Investing: Property vs Shares

The 2026–27 Federal Budget has introduced proposed reforms that could significantly influence how Australians approach investing in property and shares.

By targeting two longstanding features of the tax system, negative gearing and the capital gains tax (CGT) discount, the Government has signalled a shift in how different asset classes will be treated. While these changes are not yet law, they provide an important lens through which to reassess traditional investment preferences.

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Property: A changing landscape

Property has long been a cornerstone of Australian wealth creation, supported by strong population growth, limited supply, and favourable tax settings. However, a significant change in tax settings has the ability to impact Australia’s long-standing reliance on property as a reliable investment. In fact, if Labor’s scrapping of negative gearing in the 1980’s provides any indication, the Budget changes have the potential to impact housing valuations, new build growth rates, as well rental market.

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Historically, investors have been able to offset rental losses against their broader income, reducing the effective cost of holding a property, and then benefit from a discounted tax outcome on sale.

Under the proposed rules, investors purchasing established residential property will no longer be able to use rental losses to reduce their salary or other non-property income. Instead, those losses will need to be carried forward or offset only against property income or future capital gains. While this does not eliminate the ability to claim deductions entirely, it reduces the immediacy and flexibility of the tax benefit that has historically underpinned many property investment strategies.

The negative gearing opportunity will remain for newly built properties however, allowing losses to be offset against other income. This incentive may encourage a structural shift toward new developments and away from existing dwellings over time. Despite this, there is already a trend from banks reducing the amount of investor lending to buyers due to the removal of negative gearing, which can lower the serviceability of a loan given the removal of tax offsets.

The treatment of capital gains also becomes less generous. The removal of the 50 per cent capital gains tax (CGT) discount in favour of indexation reduces the tax advantage associated with long-term capital growth, particularly in periods where asset prices rise faster than inflation. While indexation ensures that only real gains are taxed, the introduction of a minimum 30 per cent tax can result in a higher effective tax outcome for some investors compared to the current system.

Interestingly, despite the introduction of Division 296, the new tax on superannuation balances exceeding $3 million, the changes to negative gearing or CGT on existing properties do not apply to superannuation. As a result, this has the potential to encourage property investment within super and self-managed super funds (SMSFs) due to its tax advantage.

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Shares: A relative shift appeal

While there is no negative gearing impact to share investments, the CGT reforms apply to shares, ETFs and other financial assets. The replacement of the 50 per cent discount with indexation and a minimum tax changes the balance between income and growth across portfolios. Strategies that rely heavily on capital appreciation may become less attractive on an after-tax basis, particularly for higher-risk or growth-oriented investments where returns are realised primarily through asset sales.

As a result, income-generating investments may take on greater prominence, such as dividend-paying shares, as investors place greater emphasis on regular, tax-effective income rather than deferred capital gains. This does not diminish the role of growth assets entirely, but it may influence how portfolios are constructed and evaluated.

At the same time, shares retain structural advantages that are unchanged by the Budget. They offer liquidity, allowing investors to adjust positions more easily, and provide access to diversification across industries, geographies and asset types, unlike property. These characteristics may become increasingly relevant in an environment where tax outcomes across asset classes are more closely aligned.
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A more even playing field?

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Taken together, the proposed reforms do not clearly favour one asset class over the other, but they do narrow some of the tax-driven differences that historically shaped investor behaviour. Property, particularly established residential property, may no longer enjoy the same level of tax support for new investors, while shares face a reduction in capital gains concessions that affects long-term growth strategies.

This suggests a gradual rebalancing rather than a wholesale shift. Investment decisions may increasingly be driven by fundamentals such as income generation, risk, liquidity and time horizon, rather than the relative strength of tax incentives alone.

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Final thoughts

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For investors, the implications of these changes will depend on individual circumstances, including existing holdings, investment objectives and timeframes.

For example, the ability to sell shares in parcels at a potentially lower tax rate may be more attractive for an investor over selling a property and being taxed in one lump sum. Alternatively, purchasing a new build property for negative gearing purposes or an existing property within superannuation might be a more attractive option for another investor.  

Clients and investors must remember, while tax considerations remain important, they are only one component of a broader investment strategy.

As the proposed reforms progress through the legislative process and details are clarified, maintaining flexibility and a diversified approach will always remain important.

Before making any important investment decision, we encourage you to speak with an Ord Minnett private wealth adviser first.

Important information: This webpage provides general information only and does not constitute financial, investment, or tax advice, and should not be relied on to make financial, investment or taxation decisions. Individuals should seek professional advice tailored to their specific circumstances before making any decisions.