If you are deciding today in Australia between buying an investment property and investing in shares, the 2026 tax changes make shares more attractive for most new investors, particularly if the alternative is an established investment property. The tax advantage that historically made negatively geared established property particularly attractive is being reduced.
The important point is that the changes are not simply “property taxes are going up while shares are untouched”. The major change is that from 1 July 2027, negative gearing for residential property will be restricted to new builds, while the existing 50% CGT discount is being replaced by an inflation-indexed system with a 30% minimum tax rate on real capital gains.
That changes the investment equation considerably because Australian property investing has historically benefited from two major tax features working together: negative gearing during the ownership period and the 50% CGT discount when the property is eventually sold. The government is now changing both of those features for future investments.
What this means for shares
Shares have several advantages that become more valuable when property loses some of its tax advantages.
- Diversification
The first is diversification. With a diversified Australian or global shares, your money can be spread across many businesses rather than concentrated in one house in one suburb. If one company performs badly, it doesn’t necessarily destroy your investment. With a single property, you are exposed to one location, one property, one rental market and one tenant situation.
- Lower transaction costs
The second advantage is transaction cost. Buying an investment property can involve stamp duty, conveyancing, inspections, loan costs, land tax, and other acquisition expenses. Selling can involve agent commissions, legal costs and other expenses. Buying shares can generally be done at a fraction of those costs.
- Liquidity
The third advantage is liquidity. If you own $500,000 of shares, you can sell $50,000 relatively easily if you need money. You cannot easily sell 10% of a house. You have to sell the property itself, incur selling costs and deal with the time required for the transaction.
- Imputation/ Franking Credits
Australian companies pay company tax on their profits before distributing some of those profits to shareholders as dividends. If the dividend is franked, the shareholder receives a franking credit representing tax the company has already paid. An Australian resident shareholder generally includes both the dividend and the franking credit in assessable income and can claim the franking credit as a tax offset. Property doesn’t have an equivalent system.
Property’s tax disadvantage is becoming more important
Historically, an investor could accept relatively poor rental yields because the tax system helped compensate for negative cash flow. You might deliberately buy a property that loses money each year because you expected substantial capital growth and received a tax deduction along the way.
That strategy becomes less attractive for a new established-property investor after the reforms.
Suppose two investments both require $300,000 of your own money. One is a highly geared established property producing a relatively low rental yield. The other is a diversified share portfolio producing dividends and capital growth. Under the old system, the property investor could potentially receive a significant tax benefit from negative gearing while waiting for capital growth.
Under the new rules, if that property is an established dwelling bought after the relevant date, you lose much of the ability to use that rental loss against your other income. At the same time, the future CGT treatment becomes less favourable than the old 50% discount system. That makes the property investor more dependent on the property itself actually delivering strong capital growth and rental growth.
The investment property has to stand more strongly on its own economic merits rather than relying on tax concessions to improve the return.
Lauren Hua is a private client adviser at Fairmont Equities.
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