Property Versus Shares in 2026: How Tax Changes Are Reshaping Australian Investment Choices

The 2026 Federal Budget and subsequent legislation altered two long-standing features of Australia’s investment tax landscape: negative gearing on established residential property and the 50 per cent capital gains tax discount. From Budget night on 12 May 2026, new purchases of established residential investment properties lost the ability to offset rental losses against other income. From 1 July 2027 the 50 per cent CGT discount is replaced by cost-base indexation with a minimum 30 per cent tax rate on real capital gains for individuals, trusts and partnerships. These changes have prompted many investors to reassess the relative merits of residential property and listed shares.

The new tax arithmetic

Negative gearing remains available for newly built residential properties and for commercial property. Existing holdings acquired before the relevant date are generally grandfathered. For new investors considering an established rental property, the inability to deduct net rental losses against salary or other income raises the effective holding cost.

The CGT reform applies more broadly. Assets held longer than 12 months will no longer benefit from the 50 per cent discount. Instead, the cost base is indexed for inflation and a minimum 30 per cent rate applies to the real gain. Age Pension and certain other recipients are exempt from the minimum rate. The change affects both property and shares, yet the loss of negative gearing is specific to established residential property and therefore tilts the comparison.

Shares retain two significant advantages. Interest on borrowings used to acquire shares remains fully deductible against other income. Fully franked dividends continue to deliver franking credits that can reduce or eliminate tax, particularly valuable inside superannuation or for investors on lower marginal rates.

Historical returns and practical differences

Over long periods Australian shares (ASX 200 including dividends) have delivered total returns in the region of 9–10 per cent per annum. Residential property in major capital cities has produced capital growth in the 7–9 per cent range before rental income, with total returns higher once rent is included. Property’s capacity for higher leverage — often 80 per cent or more loan-to-value — can amplify equity returns in rising markets, but it also amplifies losses and introduces interest-rate and liquidity risk.

Shares offer daily liquidity, lower transaction costs and straightforward diversification through ETFs or managed funds. Property requires larger minimum outlays, incurs stamp duty, agent fees and ongoing management costs, and can take months to sell.

Portfolio construction under the new rules

XTO Capital’s review of client portfolios since the Budget indicates that many investors are increasing the equity allocation within their overall wealth strategy while retaining core property exposures that were acquired under the previous rules. New capital is more frequently directed toward diversified share portfolios, listed investment companies or ETFs, particularly where the investor seeks franking credits or the ability to gear against salary income.

Inside SMSFs the calculus differs again. Commercial property can still be geared via limited recourse borrowing arrangements and continues to offer stable income. Australian shares deliver franking credits that are refundable in accumulation phase when the fund’s tax rate is 15 per cent. XTO Capital notes that a balanced approach — combining income-producing commercial property with a liquid equities allocation — remains common for SMSFs with sufficient scale.

Risk, liquidity and personal circumstances

Property’s lower short-term volatility appeals to investors close to retirement or those who prefer tangible assets. Shares’ higher volatility requires a longer time horizon and the emotional capacity to hold through drawdowns. Leverage magnifies both outcomes.

Investors with existing high property exposure may find that further concentration increases risk, especially if interest rates remain elevated or local housing markets soften. Those with little or no sharemarket exposure may discover that the post-Budget tax settings make equities relatively more attractive for new investments.

XTO Capital emphasises that the decision is rarely binary. Most robust portfolios contain both asset classes, with the mix determined by time horizon, cash-flow needs, existing exposures, borrowing capacity and risk tolerance. Tax is only one input; it should not override fundamentals such as valuation, diversification and liquidity.

Outlook for the remainder of 2026 and beyond

House price forecasts for 2026 and 2027 vary, with some major banks projecting modest declines in capital-city medians as higher rates and the tax changes weigh on investor demand. Equity market returns will continue to depend on earnings growth, interest-rate paths and global conditions. AI-related and resources sectors remain areas of focus for many Australian investors.

The practical response for most clients is a fresh examination of after-tax expected returns under the new rules, stress-tested against different interest-rate and growth scenarios. XTO Capital continues to assist Perth and Western Australian investors in quantifying the impact of the changes on both existing holdings and prospective allocations. The goal is not to declare a permanent winner between bricks and shares, but to ensure that each new investment decision reflects the tax environment that now applies.