Property, shares or your own home: how to build wealth after the 2027 property tax changes
This property tax changes article was last updated July 2026. Written by Stuart Wemyss, founder of ProSolution Private Office and author of Wealth by Design.
For most of the past 3 to 4 decades, the wealth-building strategy for households with surplus income and borrowing capacity was relatively straightforward: borrow to buy an established investment property, use negative gearing to reduce the holding cost, and let capital growth compound. The property-versus-shares debate attracted the attention, but the real advantages was tax and leverage. Borrowing to invest in property was usually more tax-effective than the alternatives.
The 2027 property tax changes alter that equation. From 1 July 2027, the negative gearing changes quarantine losses on established residential property acquired after Budget night, preventing them from being offset against salary and other income. The CGT changes also replace the 50% capital gains tax discount with indexation and impose a minimum 30% tax rate. In addition, self-managed super funds will no longer be able to borrow to buy residential property.
These are not minor adjustments. The negative gearing quarantine and capital gains tax changes affect which strategies work, change the relative appeal of property versus shares, and remove some strategies that were previously considered standard.
Much of the commentary about the 2027 tax changes has fallen into one of two camps: either property investing is finished, or nothing meaningful has changed. Both are wrong. The property tax changes remove one strategy from serious contention, reorder the remaining options, and will encourage a wave of workaround strategies that mostly fail under scrutiny. The right response depends on your circumstances and, importantly, whether you believe these changes will last.
ProSolution Private Office is asset-class agnostic. We have no preference for property, shares or any other investment, and no vested interest in promoting one over another. That distinction matters, because much of what investors will be sold in response to the negative gearing changes and CGT changes will come from people who do.
What the property tax changes actually do
Four changes matter for investors, and the transitional rules are critical because they determine who is affected and who is not.
The negative gearing changes are the centrepiece. Existing investments are grandfathered, so established residential property acquired before 7.30pm on 12 May 2026 remains subject to the current rules. However, from 1 July 2027, losses on established property acquired after that time will be quarantined. They can no longer be offset against salary or other income and must instead be carried forward for use against future residential rental income or a later residential capital gain.
The deduction is not lost, but it may be delayed for many years. Because of the time value of money, a deduction claimed in 10 or 15 years is worth substantially less than one claimed today. New residential dwellings are exempt, although the Treasurer has not yet defined what qualifies as “new”, which remains an important uncertainty.
The capital gains tax changes replace the 50% CGT discount with indexation from 1 July 2027. Future gains will be adjusted for inflation and then taxed at your marginal rate. Existing assets are effectively reset to market value on that date, meaning a later sale will produce two gains: a pre-2027 gain taxed under the current discount rules and a post-2027 gain taxed under the new indexation rules.
Indexation can reduce a gain to nil but cannot create a capital loss, making the treatment asymmetrical. For a long-term asset growing at around 7% per annum, the effective CGT rate is likely to rise from roughly 20% to 23% under the 50% discount system to around 30% to 35% under the new rules.
A minimum 30% tax rate will also apply to individual capital gains. This will have little effect if your other taxable income is above $45,000. It mainly affects low-income taxpayers and significantly reduces the scope to use deductions to shelter a capital gain.
Self-managed super funds will also be prohibited from borrowing to buy residential property. The ban commences on 10 August 2026, with grandfathering for existing arrangements. Borrowing to acquire commercial and other business real property will remain available.
The main residence exemption is unchanged. Your family home remains exempt from capital gains tax. Keep that in mind, because it becomes increasingly important in the strategy discussion that follows.
One final observation. The government presents these reforms as housing affordability and intergenerational fairness measures. However, Treasury’s own modelling suggests prices may fall by only around 2%, while similar reforms in Australia, New Zealand and the United Kingdom produced no material improvement in home ownership.
In substance, these are revenue measures. That distinction matters because a revenue measure will be judged differently, and may face very different political pressures, than a reform that materially improves housing affordability.
Why established investment property has fallen out of contention
The problem is simple. Once negative gearing losses are quarantined, an investor buying an established property must fund a much larger cash shortfall from their own income, without receiving any higher return. The property’s growth prospects have not improved because its tax treatment has worsened. You contribute more capital and receive the same underlying return.
Under the old rules, an investment-grade established property might have produced an after-tax internal rate of return of around 11% per annum. After allowing for the negative gearing quarantine and higher CGT, that may fall to roughly 8.4%.
That is a very different proposition. Similar returns may be achievable elsewhere without the debt, concentration risk, illiquidity, transaction costs and ongoing burden of owning a rental property.
This is why the traditional property-versus-shares debate no longer captures the decision. That comparison assumed both assets operated under broadly similar tax rules, making the key question whether to borrow. Established property now has its own less favourable tax regime.
Therefore, if you want to borrow to invest, shares have become the main alternative worth serious consideration. Commercial property and newly built residential property are not compelling substitutes, for reasons I will explain shortly.
Negative gearing changes: the workarounds you may be sold
Whenever a tax change closes a door, people will always invent an alternative product to sell you. To a man with a hammer, everything looks like a nail, so some participants in the property industry will spend the next year promoting strategies to work around the 2027 tax changes. I tested the main ones. None restores the after tax return lost to the negative gearing changes and CGT changes.
Chasing higher rental yield sounds logical because the negative gearing quarantine creates a cash flow problem. However, restoring the old return would require gross yields of roughly 4.5% to 5.5%, or around 65% more rent on a typical property! In practice, higher yields usually mean outer-suburban or regional locations, where weaker capital growth offsets the additional income. So what you gain from one hand, you lose from the other.
Reducing debt until the property is neutrally geared does not help either. It makes the return worse. Borrowing to invest in property worked because the investor’s main contribution was the tax-reduced holding cost. Contributing more of your own capital lowers the return on that capital.
Using a company structure to convert property debt into deductible share debt is also too risky, in our view. It is difficult to identify a genuine commercial purpose beyond avoiding the negative gearing changes, which creates a serious Part IVA risk.
Buying a new dwelling preserves negative gearing, but introduces different problems. New property is often built where land is abundant, with too much of the purchase price allocated to the depreciating building rather than the appreciating land. There is also a real risk that tax-driven demand pushes prices higher, capitalising the benefit into the purchase price without increasing the property’s resale value.
Small-scale development is not passive investing. It is a business involving planning, construction, funding and execution risk, and it suits only a small group with the necessary experience, time and capital.
Specialised high-yield property, including NDIS housing, co-living and student accommodation, also carries substantial policy, regulatory and operating risk. Headline yields can look attractive, but net returns are often much lower once expenses are included, and long-term capital growth is uncertain.
The most useful habit over the next year is simple. Whenever someone promotes a strategy to overcome the property tax changes, first ask whether they have a vested interest. Then test whether the financial analysis survives scrutiny.
Be careful taking advice from someone who does not have to live with the consequences.
The decision is now a three-way choice
After the property tax changes, established investment property and most proposed workarounds are largely out of contention. For households with surplus income and borrowing capacity, the 2027 tax changes leave three main strategies.
The first is upgrading the family home, which I call livevesting. Rather than owning both a home and an investment property, you direct your capacity into one higher-quality home and let it compound. The advantage is that the growth is capital gains tax free and the asset produces no taxable income. The limitation is that the strategy only works financially if you are eventually willing to downsize and release some of that equity for retirement.
The second is gearing into shares/ETFs. You retain a more modest home and borrow to build a diversified portfolio. Unlike the negative gearing quarantine on established property, the interest remains deductible, provided the borrowing is structured correctly. Shares also offer liquidity and diversification. However, income and capital gains remain taxable under the CGT changes, and the strategy requires the discipline to hold a geared portfolio through market volatility.
The third is contributing more to superannuation through additional concessional and/or non-concessional contributions. There is no debt, and earnings are taxed concessionally, but contribution caps and preservation rules limit how much you can invest and when you can access it.
What surprised me when I modelled these options was how closely livevesting and geared shares performed.
Livevesting versus geared shares: closer than you would expect
I compared two identical high-income households with the same income, spending, starting home and total debt. The only difference was how they used their surplus capacity: one upgraded the family home, while the other kept a smaller home and borrowed to invest in a diversified global share portfolio.
I expected geared shares to win comfortably. They did not. Upgrading the home was only slightly behind after 10 years, roughly level after 20, and marginally ahead after 30.
The reason is tax leakage. Geared shares lead initially because deductible interest offsets much of the portfolio’s taxable income. However, once the debt is repaid, that tax shield disappears. The portfolio continues generating taxable income, and capital gains tax eventually erodes its early advantage.
The family home simply compounds tax free throughout. Over a long enough period, that CGT-free growth closes what initially appears to be an obvious gap.
The conclusion is not that livevesting is clearly superior. It is that the family home should not be dismissed as the financially inferior option. The best strategy typically depends on non-financial factors such as your temperament, timeframe, willingness to downsize, the quality of home you can buy and your expectations for future share returns. Often, there is no clear numerical winner.
The judgement that changes everything: will these settings last?
This is the part most commentary ignores, but it is central to what investors should do next.
The negative gearing changes have been tried before and reversed before. The Hawke and Keating government quarantined negative gearing in July 1985 and reinstated it in September 1987 after sustained pressure from the housing and construction sectors. New Zealand removed interest deductibility from 2021, then restored it between 2024 and 2025 after a change of government. In both cases, the policy became politically difficult once its broader effects became visible.
The same pressures could emerge here. Around two-thirds of Australians own a home and generally do not want its value to fall. Governments also rely heavily on property-related revenue, while a weaker, less liquid market affects far more than investors. It reduces transactions, labour mobility, price discovery and new housing supply, while hurting agents, brokers, conveyancers, removalists and other property-dependent businesses.
Australia also rejected similar policy settings at the 2016 and 2019 elections, so it is difficult to argue there was ever a clear public mandate for the 2027 tax changes.
None of this guarantees that the property tax changes will be reversed. However, it does suggest the negative gearing quarantine and related CGT changes may prove politically fragile. They are also likely to become increasingly unpopular as their negative consequences are felt over the coming months and years, particularly if there is no meaningful improvement in home ownership rates.
That possibility should shape your response. The greatest risk is overreacting now, redirecting capital elsewhere, and regretting it if the rules later change and established property becomes attractive again.
So what should you actually do?
This is where I part company with most of the commentary. For most people, the property tax changes do not justify an immediate or dramatic strategy shift. The better response is to understand your options and preserve flexibility.
In practice, there are three sensible positions.
Some people should do very little: maintain their current arrangements and wait for the longevity of the 2027 tax changes to become clearer.
Others should make modest adjustments, directing surplus capacity into strategies that remain attractive on their own merits while protecting their ability to invest in property if the negative gearing changes or CGT changes are later reversed.
A smaller group, depending on age, timeframe and circumstances, may have good reason to change direction more decisively.
The important task is deciding which position suits you and responding deliberately rather than reacting to the noise around the negative gearing quarantine and capital gains tax changes.
That is what the decision tool below is designed to do. It tests the few factors that matter most: your timeframe, borrowing appetite, willingness to downsize and view on whether the property tax changes will last. It then points you towards the most appropriate response.
It also summarises the six strategies being promoted to work around the negative gearing changes and explains why we remain sceptical of each. There is no single answer that suits everyone, and the tool does not pretend otherwise.
Download the decision tool
I have turned the framework into a short downloadable guide: Navigating the 2027 property tax changes: a decision tool.
It includes a decision tree that places you in one of three positions: hold and wait, act modestly while preserving optionality, or change strategy. It also includes a checklist for each position, an assessment of the six workarounds being promoted in response to the negative gearing changes and CGT changes, and the key questions to consider before making any move.
This page and the accompanying decision tool contain general information only. They do not take into account your objectives, financial situation or needs, and they are not personal advice. The measures described have passed Parliament and take effect from 1 July 2027, but some details, including the definition of a new residential dwelling and the small business CGT concession threshold, remain subject to further instruments or legislation. Several of the strategies discussed, particularly those involving borrowing, downsizing, superannuation contributions or realising gains before 1 July 2027, are costly to reverse and depend on your personal circumstances. Obtain personal advice from a licensed financial adviser, and confirm the current state of the law, before acting.
