Unsurprisingly, we’ve had a lot of calls this week about the budget. The May 2026 Federal Budget is the biggest shake-up to property tax in decades, and there’s a lot of noise out there. We thought we could cut through it and give you a straight read on what’s actually changed, and what it means if you own, invest, or are trying to buy in The Hills.
The two big changes
Everything comes back to two reforms: negative gearing and capital gains tax (CGT). Both kick in from 1 July 2027, and both are designed to tilt the playing field away from investors buying established homes and towards first-home buyers and new construction.
Negative gearing: what’s changing?
Right now, if your investment property costs more to hold than it earns in rent, you can deduct that loss against your salary. That’s negative gearing, and it’s been a cornerstone of property investment strategy for decades.
From 1 July 2027, that ‘rule’ changes for established properties bought after Budget night (7:30pm AEST, 12 May 2026). Instead of offsetting losses against your salary, those losses are ‘quarantined’, meaning you can use them only against rental income or capital gains from other residential property. You don’t lose the losses entirely; they carry forward. However, the net result is you can’t use those losses to reduce your tax bill today.
Budget 2026: What stays the same for Hills property?
- Properties you already own are fully protected, grandfathered under the old rules, indefinitely.
- New builds still attract full negative gearing against all income.
- Commercial property and shares are unaffected.
- Investors supporting government affordable housing programs are exempt.
A note on grandfathering, because we’re getting questions. If you bought before Budget Night, nothing changes for you. You keep your negative gearing and you keep your CGT arrangements. The catch is that if you sell that property and buy another established one, you lose your grandfathered status. That’s creating a real incentive to hold, which could mean fewer properties coming to market in the short term.
Capital gains tax: what’s changing?
Currently, if you sell an asset you’ve held for more than 12 months, only 50% of the gain is taxable. From 1 July 2027, that 50% flat discount is gone for most assets. It’s being replaced with cost base indexation (your gain is adjusted for inflation) plus a 30% minimum tax rate on whatever’s left.
The practical effect depends on how fast prices grow relative to inflation. If annual growth sits below around 4.5–5%, the new system can actually be more generous. Above that, the old 50% discount was better in markets like Kellyville, Castle Hill, and Rouse Hill, where we’ve seen strong capital growth. Disclaimer: This aspect is worth modelling carefully with your accountant.
Key exemptions:
- Your own home is completely unaffected. The ‘main residence’ CGT exemption doesn’t change.
- Investors in new builds can choose between the old 50% discount or the new indexation method, whichever suits them better at the time of sale.
- Age Pension and income support recipients are exempt from the minimum tax.
- We don’t expect super funds to be affected.
If you’re a homeowner in The Hills
Good news: your primary residence is untouched. The main residence exemption remains in place. The indirect effect (CommBank forecasts property prices running about 3% lower than they otherwise would have been) is modest and well within normal market variation. However, time will tell what impacts these new legislative changes will have on the market.
If you’re trying to buy your first home in The Hills
There are some genuine wins here. The First Home Guarantee now has no place limits or income caps. This means any eligible buyer can purchase with a 5% deposit and skip Lenders Mortgage Insurance (although price caps by location still apply, so check your suburb). The $10 billion, 100,000-home build program for first-home buyers is significant in scale, though those homes won’t be available until at least 2028.
Help to Buy (shared equity) remains available, but you can’t combine it with the First Home Guarantee simultaneously. The First Home Super Saver Scheme is unchanged.
Our understanding: the supply measures are welcome, but won’t move the needle quickly. If you’re ready to buy now, the expanded First Home Guarantee is the most immediately useful tool.
If you’re a property investor
Established properties purchased from 13 May 2026 are the most affected. The negative gearing quarantine reduces your annual cash flow benefit, which is most painful if you’re highly leveraged, on a high income and getting a low rental yield (common in parts of northwest Sydney where yields are thinner relative to prices).
New builds are now clearly the more tax-advantaged play with full negative gearing, plus the choice of CGT method on sale. We expect to see investor demand shift noticeably towards off-the-plan and new construction in our area.
If you hold assets through a family trust, note that a 30% minimum tax on discretionary trust income is coming from 1 July 2028. That affects over 900,000 trusts nationally so this change alone is worth a conversation with your accountant now, not later.
Rents: government modelling suggests rents may edge slightly higher in the short term as the market adjusts. We’re already in a very tight rental market in the Hills District, with vacancy rates low and stock constrained. Any reduction in investor activity will be felt by tenants first.
Key dates
12 May 2026, 7:30pm AEST cut-off: established properties bought after this are affected by the negative gearing quarantine.
1 July 2027: New negative gearing rules take effect; new CGT indexation and 30% minimum tax begin.
1 July 2028: The 30% minimum tax on discretionary trusts commences.
Our take on the 2026 Federal Budget
These are real changes with real consequences, but they’re not a reason to panic and they’re definitely not a reason to make rushed decisions. The market in northwest Sydney has strong fundamentals: infrastructure investment, population growth and an undersupply of quality stock that doesn’t disappear because of tax policy.
If you’re wondering how these changes affect your specific situation such as whether to sell, hold, or buy, we’re happy to walk through it with you. We know this market well, and we work closely with local accountants and mortgage brokers who can give you the numbers.
This article is general information only and not financial or tax advice. We urge you to consult a qualified financial adviser before making investment decisions.
Thinking of selling or need selling advice in The Hills?
We have buyers looking for homes in Rouse Hill, Beaumont Hills, Box Hill, Kellyville, North Kellyville and Tallawong. As established real estate agents, we’re here to help. Get in touch today by calling us on 02 8883 0777.
