Treasurer Jim Chalmers handed down the 2026 Federal Budget on Tuesday 12 May, and for anyone building or renovating in Canberra it is the biggest set of housing tax changes in 25 years. The headline items: negative gearing limited to new builds from 1 July 2027, the capital gains tax discount replaced with inflation indexation and a 30 per cent minimum tax floor, $2 billion for housing-enabling infrastructure, $42.7 million to make Australian Standards free to access, a $500 million package to speed up environmental approvals, and the temporary fuel excise cut extended for another three months.
I'm Jeff. I've been building in Canberra for 19 years and most of our work is renovations, extensions and custom new builds. Here is what the Budget actually means for the kind of project you might be thinking about, in plain English, with the specifics that matter and the noise filtered out.
The big housing tax change in one paragraph
From 1 July 2027, if you buy an established residential property as an investment, you will no longer be able to claim rental losses against your wages or other income (that is what negative gearing has been doing for decades). Losses can only be offset against income from other residential property or carried forward to use against future capital gains. Brand new builds keep the existing rules, including negative gearing. The capital gains tax 50 per cent discount that everyone has used since 1999 is being replaced with cost-base indexation for inflation, plus a 30 per cent minimum tax on the real gain. Again, new builds keep the option to use the old 50 per cent discount.
The structural intent is clear: penalise passive investment in existing housing stock, reward new construction. Treasury projects the changes will help 75,000 more Australians into home ownership over the decade.
What this means for a Canberra renovation or extension
If the home you are renovating or extending is your principal place of residence, almost none of the Budget changes affect you directly. Your main residence remains exempt from capital gains tax. Negative gearing was never relevant to you anyway. Carry on as you were.
If the property is an investment, the picture is different. The Budget treats renovations and extensions to an existing dwelling as work on established property, not as creating a new build (with one important exception below). So:
- If you bought the investment property before 7.30pm Budget night (12 May 2026), your existing tax position is grandfathered. You can keep negative gearing and the 50 per cent CGT discount on it. The renovation does not change that.
- If you buy an established investment property from 13 May 2026 onwards, you lose negative gearing and you face the new CGT rules from 1 July 2027. Your renovation will not unlock the new-build concessions because the dwelling already existed.
- The one exception that matters: if you demolish an existing dwelling and replace it with more than one new dwelling (such as a dual occupancy or a multi-unit subdivision), the new dwellings can qualify as new builds for tax purposes, because they genuinely add to housing supply. A like-for-like knockdown rebuild does not qualify.
For most of our renovation clients in suburbs like Yarralumla, Griffith, Forrest, Reid, Ainslie, Campbell, Turner and Braddon, this is a non-event because they are renovating their own home. For investor clients, the maths has changed and the conversation with your accountant before signing anything is now more important than it was a week ago.
What this means for a custom new build
If you are building a custom new home on vacant land, or buying a new build off the plan, you are exactly the buyer the Budget is trying to encourage. New builds keep negative gearing forever. New builds give you a choice between the new indexation-based CGT regime and the old 50 per cent discount. New builds, in Treasury's language, are the housing supply this country needs.
Whether that translates into a measurable surge in new build demand in Canberra is unclear. The Housing Industry Association (HIA) has welcomed the supply-side reforms but flagged that Treasury's own modelling projects 35,000 fewer new homes will be built over the next decade as a result of the negative gearing and CGT changes overall. The reasoning: many existing investors who were going to fund new builds via leveraging the equity in established properties will now find that path less attractive. Investor demand for new builds will not fully replace investor demand for established stock.
For a homeowner building their own custom home in Canberra, none of this matters directly because your principal residence is exempt from CGT anyway. The Budget changes are aimed at investors. Custom new builds and knockdown rebuilds for owner-occupiers proceed as normal.
Knockdown rebuild: the dual-occupancy angle
Here is where the Budget genuinely changes the calculation for some Canberra blocks. If you own an existing dwelling on a block that could support a dual occupancy under RZ1 or RZ2 zoning, and you have been weighing whether to renovate or to knock down and build two dwellings, the Budget has just shifted the maths.
Demolishing the existing dwelling and replacing it with two new dwellings means both new dwellings qualify as new builds for tax purposes. If you intend to live in one and rent the other, the rental property keeps negative gearing and the new CGT options. If you intend to sell both, both qualify for the new-build concessions in the hands of the buyer (which makes them more saleable to investors going forward). A straight knockdown rebuild of a single new dwelling does not qualify, because it has not added to supply.
I am not a tax adviser. But for clients with RZ1 or RZ2 blocks in suburbs like Hackett, Watson, Lyneham, Ainslie or Curtin, this is now a real conversation to have with your accountant before you commit either way. Our dual occupancy service page covers the build side of that decision.
The supply-side measures that help all of us
Three Budget measures are pure good news for builders and homeowners, regardless of tax position:
- $2 billion housing-enabling infrastructure - sewerage, roads, water and stormwater works to unlock new land for housing. In Canberra this should accelerate suburb releases in Whitlam, Strathnairn, Macnamara and the next stages of Molonglo Valley. More land available eventually means more competition at the front end and less pressure on existing established suburbs.
- $42.7 million to make Australian Standards free to access - this is a small line item that will make a real practical difference. For 19 years I have been buying access to Australian Standards (the technical documents that govern how buildings get built) from SAI Global at a cost that runs into thousands of dollars a year for a small business. Making them free removes a real compliance cost on every small builder in the country.
- $500 million EPBC environmental approvals reform, including $105 million specifically for housing - the federal environmental approval process has been a delay factor on larger developments. Faster approvals mean shorter timelines and lower carrying costs on bigger projects.
The fuel excise extension
The temporary fuel excise reduction (a 32 cent per litre combined reduction across federal excise and forgone GST) was due to expire 30 June 2026. The Budget extends it for another three months to 30 September 2026. After that, unless extended again, diesel will jump 32 cents per litre overnight on 1 October 2026.
For us, this matters more than the tax reforms in the short term. Diesel is the single biggest input cost we cannot avoid passing through. Concrete trucks, excavators, dump trucks, the supply chain for steel, timber and finishes all run on diesel. The three-month extension gives us a slightly longer runway but the 1 October cliff is real. Any project I quote between now and August with a completion date past October needs to price the snap-back risk into the fuel allowance.
Cost of living and the consumer angle
The Budget also introduced a $250 'working Australians tax offset' that flows in 2027-28, and a $1,000 instant deduction for 6.2 million Australians averaging around $205 in benefit for 2026-27. Material support for households at the margin but not project-changing money for someone planning a $400,000 renovation.
More interesting from a builder's perspective is what the Budget did not include. No new HomeBuilder grant. No first home buyer cash payment. No GST relief on construction materials. The government has chosen supply-side tax reform over direct demand stimulus.
What we are doing at Rentoule Projects
Holding our fixed-price contract approach. Encouraging investor clients to talk to their accountant before committing one way or the other, particularly on knockdown rebuilds where the dual-occupancy angle has just become more interesting. Building the 30 September 2026 fuel excise cliff into pricing assumptions on any project with deliveries through October to December. And waiting to see whether the genuine supply measures (infrastructure, Australian Standards, EPBC) translate into faster turnaround on actual builds.
The Budget is a long way from being legislated. The negative gearing and CGT changes need to pass Parliament. The Coalition has not yet stated its position clearly. Most of the practical effects do not start until 1 July 2027 even if everything passes as proposed.
What is true today: the supply-side measures are real. The fuel excise extension is real. The intent to push investor capital toward new builds is clear. If you have been weighing a renovation against a knockdown rebuild, or wondering whether to build now or wait, the Budget is one input among many. Personal circumstance, family stage, what your suburb supports, and what your accountant says about your tax position all matter more than headline reforms three years out.
Frequently asked questions
Does the Budget change anything for my renovation if I live in the home?
No. The negative gearing and CGT changes apply to investment properties. Your principal place of residence is exempt from capital gains tax and was never eligible for negative gearing. Renovate as planned.
I'm building a custom new home. Does the Budget help me?
Not directly if it's your own home. The Budget's pro-new-build tax concessions are aimed at investors. For owner-occupiers, the supply-side measures (infrastructure, faster approvals, free Australian Standards) help the whole industry but do not change your project specifically.
I have an RZ1 block. Should I do a knockdown rebuild or a dual occupancy?
This is now a genuine question to take to your accountant. A dual occupancy creates two new dwellings, which qualify as new builds for tax purposes if you sell or rent them. A single knockdown rebuild does not qualify. The build cost is higher for two dwellings but the long-term tax position is materially different. Worth modelling both options before you commit.
Will renovation costs come down because of the Budget?
Probably not in the short term. The supply-side measures (infrastructure, EPBC reform, free standards access) are structural and will take years to flow through. Material costs, labour costs and fuel costs are driven by global and domestic factors largely outside the Budget. The fuel excise extension keeps diesel slightly cheaper until 30 September. Beyond that, expect costs to continue trending upward in line with broader inflation.
When does any of this actually start?
The negative gearing changes apply to established property purchased after 7.30pm on 12 May 2026, but the rental loss restriction does not start until 1 July 2027. The CGT changes apply to gains accruing from 1 July 2027 onwards. The fuel excise extension runs to 30 September 2026. The $2 billion infrastructure fund and the $500 million EPBC reform have started already. The $42.7 million Australian Standards free access measure starts from 1 July 2026.
Plan your project with the bigger picture in mind
The Budget is one piece of a wider picture for anyone planning to build or renovate in Canberra. ACT planning rules, NCC 2025 transition (now underway and mandatory from 1 May 2027), gas phase-out, suburb-specific zoning, and your own financial circumstances all matter more day-to-day than the federal tax reforms three years out.
For deeper context on cost ranges, timelines, planning approvals and the things you can control, the Canberra Renovation Guide covers the lot. For specifics on the tax position of your project, get a conversation with your accountant or a registered tax adviser. And when you are ready to talk about the build itself, get in touch. Coffee is on me.