, same losses, same total - but $19,740 less in tax value, just because the losses weren't declared each year as they happened. The loss was real. The deduction was legitimate. It's gone anyway, because the return for that year can no longer be amended.
The rule is simple: declare every loss in the year it happens, even if you can't use it yet. That's the only way to protect it.
Worked example 2 - when the ATO asks for proof
Declaring a loss on time protects it from the amendment-window problem above. But that's not the end of the story - the ATO can still ask you to prove it, sometimes years later, most often when you sell and finally use the carried-forward balance.
When the ATO asks for proof
The facts
| Property | Established, Bucket C |
| Carried-forward losses built up | $100,000 over 5 years |
| Claimed against | Capital gain on sale, Year 6 |
| Tax rate used | 47% (top marginal rate) |
The calculation
| Amount | |
|---|---|
| Total carried-forward losses claimed | $100,000 |
| Portion fully supported by invoices and records | $60,000 |
| Portion disallowed - a Year 1 repair with no invoice or receipt | $40,000 |
| Tax value lost at 47% | $18,800 |
No invoice, no claim
If you can't supply the invoices behind a carried-forward loss, the ATO can deny that part of the claim - even if the loss genuinely happened. Declaring it on time protects it from the amendment-window problem. It doesn't protect it from an audit years later if the paperwork isn't there. Both things need to hold up: declared on time, and provable on demand.
Worked example 3 - the redraw and offset trap
Money sitting in an offset account is still your own money - using it isn't borrowing. A redraw is different: it's money you already paid off your loan, borrowed again. If you redraw and use it for an investment property, the interest on that portion becomes deductible from the date you drew it down - but only if you can prove exactly which dollars they were.
The redraw and offset trap
The facts
| PPOR loan (original) | $500,000 at 6% |
| Paid down to | $450,000 before the redraw |
| Redrawn on 1 March 2028 | $50,000 |
| Used for | Deposit on a Bucket C investment property |
| Tax rate used | 47% (top marginal rate) |
The calculation
| Correctly split | Not separately traced | |
|---|---|---|
| Interest on the redrawn $50,000 | $3,000/year, deductible - added to the property's quarantined pool | $3,000/year, denied - can't be told apart from the personal loan |
| Interest on the remaining $450,000 (personal) | $27,000/year, not deductible - unchanged | $27,000/year, not deductible - unchanged |
| Tax value at risk, every year | Kept for later use against the property | $1,410/year lost, for as long as the mixing continues |
One redraw, one clear trail
The redraw only becomes deductible from the date it's drawn down, and only for that exact amount. Without a separate loan split marking that specific $50,000 from 1 March 2028, the ATO can treat the whole loan as one blended personal debt and deny the claim - $1,410 lost every year the mixing continues.
Do
- (Example 1) Declare every loss in the year it happens - even if you can't use it yet.
- (Example 1) Track each property's carried-forward balance separately, with the year each loss arose.
- (Example 2) Keep every invoice, rental statement, and loan document for as long as the loss sits in your carry-forward pool.
- (Example 3) Set up a separate loan split the moment you redraw for investment purposes - mark the exact date and amount.
Don't
- (Example 1) Wait until you sell to “claim it all at once” - by then, several years of the window may already be closed.
- (Example 1) Assume a quarantined loss carries forward automatically without being declared - it doesn't.
- (Example 2) Assume a spreadsheet number is enough evidence if the ATO asks - it isn't; they ask for the underlying documents.
- (Example 3) Confuse using offset funds with redrawing - only a genuine redraw of previously repaid principal creates new deductible debt.
The One Rule That Applies to Everything Above
Every rule above depends on the same thing: a complete, dated record of every dollar you spent, earned, or borrowed. Lose that record, and you can lose a deduction that was completely real. The details differ, but the lesson is the same: without the paperwork, you can lose money you were entitled to keep.
- In CGT: a missing invoice means a cost can't be added to your cost base - so your taxable gain looks bigger than it should, and you pay more tax.
- In negative gearing: a missing invoice means part of a carried-forward loss can be disallowed - even though the loss was real.
Either way: no invoice, no claim.
Why manual tracking fails
Why a Spreadsheet Can't Do This
A single spreadsheet column works fine when every property follows one rule, for the same amount of time. Two reforms running at once - each with its own buckets and its own clocks - makes sure that won't happen. A property's CGT bucket and negative gearing bucket are usually the same letter, but that one letter triggers two entirely different calculations. Tracking one doesn't track the other.
CGT
- Every cost has its own clock. It indexes from the quarter you spent it - not the year, and not the purchase date.
- Two full calculations, every time. A new build needs the discount method and the indexation method run in full before you know which one wins. There's no shortcut.
- Some properties split in two. A pre-Budget property renovated after the cutover needs a certified valuation split to separate the pre- and post-Budget gain.
- One mistake spreads everywhere. A missing date on one cost throws off its indexation, the total cost base, and the final tax bill.
Negative gearing
- Every loss has its own clock. The 2-year amendment window starts from the year the loss happened, not from when you eventually use it.
- Some loans split in two. A refinanced loan that mixes old (grandfathered) and new (quarantined) debt needs the interest split correctly between the two.
- One mistake spreads everywhere. A missing invoice on one repair can get years of carried-forward losses disallowed.
The Common Thread
Proof has to survive years, not just the tax return. A CGT gain or a negative gearing loss claimed years later still needs the original invoice behind it. A spreadsheet number isn't proof - the ATO asks for the document.
Just sorting a property into the right bucket takes care, before you calculate anything. Add per-item indexation, ticking amendment windows, and loan-splitting on top, and the moving parts pile up every extra year you hold the property.
The Tech Solution
The Property Accountant is an all-in-one property accounting and finance platform for investors, tax accountants, and mortgage brokers - tracking rental income, expenses, loans, equity, and interest rates live, powered by AI.
This is exactly what it was built to handle. No more spreadsheets - one per client, or one per property. The platform tracks every property automatically: income, expenses, costs, loans, equity, its CGT bucket, its negative gearing bucket, indexation, valuations, and quarantine balances.
For property investors
- Automatic updates from your documents - settlement statements, depreciation schedules, monthly rent statements, and live bank and loan feeds from 100+ Australian banks and lenders. Your records stay current in real time.
- Less than 15 minutes to set up 5 properties, and no more than 5 minutes a month to keep them up to date.
- Cost base and CGT tracking splits pre- and post-Budget value automatically, so a CGT calculation isn't a last-minute scramble in June 2027.
- Every negative gearing balance is tracked per property, per year - so nothing gets lost to a missed declaration or a closed amendment window.
For tax accountants
For you as a tax accountant, that means clean, ready-to-use records for your clients, plus one-click tax working papers and ATO audit responses - less chasing paperwork, less data collation, more time for advice.
- All client data in one place, instead of data scattered across folders, emails, and thirty separate spreadsheets.
- ATO-compliant reporting, built for the new split-calculation, indexation, and quarantine rules - not bolted onto the old ones.
- ISO 27001 certified, so client data is handled to the standard you're already expected to meet.
See it in action