For decades, many Australians have relied on residential property as a key strategy for building wealth toward retirement. The formula was relatively straightforward. Buy property during working years, utilise leverage and negative gearing to help manage cash flow, benefit from long-term capital growth, then eventually sell the property in retirement when taxable income is lower.
For many investors, that final step formed a major part of the strategy but…
“good retirement planning was never designed to rely too heavily on a single tax outcome or a single investment strategy.”
The problem is, the proposed Federal Budget changes surrounding negative gearing, capital gains tax and trust structures may significantly alter how effective that exit strategy becomes in the future.
Importantly, this does not necessarily mean property investing is “dead” or that Australians should abandon property altogether. Residential property can still play an important role in long-term wealth creation. However, the proposed changes do reinforce an important reality that many retirees eventually discover anyway.
Building wealth and funding retirement are two very different things.
Property Often Works Best During Accumulation Years
During working years, many investors have been comfortable sacrificing short-term cash flow in pursuit of long-term capital growth. Negative gearing has historically supported this approach by allowing investment losses to offset ordinary income, while depreciation further improved after-tax cash flow without requiring additional cash outlay, creating an additional tax deduction without impacting cash flow.
Combined with strong capital growth and the ability to borrow at relatively high loan-to-value ratios, residential property became an attractive accumulation strategy for many Australians.
However, retirement changes the conversation.
At some point, the focus typically shifts away from maximising growth and toward generating reliable income, improving liquidity, reducing complexity and having the flexibility to fund lifestyle goals with confidence.
This is where some retirees begin to reassess residential property more critically. While an investment property may have performed exceptionally well over time, it can also create challenges in retirement through low net rental yields, vacancies, maintenance costs, tenant management and limited access to capital without selling the asset itself.
Historically, many investors accepted these trade-offs because they believed the eventual sale of the property would provide a highly tax-effective outcome in retirement. That assumption may no longer hold true to the same extent under the proposed rules.
The Traditional Retirement Exit Strategy May Become Less Effective
Under the current rules, many retirees planned to sell investment properties once working income had ceased, utilise the 50% capital gains tax discount and potentially split gains between spouses (as a result of joint ownership) to minimise the overall tax payable.
For example, imagine a couple purchased an investment property for $500,000 at age 50. By age 60, the property value has increased to $1 million, resulting in a $500,000 capital gain.
Under the current rules, the 50% capital gains tax discount would reduce the taxable gain to $250,000. Assuming the property was jointly owned, each spouse would declare $125,000 of taxable income. Based on current tax rates, this would result in total tax payable of approximately $61,576, representing roughly 12.3% of the total capital gain or 24.6% of the discounted gain.
Under the proposed rules, however, the calculation changes significantly.
Instead of applying the 50% discount method, the cost base would first be indexed for inflation. Assuming inflation averaged 3.5% over the 10-year period, the original $500,000 purchase price would increase to approximately $705,299, resulting in a taxable gain of $294,701.
At first glance, this may appear relatively reasonable. However, the proposed minimum 30% tax on capital gains would then apply, increasing the tax payable to approximately $88,410.
That represents more than $26,000 in additional tax compared to the current rules.
For retirees who were relying on the eventual sale of investment properties to fund retirement, improve cash flow or transition into more income-focused investments, these proposed changes materially impact the attractiveness of the strategy.
Why Superannuation Still Stands Out
While much of the recent discussion has focused on changes to residential property investing, one area that remains largely untouched is superannuation.
We’ve always said it and we’ll say it again, for many Australians super continues to provide one of the most tax-effective structures available for building and funding retirement.
During accumulation years, earnings within super are generally taxed at a concessional rate of 15%, while long-term capital gains on assets held longer than 12 months are effectively taxed at 10%.
Once a member transitions into retirement phase, the tax treatment becomes even more compelling. In many circumstances, retirees may pay no tax on investment earnings, capital gains, or pension withdrawals. This creates a dramatically different environment compared to personally held residential property investments, particularly when retirement income and liquidity become the priority.
Importantly, the advantages of super are not limited to shares or managed funds. Property can still play a role within superannuation as well. While superannuation continues to offer important tax advantages for property investment, the rules surrounding how residential property can be acquired within super have changed.
For investors approaching retirement, this may create a much stronger case for considering how superannuation structures, commercial assets and diversified investment approaches fit together over the long term.
A Structural Shift Inside Superannuation
A further development, which has now been legislated following the Federal Budget, is the removal of one of the key tools that contributed to property’s historical appeal – borrowing within superannuation.
From mid‑2026, self-managed super funds (SMSFs) are no longer permitted to enter into new borrowing arrangements to acquire residential property. Existing arrangements are unaffected, and funds can still purchase property outright, but the ability to use debt to accelerate growth inside super has effectively been removed.
While this change may not directly impact all investors, it does represent a broader shift in the investment landscape. For many Australians, property strategies have historically relied on leverage to amplify long-term returns. With this avenue now restricted in super, and tax settings evolving outside of super, the traditional property playbook is becoming increasingly constrained.
This reinforces an important principle – strategies that depend on a combination of favourable tax treatment and borrowing conditions can be vulnerable when policy settings change.
The Bigger Lesson
Property can still play an important role in a well-structured portfolio. However, the combination of changing tax settings, reduced access to leverage and the practical challenges of funding retirement from illiquid assets means it is more important than ever to view property as part of a broader strategy, rather than the strategy itself.
The key question is no longer simply “should I invest in property?” – but whether your overall structure remains effective if the rules change.
Retirement planning is ultimately about more than simply building wealth on paper. It’s about
“creating enough income, liquidity, flexibility and confidence to actually enjoy the lifestyle you have spent decades working toward”
As legislation and tax settings continue to evolve, the Australians who are likely to navigate retirement most successfully will be the ones with strategies that remain adaptable regardless of how the rules change in the future.
If your wealth plan relies heavily on property, now is a good time to step back and test whether your strategy still holds up under changing tax settings.
Speak with our team to review your current investment structure and explore more flexible, tax-effective retirement strategies tailored to your goals.
