Latest / The Follio Property Podcast / BREAKING: Negative Gearing Scrapped, And CGT Changed In Federal Budget 2026 (Live Reaction)

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BREAKING: Negative Gearing Scrapped, And CGT Changed In Federal Budget 2026 (Live Reaction) · The Follio Property Podcast

• 0:00
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• 0:56
  the budget feature changes to the capital gains tax, negative gearing and the taxation of trust funds. Fresh off the press, we just had the May budget announcement. We're going to be talking through the negative gearing, the CGT proposal and also looking at some of the trust lending. What's your feedback on the outcome today? Mixed messages today, Rhys. There's a lot to unpack. Some good news for investors, some bad news for landlords. It was a really mixed budget.
• 1:25
  Lachlan, hot off the press, the federal budget announcement, big changes to the property market. We've just heard it. We've just watched it. We've lived it. We've breathed it. Now it's our job to report on it, Rhys. Anyone watching, listening, please put any comments in.
• 1:42
  in the YouTube or Spotify. We're going to be doing a follow-up episode on Thursday. Q&A Thursday around this specifically. We've got a lot of information. The devil will be in the detail and we'll get to every one of your questions next Thursday in another take of the federal budget. First things first, what's your opinion on what we've just seen?
• 2:00
  No real surprises from that, Rhys. It's sort of everything that was predicted came through. Nothing jumped out at me that was notably different from when I woke up this morning to what we expected and the outcome we got was pretty much in line. Yeah, I think exactly what was leaked yesterday seems to come to fruition. Who's, in your opinion, I know it's fresh and we still a lot of to digest over what the ins and outs are going to be, but who's the big winners in this season?
• 2:26
  Big winners, I think, are those that they're trying to expose and that's the baby boomers. Those that have vast amount of investment properties, so your older generation, your baby boomers, those that have probably benefited off the boom over the last five, six years are the big winners because it's been grandfathered. Anyone that owns a property currently reese or even if you contracted a property. So this is really important for people to understand because-
• 2:51
  It's effective from budget night, so tonight will be the effective date of when they look to implement these changes for negative gearing and capital gains. But if you have bought a property or contracted a property prior to today, you won't be subject to negative gearing, so you won't be subject to the negative gearing changes.
• 3:12
  So I'm fortunate for those that have got, you know, I've personally got two properties currently under contract. I know you do as well, Rhys, and we have some clients that took that advice in the lead up to this. So it's good for those that are in the market. I think those that are punished are the ones that they're trying to protect, the younger generations, right? This is going to make it more difficult for younger people to get ahead.
• 3:34
  Yeah, and we've said that. You've got to look at Gen Zs and millennials who not just property, using things like shares, crypto to try to get ahead, I guess, in terms of being outpriced in the property market, they're going to be impacted by their CGT changes as well.
• 3:53
  Yeah, definitely. And just had messages, what does this mean for the market? It's flooding through pretty hard and fast. Again, it's fresh and raw. So anything we're saying right now is just off the back of me just seeing the announcement. So stay with us. But straight away, I think there's more of a flight to quality. So it reinforces quality assets. I think some of those investment vehicles that have done well over the last five years, when you think of the regionals or out of fringes, now without the benefits to holding those properties...
• 4:23
  you know, although those that have purchased are still going to get the benefit, I think the demand is going to get sucked out of those high investment areas that are dominated by established product. Do you see with these, so let's just probably reiterate what the changes are. We've obviously gone through it. So negative gearing has now been removed altogether. For established product. For established product. Not for new build. What's your thoughts on that? Only restricting it to new build.
• 4:52
  concerns me a little, albeit the benefit for new build is significantly less because they typically yield higher. So the cash burn is what it costs you to hold the property and that difference between the cost of holding and your payments is going to be a lot less than it is for established property. It's really to stop the land bankers, right? I think that's what it's geared to do and that's who it's going to affect, which is a model that we've certainly used for our clients and a model I've used personally, Rhys.
• 5:19
  It does concern me because the last time we've seen changes to try to encourage significant supply like this, what did we see? And the most common example was during COVID when they pretty much gifted out $25,000 rebates. That doesn't typically go to the consumer. It goes to the builders, the developers, et cetera. So I...
• 5:39
  I think it's a poor way to solve an issue that the government's been sort of unable to resolve in any sort of capacity, and they're sort of clinching to do so through this policy.
• 5:53
  Yeah. And, you know, we've said stories on the podcast before about certain investment groups targeting this type of stock and, you know, some estates having 70, 80% investor-led activity. This policy where the benefit is only on new build is really going to attract a lot of investors to this new build stock. And you could have some new build estates where…
• 6:12
  It's only renters, right, which is problematic for thousands of reasons. And do we want to just create supply in the outer berms, which puts more pressure on infrastructure, which the government's significantly behind? All these new estates don't have enough infrastructure as it is, and are you going to put more pressure on that? Do I think that's a good idea? No, but we've got a government now that just loves spending money.
• 6:35
  And what really annoyed me about that, Rhys, was the first, I'd say, 12 minutes of that budget review, I counted 13 times they referenced the war. And this war has only come up in the last, what, 12 weeks now. And pretty much the whole context of how they were
• 6:55
  released the budget was on the basis, oh, we're in a war and we're going to have drastic times calls for drastic measures. They referenced the war 14 times, Rhys. It's just like shifting the blame. No, you've spent far too much money. You're a government that is completely inept in able to retain inflation. Like one of the large reasons we've got this inflation problem is because they've spent far too much money and they just keep throwing fuel on the fire. I don't want to get into ramp mode, so let's go to the next topic, Rhys. Yeah.
• 7:22
  Well, let's go through negative gearing. So it's obviously restricted to new build only. Yep. We mentioned before we went live, the devil's going to be in the detail. There is still a lot of unknowns regarding how we can use certain company structures. Trust structures. We're going to find out in the coming days. So stay with us. Our next episode's Thursday, so we might speak about it then. But we'll find out in the next 24 hours.
• 7:47
  I don't believe in the research we've done up to this point that they're going to apply that to company structures or trust structures. So again, there's going to be a vehicle where you can still – I believe you're going to be able to still purchase established property with negative gearing benefit. It will just look – it will be in a different format to your standard buying your personal name structure.
• 8:09
  And again, problematic because then it probably hurts your uneducated mum and dad. But those that take advice and hopefully listen to this channel or some more sophisticated investors will find a way around this. So stay with us. We'll come to you. But there was nothing in there that suggested that they were going to apply that rate. Sorry, they were going to remove that to company and or trust structures. But give us 48 hours.
• 8:33
  And just to reiterate what you're saying there for those that are listening that are unaware, I personally wasn't able to claim negative gearing benefits on a property while I was overseas for a period of time. I then subsequently sold that property and I was able to reclaim the losses against my capital gains. So in that particular instance, I actually didn't pay any capital gains tax on that property. So that is a potential benefit we could be doing through the company. Well, they haven't come back to see if there's any ability to claim it against future gains, negative gearing against future gains.
• 9:02
  Unless, you know, something gets announced shortly, that's where it stands at the moment. So stay tuned with us. We'll come to you in not how to exploit this, but like anything, the devil's always in the detail, Rhys. And this is the problem. They're going out there and beating their chest that they're helping young Australians get into the market. You're doing absolutely the opposite of that. You're making the gap between the rich and the poor even greater.
• 9:23
  those that already have property to those that want to get into the market, making it harder. And it just means people are going to have to get more sophisticated, listen to channels like this and others to work out ways to, you know, benefit from what the government's put in front of us. And that's all it is. It's a barrier.
• 9:40
  It's not ideal for the type of assets that we typically purchase, which is blue chip established. We have used this vehicle for our investors predominantly in the past. It's not completely gone. It's just it will take form in a different shape.
• 9:54
  What about the grandfathering rule? So that's been a big topic of discussion over the last week which got confirmed on the budget. They had to do it. You can't not, you know, people go out and make financial decisions based on the current laws and legislation. You could not grandfather it. So no surprise there. The fact that if you do buy a property next week, you can get some negative gearing until July 2027, yeah, it's a modest benefit. And then effectively from July 1, 2027, you won't get that negative gearing again.
• 10:23
  for established assets. Yeah, it's interesting. I think, you know, with the budget so geared, pardon the pun, towards helping the younger generation, it does feel like with the grandfathering rules and the younger Gen Z millennials who are trying to get into that sort of wealth creation journey, it does seem to favour the baby boomers.
• 10:44
  It really does and they're trying to get younger money now towards newer properties, properties that we advise clients for decades not to buy out of fringe areas. So yeah, it's dangerous race. They're pushing our most vulnerable demographic, our younger investors.
• 11:01
  based on this to asset classes that we would advise highly against. But again, stay with us. It will take different shapes and forms as more detail comes through. But let's hit the next topic on the head. Let's talk through capital gains tax. No massive surprises from what's been predicted over the last 24, 48 hours. A little bit of surprise if I'm understanding this correctly. So the indexation message was no surprise.
• 11:26
  But looking at pre-1985, they're looking at effectively from July 1, that even though assets, so the rule there, anything prior to that period wasn't taxed at the same rate, but they're looking to include that under this new methodology, which will be interesting. I think there could be quite a few assets get sold between now and July 2027, if that's factual.
• 11:51
  The other big thing on this as well is we were hearing Intel, you know, a couple of months ago, sorry, a couple of weeks ago, I should say that it was only going to be property that they were targeting on the capital gains. It has now come out that it's across the board. So this kind of fueling the fire from what we were saying earlier regarding the younger generation specifically that have maybe used other vehicles besides property for wealth creation. Seems like they're going to be getting taxed as well from 1st of July too.
• 12:17
  Yeah, exactly. Anyone that's aspirational in this country, we're going to have the highest capital gain rate pretty much in the world. So who gets affected, Rhys? Those that want to start businesses, higher tax. Those that want to invest and get ahead in life, work hard, make money, reinvest, get taxed. We've just got a government that is, you know, promoting mediocrity, to be fair, and not trying to help the Australians that want to get ahead and actually, you know,
• 12:47
  take some risk and invest and explore wealth creation in any sort of capacity, trying to make it a level playing field where it's almost socialism run. From a property investor standpoint, who are the biggest people that have taken a hit on these types of changes?
• 13:04
  Again, it comes back to your younger generation, those that don't have exposure into the market, that want to build portfolios. Where I think this negative gearing is going to hurt the most, Rhys, is on your borrowing capacity.
• 13:20
  Whether you can claim the negative gearing against your capital gain on your exit, you could argue that there's no real difference. It's forced savings. But where it will hurt you. So a huge strategy for our younger clients on modest incomes is obviously rent vesting, buy a property.
• 13:39
  use the rental income and some of the tax benefits that helps with your serviceability. Negative gearing is a huge part of that. Now, we did some numbers during the week. We had a couple of different scenarios where it could cost various clients anywhere from $200,000 to $700,000 in their borrowing capacity because you can't factor in the benefit of holding or the discount that you get back from the government for holding the properties.
• 14:01
  So I think that's where, you know, through all this, and it's not, no surprises, not as bad or doom and gloom as what everyone's expecting. I just think it's going to hit the younger investor trying to expand a portfolio. It's going to delay the ability to do that because your service ability is going to get smashed because of this. And then you factor in a couple of interest rate rises this year and potentially a couple more. Plus on any new service ability, you can't use negative gearing. That's where it's going to hurt.
• 14:30
  Is this the end of the rent-buster then in 2026? It's not the end of the rent-buster. Like I said, there'll be another way, another vehicle, another strategy that will allow...
• 14:42
  traditional strategies to continue in time. Our job, Reese, on this podcast is to find those strategies and deliver it to the audience. And as of today, the devil is in the detail. We've only been given, we've just watched it here live, right? We haven't gone through the budget with a fine-perfooze comb or we haven't got Ryan, our economist, to go through this in any level of detail either. So we'll get our heads together over the next sort of 48 hours coming week.
• 15:11
  and we'll get to our listeners where we think this, not to exploit, I don't like that word, but where we can still use traditional models investing. I think they're exactly right. The devil's going to be in the detail. At the moment, the people that are taking the biggest hit from these changes, like you said, younger generation, probably some mum and dads, millennials, probably not too dissimilar to our age, Lachlan, maybe a little bit older as well, that have just started in their property journey, so they are really relying on that negative gearing benefit.
• 15:41
  I think what we'll see over the next 24 hours is more details from that and then we can start to understand is can we, you know, are there alternatives through structures or to offset it at a later date. Yeah.
• 15:54
  Yeah, I'm with you stating from that. I guess just to kind of close it off from a property or an asset selection standpoint, we mentioned there obviously to attract the negative gearing benefit. Now, as we said, this is a benefit. This isn't a strategy. The new builds will be the only properties from an investor standpoint. How about from a standard established property, what are going to be the best types of assets when you can't utilize this negative gearing benefit?
• 16:21
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• 17:21
  I think there'll be a natural flight to quality. For those that are less active in wanting to find ways to build out a larger portfolio, I think there'll be a natural flight to quality where people will use their primary place of residence as a way to create wealth because it's still in a tax-free environment. They'll use their super.
• 17:42
  but I think people, if there wasn't a way to buy through trust companies that we can still get the benefit, I think people will do more with less. So okay, we can't hold as many properties as we once could, so going out there and having five, six, seven, eight properties, Reese, without getting any benefit, it may make it difficult to hold, but more importantly, difficult to service. That's going to be the hardest thing, right? Always talk about it on this podcast. Property game is as much a deck game as it is a property game.
• 18:12
  and this is going to hurt serviceability. So we're going to have to work with our brokers, our financial planners to work out how we can improve serviceability. I think that's going to be our focus point over the next coming weeks. But if that's the case where you can only get access to now more limited debt, then the quality of the asset in the portfolio becomes more important than ever. And those areas that have probably done one over the last five years, those really dominated established investment areas, this could cripple the regional place.
• 18:42
  Although you could argue that some of these regionals aren't negatively geared, when you look at what you have to pay to get into a regional like a Townsville now or a Gladstone, they are all negatively geared. And the only market that's buying and trading assets in those sort of markets are investors, and now you don't get the holding cost benefit.
• 18:59
  So they're the markets that could tank and tank aggressively. Like I said, there'll be a flight back to quality. So your blue chip stuff I think will outperform because you're going to be competing with more owner-occupiers that want to buy or spend more money. Not necessarily our investors, but I think you'll see more owners spend more owner-occupiers, spend more on their primary place of residence than typically we tell them to spread their chips. Three times your income on your house, three times your income on your investment properties,
• 19:29
  I can't hold it. I might as well spend more on my home. So I think there'll be a natural flight to quality. And I hope there isn't, but naturally I feel there's going to be a push for the new build stock. So builders and developers are licking their lips listening to this, particularly in affordable areas. I think of Victoria at the moment. We don't have the infrastructure to keep up with that.
• 19:52
  And it's not an asset type that we speak quite favourably about, albeit you don't get a lot of benefit from native gearing historically. So it's an easy one not to touch because it promotes building and the government's contribution is minimal because they're typically higher yielding.
• 20:13
  I think you'll see a lot of spruikers on the back of this pushing off the plan and house and land package stock. That is my concern. And don't just get sucked into that because stay with us, stay tuned. There are better strategies. Yep.
• 20:29
  I said this to you off air, but I was on the phone with our economist this afternoon and he's telling me some things he's working on at the moment and where he has some concerns in Perth at the moment is some increasing vacancy rates and some markets are starting to fall off in some of these higher investment belt areas.
• 20:45
  Correct. So, I mean, watch this space. Once he does some of his analysis over the next week or two, we could probably touch a little bit more on that. But he's already got concerns before the budget, let alone off the wave of the budget announcement where it will probably flood more people into these areas when there's already concern with some vacancy rates and the market coming off.
• 21:05
  But like you guys, this is fresh for us. Our job is, my job is, consume the information and form a valid opinion based on the data that's presented. And at this point in time, I don't have enough information to give our listeners strategy advice, what to fully make of this. Our job is to bring it to you as quickly as we've heard it. I think we've achieved that. Sorry that we don't have a lot of detail. It's just we've only been giving information that you guys have got as well.
• 21:33
  Stay with us. We'll try to give you an update by Thursday in that episode. We'll have a lot more information on this and how it will impact you and your portfolio.
• 21:41
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