How the budget turns a reno to ruin
The 2026-27 Australian Federal Budget, handed down on May 12, 2026, fundamentally alters the economics of property flipping.
For decades, a tax system that rewarded capital growth over rental yield made the “buy, renovate, and flip” property model a popular way for middle-class investors with a bit of energy and an idea to get ahead.
However, Labor’s latest proposed tax reforms have gutted the high margins that once made short-term established property speculation rewarding.
To be fair, the margins were declining before the budget. Rising building costs made production more expensive, while rising interest rates reduced the end customer’s purchasing power.
But now, by targeting the structural advantages of discretionary trusts, eliminating the capital gains tax (CGT) discount, and restricting negative gearing, Labor has essentially terminated “house flipping” as a viable wealth-creation tool.
Capital gains no more
The first significant impact is the introduction of a 30 per cent minimum Capital Gains Tax (CGT) rate for individuals and trusts, effective July 1, 2027. Previously, the 50 per cent CGT discount allowed property flippers who held a property for at least 366 days to effectively ignore half of their profit at tax time.
Under the return to the pre-1999 system of indexation, house flippers are protected against the “bracket creep” of inflation, but are hit much harder on the excess returns generated by rapid value-adding.
The tax liability under the new 30 per cent minimum floor will be significantly higher than under the old discount regime, materially eroding the net profit margin that might otherwise justify taking on a renovation.
Negative gearing
Negative gearing changes mean that for any established property purchased after the budget announcement on May 12, 2026, the ability to offset carrying costs like mortgage interest, insurance, land tax and council rates against other income, such as personal salaries, has been abolished.
This is particularly critical for flippers during the ‘holding’ phase of a project, which can be long, as renovation projects often involve lengthy periods where a property is vacant and the building site inactive.
Previously, the carrying costs provided a welcome tax refund that reduced those costs and could be reinvested into the renovation. Now, those losses are quarantined, meaning they can only be carried forward to offset future rental income or the final capital gain. This creates a severe cash-flow drag, as the investor must now fund the full cost of debt and maintenance out of their own pocket for the duration of the project. How this helps the government’s stated goal of improving housing supply is anyone’s guess.
A loss of Trust(s)
Parallel to the CGT and negative gearing overhauls is a direct assault on the use of discretionary trusts. These vehicles were historically favoured by property investors for their flexibility in distributing capital gains to beneficiaries in lower tax brackets or to “bucket companies” taxed at a flat 30 per cent.
From July 1, 2028, the budget removes the tax-arbitrage opportunities that flippers might have used to maximise their after-tax returns.
Other changes
By scrapping the CGT discount for investment properties, while leaving the family home entirely tax-free, the government has increased the relative appeal of re-investing in the primary place of residence. High-net-worth individuals and upgraders are now incentivised to pour excess capital into luxury renovations or larger family homes rather than secondary investment properties, which are now subject to the 30 per cent minimum CGT floor.
This concentration of capital into the owner-occupier sector will drive up prices for established homes, as buyers compete more aggressively for tax-sheltered assets, further pricing out first-home buyers.
Simultaneously, restricting negative gearing benefits to new builds will reduce supply of rental properties. Historically, the ability to offset rental losses against personal income encouraged many ‘mum and dad’ investors to open up established housing at a lower yield. As investors exit the established market due to the diminished tax benefits, the pool of available rental stock could shrink.
Additionally, with carrying losses now quarantined and holding costs rising, landlords are likely to pass these increased expenses onto tenants to maintain their cash flow.
The consequent supply-demand imbalance, coupled with the need for landlords to cover the full cost of debt without immediate tax relief, creates a perfect storm for sustained rental inflation in the established residential market.
And we haven’t said anything about the immigration tidal wave’s impact on the rental market.
For the regular investors, another opportunity to get ahead and ultimately self-fund your retirement has been killed off.
Rhodri joined Montgomery Investment Management in August 2024 as an Account Manager for Private Clients.
Rhodri has worked within equities advisory, private wealth, and alternative investments for 4 years across London, Dubai and Australia. Rhodri holds a Master of Science (Business Management and Accounting) and a Bachelor of English Literature from Cardiff University, Wales.
For private client enquires, contact Rhodri on (02) 8046 5000, or by email.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
