Property Finance Update (Budget Edition) - May 2026

LoanCaddie
May 15
6 min read

Updated: May 18

This month has been one of the most significant in recent memory for Australian property owners and buyers. The RBA lifted the cash rate for the third time this year, and Treasurer Jim Chalmers handed down a Federal Budget that reshapes the rules for investors, first home buyers, and everyday Australians alike. We’ve pulled together the key updates below.

Federal budget 2026–27

The Federal Budget was handed down on 12 May. Here’s what matters most if you own property, are looking to buy, or run your own business.

No negative gearing on residential purchases (other than new builds)

Residential properties (that are not new builds) purchased from 13 May 2026 can only claim negative gearing benefits up to 30 June 2026. Net losses will be carried forward into later years and can only be offset when the property is positively geared.

Importantly, negative gearing for residential properties purchased before 13 May 2026 are fully grandfathered and will continue. This includes currently owned owner-occupied properties that are used for investment in the future.

Negative gearing is still available where it relate to investment assets that are not residential property (e.g. commercial property loans, margin loans, home equity loans used to purchase managed funds and shares).

New Capital Gains Tax (CGT) regime for gains after July 2027

The existing 50% CGT discount will be replaced with an inflation-adjusted cost base from 1 July 2027. This will apply to all assets (including shares). A 30% minimum tax rate on capital gains will apply to individuals, trusts and partnerships.

Existing assets are NOT fully grandfathered. Assets owned before and after 1 July 2027 will be subject to both regimes. Investors will need to obtain valuations for their asset as at 1 July 2027 to determine the capital gain under each regime. Alternatively, there is an apportionment methodology. We recommend you obtain a valuation in case the apportionment methodology result in higher CGT calculation (which you won't know until you sell at some point in the future).

The existing 33% CGT discount and 15% tax rate for super funds is unchanged.

The CGT exemption on your primary place of residence and small business relief is unchanged.

If you have questions about what this means for your situation, it’s worth speaking to your accountant or financial adviser.

First home buyers

The 5% deposit Home Guarantee Scheme continues, meaning eligible buyers can enter the market without paying Lender’s Mortgage Insurance (LMI). The Budget also commits $2 billion toward housing infrastructure, targeting 65,000 new homes, and extends the ban on foreign investors purchasing existing homes.

Cost-of-living relief

A new $1,000 instant tax deduction for work-related expenses removes the receipt burden for individuals and sole traders. A Working Australians Tax Offset (WATO) of up to $250 provides additional relief from 1 July 2027. Personal income tax rates will also fall – the 16% marginal rate drops to 15% from 1 July 2026, and to 14% from 1 July 2027.

Small business and self-employed

The $20,000 instant asset write-off is now permanent for businesses with a turnover up to $10 million – meaning eligible purchases can be fully deducted in the same year rather than depreciated over time. From 1 July 2026, companies with turnover up to $1 billion will also be able to carry back tax losses from the previous two years.

Minimum tax rate on discretionary trust distributions

A new minimum 30% tax rate will apply to distributions from discretionary trusts and will negate the advantage of distributing to a non-income generating family members.

This also has the potential to impact testamentary trusts that are discretionary trusts. This has been the preferred structure of many estate planners.

Again, your accountant, financial planner, estate planner will be best placed to advise on how these apply to your circumstances.

Expected Impacts

If the budget is passed in parliament (which is highly likely), it is expected that it will have following impact.

The merits of a principal place of residence as a means of wealth generation is retained and made more attractive since it one of the few assets that do not attract CGT.
The attractiveness of buying negatively geared residential investment properties (that are not a new build) are reduced.
The attractiveness of using super over investment properties as a means of wealth generation is increased.
The demand for new builds is expected to increase due to continued negative gearing advantages.
The merits of rentvesting over owning your own home are significantly reduced since the CGT discount is being removed for gains after July 2027.
The ability to reduce tax by timing the sale of assets when you have low employment income is reduce due to a minimum 30% tax rate on CGT.
The maximum borrowing capacity of investors may reduce 10%-15% due to the removal of negative gearing benefits.
The merits of using a trust structure for your business or investments are reduced, but can still be useful for asset protection and estate planning.
Impact on property market is expected to be mixed.
- Investor dominated parts of the market are expected to be subdued since investment attractiveness and maximum borrowing capacities will reduce for new buyers.
  - However, this also creates a disincentive for existing property owners to sell since they will be forgoing the ability to negative gear. This also applies to owner-occupiers since they will be forgoing the option to negatively gear if ever they choose to use the property as an investment in the future.
- The demand for newly build properties and development properties should increase.
- Desirable owner-occupier dominated parts of the markets should receive increased support.
- There is an increased incentive to consider commercial property investments over residential property due to the continuing ability to negative gear these assets.
Correct loan structuring has become more important and complicated. Speak to us or your accountant or financial adviser to ensure you are taking advantage of tax advantages that still remain.

Interest rate news

The RBA raised the cash rate by 0.25 percentage points to 4.35% on 5 May – the third consecutive rise for2026. The decision was voted 8–1 by the Board, a decisive shift from the narrow 5–4 split in March.

Australia’s annual Consumer Price Index (CPI) rose to 4.6% in March, up from 3.7% in February and marking its highest level since September 2023. The RBA’s preferred measure, underlying inflation, held at 3.3%, still above its 2–3% target band.

RBA governor Michele Bullock attributed the surge in Australian inflation to the oil price shock linked to the Middle East conflict and warned more cash rate hikes could be needed.

“It’s a real income shock for Australia and the world,” she said. “Australians are poorer because of this shock to oil prices and energy prices and all the other commodity prices that are being impacted.”

The next cash rate decision will be announced on 16 June. Some economists are anticipating we could see two more cash rate hikes in June and August due to the persistent inflationary pressures.

If you’re curious where your home loan stands, talk to us for a review and we’ll let you know if there’s a more competitive option available.

Home value movements

National home values increased by 0.3% in April, representing the slowest pace of growth in more than a year.

The decline was largely driven by property price falls in Melbourne and Sydney, where property values dropped 0.6% over the month, pulling down overall market performance. Growth in the mid-sized capitals also began to lose momentum in April, signalling a broader cooling trend.

According to Cotality research director Tim Lawless, this shift has been building for some time.

“The housing market has been losing momentum since late last year, as affordability and serviceability constraints weigh on demand,” he said.

“Now, with the added pressure of higher interest rates, sentiment has dropped sharply, and rising inflation is likely to push borrowing costs higher still.”

Regional markets have held up better, with prices rising 4.2% over the first four months of the year, compared to 1.8% across the combined capital cities.

However, even regional growth is starting to ease. Prices rose 0.9% in April—the slowest monthly increase in nine months—suggesting the pace of growth is beginning to moderate.

Home Value Index

Ready to buy?

Between the Budget, rising rates and a shifting market, there’s a lot to weigh up. Whether you’re reviewing your current loan, thinking about your next purchase, or just want to understand where you stand, we’re here to help you with the next step.