Negative Gearing in Excel: Model the 2026 Budget Changes to Your Property Portfolio

Introduction

The 2026 Federal Budget delivered on 12 May 2026 introduced the most significant changes to property investment taxation in Australia since the 1980s. If you own investment property or are considering buying one, the numbers have changed.

Specifically, the government has:

• Restricted negative gearing - rental losses can no longer offset salary or wage income
• Halved the CGT discount - from 50% down to 25% for assets held over 12 months
• Reintroduced CGT indexation - the cost base can be adjusted for inflation, partially offsetting the lower discount

These changes affect every property investor differently depending on your personal tax situation, holding period, and debt structure. A generic rule of thumb won't cut it - you need to model your actual numbers.

This guide walks through building an Excel model to compare your investment returns before and after the reforms, so you can make an informed decision about whether to hold, restructure, or sell.

How the 2026 Changes Work

1. Negative Gearing Restriction

Previously, if your rental property made a loss of $15,000 per year (rental income minus interest, repairs, and depreciation), that loss reduced your taxable salary income. In the 37% tax bracket, that saved you roughly $5,550 in tax.

Under the new rules, rental losses are ring-fenced against rental income only. You can carry the loss forward to offset future rental profits, but you cannot deduct it from your PAYG salary.

Exception: Existing properties purchased before budget night (12 May 2026) may be grandfathered for a transition period. The precise grandfathering arrangements depend on your purchase date and whether the property was already negatively geared before the budget.

2. CGT Discount Halved

The 50% CGT discount for individuals drops to 25%. On a $200,000 capital gain, that means:

• Before: $200,000 gain × 50% discount = $100,000 taxable gain
• After: $200,000 gain × 25% discount = $150,000 taxable gain

At the 37% marginal rate: $37,000 tax bill jumps to $55,500 - an increase of $18,500.

3. CGT Indexation Reintroduced

To partly compensate, the government reintroduced CGT indexation. The cost base of your property can be adjusted for inflation using CPI.

Example: You bought a property for $500,000 in 2020. After 6 years of 3% average inflation, the indexed cost base would be approximately $500,000 × (1.03)^6 = $597,000. Your $200,000 nominal gain would drop to roughly $103,000 for CGT purposes before applying the 25% discount.

The interplay between the lower discount and the inflation indexation is the key variable - and it depends heavily on your holding period.

Building the Excel Model

Step 1: Set Up Your Inputs

Create a dedicated input sheet with the following parameters:

Use Excel's Data Validation to create dropdowns for tax brackets and scenarios. Put all assumptions in one place so you can change a single number and see the full impact ripple through.

Step 2: Build the Holding Cost Comparison

Model the annual cash flow under both regimes side by side:

Old rules:

Gross rental income: $36,400
Less: interest ($520k × 6.2%): -$32,240
Less: expenses: -$6,500
Less: depreciation: -$4,800
Net rental loss: -$7,140
Tax saving (37%): $2,642
After-tax cost of holding: -$4,498

New rules (no salary offset):

Net rental loss: -$7,140
Tax saving (0% - ring-fenced): $0
After-tax cost of holding: -$7,140
Loss carried forward: $7,140

The difference is $2,642 per year in lost tax benefit. Over five years that's over $13,000 in real cash flow.

Step 3: Calculate CGT on Sale

Build a sale proceeds calculation:

Selling price: $900,000
Less: selling costs (3%): -$27,000
Net sale proceeds: $873,000
Less: loan balance: -$520,000
Cash from sale: $353,000
Cost base: $650,000

Old CGT calculation:

Capital gain: $250,000
50% discount: -$125,000
Taxable gain: $125,000
CGT payable (37%): $46,250
Net after-tax proceeds: $306,750

New CGT calculation (with indexation):

Indexed cost base ($650k × 1.03^6): $776,310
Capital gain (indexed): $123,690
25% discount: -$30,923
Taxable gain: $92,767
CGT payable (37%): $34,324
Net after-tax proceeds: $318,676

In this example the new rules actually produce a slightly better outcome because the indexation benefit outweighs the lower discount. But that's because this property was held for 6 years with strong inflation. The result flips for shorter holding periods.

Step 4: Build the Sensitivity Table

The key insight is that the winner between old and new rules depends on your holding period and inflation rate. Build a two-way data table:

Use Excel's What-If Analysis → Data Table to automate this across different growth and inflation scenarios.

Step 5: The Hold vs Sell Decision Framework

The full picture isn't just CGT - you also need to factor in the negative gearing cash flow loss. Build a multi-year comparison:

Scenario A: Hold for 5 more years

• Annual cash cost (after tax): $7,140 per year
• Total holding cost: $35,700
• CGT at sale (new rules): $34,324
• Net after all costs: $318,676 - $35,700 = $282,976

Scenario B: Sell now

• Cash from sale now: $306,750 (using old CGT rules - grandfathered)
• No further holding costs
• Reinvest proceeds in alternative investments

Use the =NPV() function to compare these scenarios on a present-value basis. With a 5% discount rate:

• Hold: NPV = $282,976 / (1.05)^5 = approximately $221,740
• Sell now: $306,750

In this case, selling now wins unless you expect strong capital growth over the next five years.

Real Scenario: The SMSF Property Investor

Consider Michael, a 52-year-old with an SMSF who owns a $750,000 commercial property worth $950,000 today. The property is positively geared by $12,000 per year within the fund.

Under the old rules, CGT on sale would be discounted by 50% (or 331/3% for super funds). Under the new rules, the discount drops to 25% (or 20% for super).

For a $200,000 capital gain in an SMSF with a 15% tax rate:

• Old: $200,000 × 50% discount = $100,000 × 15% = $15,000 CGT
• New: Indexed gain of ~$140,000 × 25% discount = $105,000 × 15% = $15,750 CGT

The change is smaller for SMSF investors because the super fund CGT discount was already lower. But the combination of indexing the cost base and adjusting the fund's investment strategy may change the optimum timing of asset sales within the fund.

Best Practices for Your Model

1. Use named ranges - name your key inputs (PurchasePrice, InterestRate, MarginalRate) so formulas are readable
2. Build scenario manager - use Excel's Scenario Manager (Data → What-If Analysis → Scenario Manager) to toggle between old and new rules
3. Add conditional formatting - use green/red icons to show whether each scenario is better or worse
4. Include a summary dashboard - one page that shows the bottom line for each scenario: hold vs sell, old rules vs new
5. Separate assumptions from calculations - never hardcode numbers in formulas; always reference input cells

Frequently Asked Questions

When do the negative gearing changes take effect?

The changes were announced in the 12 May 2026 Budget. The government has indicated a 1 July 2027 start date for the negative gearing restrictions, with the CGT changes applying from budget night for new purchases. Existing properties may have transitional grandfathering arrangements. You should confirm with your accountant.

Are existing negatively geared properties grandfathered?

Properties purchased before budget night may be subject to transitional arrangements, but the details depend on the final legislation. The government's stated intention is to allow a transition period for properties already held. Model both scenarios to understand your exposure.

Does this affect my primary residence?

No. The family home remains CGT-free and negative gearing does not apply to owner-occupied properties.

How does the CGT indexation work in practice?

When you sell, you adjust your cost base using CPI published by the ABS for each quarter between purchase and sale. The ATO will provide indexed cost base tables similar to the pre-1999 regime. Your Excel model can use an assumed CPI rate to estimate the impact.

Should I sell my investment property now?

There is no one-size-fits-all answer. The model in this guide will help you quantify your specific situation. Key factors: your holding period so far, expected future growth, your marginal tax rate, and whether you need the cash flow. For personalised advice, consult your accountant or financial adviser.

How does the CGT discount change affect SMSFs?

Super funds previously received a 331/3% CGT discount. Under the new rules, this drops to 20%. Combined with the reintroduced indexation, the impact on super funds depends primarily on the holding period and inflation rate.

Conclusion

The 2026 negative gearing and CGT changes represent a genuine structural shift in Australian property investment taxation. Some investors will be better off (those with long holding periods benefiting from indexation), while others, particularly those who relied on negative gearing to reduce their tax bill, will need to reassess their strategy.

The best thing you can do right now is build the model. Not a generic calculator - your actual numbers, your property, your tax rate, your timeline.