The Federal Budget delivered on 12 May 2026 has redrawn the tax treatment of residential investment property in Australia, and we are now four days into the new regime. For owners and buyers across the Mornington Peninsula, Mount Eliza through to Portsea, the practical questions have already started.
Here’s where things stand.
What changed at 7:30pm on 12 May
Negative gearing on established residential investment property is now limited to new builds. Rental losses on established properties acquired after the cutoff can no longer be offset against salary or other non-property income. Those losses are quarantined, carried forward and used only against future residential property income or capital gains.
Anyone who held an established investment property before 7:30pm on 12 May is grandfathered. The old rules continue to apply to that property for as long as it is held.
Separately, the 50% CGT discount is being replaced from 1 July 2027 with CPI indexation plus a minimum 30% tax on real capital gains. That change applies to gains accruing from the start date, regardless of when the property was acquired.
The two-tier market is now in effect
The grandfathering has created two classes of investment property on the Peninsula. Properties owned before 12 May sit under the old regime. Anything bought from 13 May onwards sits under the new one. For investors weighing acquisitions in Mornington, Mount Martha, Rosebud or further down the Peninsula, the after-tax position is materially different to what it would have been a fortnight ago.
The new-build carve-out matters here. Off-the-plan apartments, house and land packages, and substantial new developments retain access to negative gearing. That changes the relative attractiveness of new construction versus established stock and particularly relevant on the Peninsula, where coastal apartment supply and new estate developments compete with established homes.
Where this leaves Peninsula owners
If you exchanged before 12 May but haven’t yet settled, your position depends on how the legislation defines the acquisition test. Get advice on which side of the line you fall, don’t assume.
If you bought from 13 May onwards, your strategy needs to be modelled on the new rules. Rental losses won’t reduce your taxable income from other sources until you sell or generate future property income.
If you’re holding established investment stock and considering selling, the short-term effect is likely to be fewer leveraged investors competing at inspections, with a stronger owner-occupier presence. Which may or may not work in your favour depending on the property.
What we don’t yet know
These remain budget announcements, not law. The legislation must pass, and the detailed design, including the precise grandfathering test, the definition of “new build”, and the treatment of substantial renovations — will sit in the draft bill. Treasury is expected to release exposure draft legislation in the coming months.
The combined effect of these changes alongside the Vacant Residential Land Tax reforms we covered recently is significant for the Peninsula market. Speak to your accountant or property lawyer about your specific position before making decisions.
Related reading
Vacant Residential Land Tax: The 2026 Changes Hitting Peninsula Landowners
https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf
https://www.abc.net.au/news/2026-05-12/budget-2026-government-breaks-promise-negative-gearing-cgt/106669860
After 12 May: What the 2026 Federal Budget Means for Mornington Peninsula Property Owners
The Federal Budget delivered on 12 May 2026 has redrawn the tax treatment of residential investment property in Australia, and we are now four days into the new regime. For owners and buyers across the Mornington Peninsula, Mount Eliza through to Portsea, the practical questions have already started.
Here’s where things stand.
What changed at 7:30pm on 12 May
Negative gearing on established residential investment property is now limited to new builds. Rental losses on established properties acquired after the cutoff can no longer be offset against salary or other non-property income. Those losses are quarantined, carried forward and used only against future residential property income or capital gains.
Anyone who held an established investment property before 7:30pm on 12 May is grandfathered. The old rules continue to apply to that property for as long as it is held.
Separately, the 50% CGT discount is being replaced from 1 July 2027 with CPI indexation plus a minimum 30% tax on real capital gains. That change applies to gains accruing from the start date, regardless of when the property was acquired.
The two-tier market is now in effect
The grandfathering has created two classes of investment property on the Peninsula. Properties owned before 12 May sit under the old regime. Anything bought from 13 May onwards sits under the new one. For investors weighing acquisitions in Mornington, Mount Martha, Rosebud or further down the Peninsula, the after-tax position is materially different to what it would have been a fortnight ago.
The new-build carve-out matters here. Off-the-plan apartments, house and land packages, and substantial new developments retain access to negative gearing. That changes the relative attractiveness of new construction versus established stock and particularly relevant on the Peninsula, where coastal apartment supply and new estate developments compete with established homes.
Where this leaves Peninsula owners
If you exchanged before 12 May but haven’t yet settled, your position depends on how the legislation defines the acquisition test. Get advice on which side of the line you fall, don’t assume.
If you bought from 13 May onwards, your strategy needs to be modelled on the new rules. Rental losses won’t reduce your taxable income from other sources until you sell or generate future property income.
If you’re holding established investment stock and considering selling, the short-term effect is likely to be fewer leveraged investors competing at inspections, with a stronger owner-occupier presence. Which may or may not work in your favour depending on the property.
What we don’t yet know
These remain budget announcements, not law. The legislation must pass, and the detailed design, including the precise grandfathering test, the definition of “new build”, and the treatment of substantial renovations — will sit in the draft bill. Treasury is expected to release exposure draft legislation in the coming months.
The combined effect of these changes alongside the Vacant Residential Land Tax reforms we covered recently is significant for the Peninsula market. Speak to your accountant or property lawyer about your specific position before making decisions.
Related reading
Vacant Residential Land Tax: The 2026 Changes Hitting Peninsula Landowners
https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf
https://www.abc.net.au/news/2026-05-12/budget-2026-government-breaks-promise-negative-gearing-cgt/106669860
Related Posts
The Great Rental Housing Self-Sabotage
ANDREW MELAS Jul 14, 2026 “Government after government has declared war on property investors. Renters are about to discover who
The CGT Countdown: Why 2025-26 and 2026-27 Matter for Peninsula Property Vendors
If you own an investment property on the Mornington Peninsula and have been quietly thinking about selling, the federal budget