Venture capital vs investment property after the 2027 tax changes
Established homes bought after Budget night lose negative gearing, and property gains lose the 50% discount from 1 July 2027. What is law, what is still draft, and how a property gain now compares with an ESVCLP gain.
TL;DR
- Established homes bought after 7:30pm on 12 May 2026 lose negative gearing from 1 July 2027. Their losses can only reduce residential property income and residential capital gains, with the rest carried forward. This is law.1,2
- Property gains move to the inflation method and the 30% minimum tax from 1 July 2027, like shares. Qualifying new builds can still choose the 50% discount, and that choice sits outside the minimum tax.1
- The new-build definition is in a bill, not yet law. The Tax Reform No. 3 Bill, introduced on 14 October 2026, counts a dwelling that adds to supply, including one bought within 24 months of its first occupancy certificate.3,4
- On the same $500,000 gain, an ESVCLP keeps the whole gain plus the offset. An established property keeps $345,820 to $426,641 depending on how fast it grew. Illustrative.
- Property keeps advantages tax doesn't touch. It can be bought with a loan, pays rent and needs no wholesale test. Venture locks money up for a decade and results vary widely between managers.
What changed for investment property, and what is law?
The core rules are law: the Tax Reform No. 1 Act (assent 26 June 2026) covers the negative gearing limit, the new CGT rules and the new-build carve-out.1,5 What counts as a new build, the exempt housing types and the method for splitting a gain at 1 July 2027 went out as exposure drafts on 3 August 2026.6,7 The Tax Reform No. 3 Bill, carrying the next CGT and negative gearing tranche including the new-build definition, was introduced on 14 October 2026 and is before a Senate committee due to report on 13 November.3,4
| Measure | What it does | Status |
|---|---|---|
| Negative gearing, established homes | For homes bought from 7:30pm AEST on 12 May 2026, a loss can only reduce income from residential property, then residential capital gains. Any excess carries forward. Homes held or contracted before that time are unaffected until sold.1,2 | Law. Applies from the 2027-28 income year |
| Bought between Budget night and 30 June 2027 | Can be negatively geared until 30 June 2027, then not.2 | Law |
| Who it applies to | Individuals, partnerships, companies and most trusts. Super funds (including SMSFs) and widely held unit trusts are excluded. Commercial property and shares are unaffected.1,2 | Law |
| CGT on property | From 1 July 2027 the 50% discount is replaced by an inflation adjustment to the cost and a 30% minimum tax, for individuals, trusts and partnerships. Growth to 1 July 2027 keeps the discount.1,2 | Law |
| New builds | An individual selling a new residential dwelling can choose the 50% discount or the inflation method. A gain taxed with the discount is outside the 30% minimum tax. New builds keep negative gearing against other income.1 | Law |
| What counts as a new build | Adds to supply: built on vacant land, more dwellings on the land than when it was bought, a building converted to dwellings, or a dwelling bought no more than 24 months after its occupancy certificate was first issued (the Budget said 12). The certificate must be first issued after 7:30pm AEST on 12 May 2026 and the dwelling must be separately saleable. Knock-down rebuilds that don't add a dwelling don't qualify, nor do buyers after the 24 months.2,4 | In the Tax Reform No. 3 Bill (introduced 14 October 2026). Not law |
| Splitting the gain at 1 July 2027 | A valuation at that date, or a set apportionment formula for property and other assets without a market price.2,7 | Draft instrument (August 2026) |
| Main residence | Still exempt.2 | Unchanged |
| SMSF borrowing | New limited recourse borrowings by SMSFs can only buy business real property, from 10 August 2026. Existing loans and refinancing are preserved.1 | Law |
Status as at 19 October 2026. Land tax and stamp duty are state matters and unchanged by these reforms.
Carried-forward losses can be used against later rent or the residential capital gain on sale, so the investor mostly loses timing. Quarantined expenses can't also be added to the property's cost base.1
How is a property gain taxed against an ESVCLP gain after 2027?
An established property bought after 1 July 2027 is taxed like shares: indexed cost base, real gain at the marginal rate, never less than 30%.1 A gain on an eligible ESVCLP investment held 12 months or more is exempt, plus an offset of up to 10% on eligible contributions.8,9 The ESVCLP guide covers the offset.
Indexation taxes a modest gain more lightly than the discount did and a fast one more heavily. With 3% inflation over ten years the two break even at about 5.4% growth a year; above that, a new-build owner would choose the discount.
What the client keeps, by where the gain was made
Comparing the same gain on the same capital flatters venture against a geared property. A client who borrows 80% of a $1m property earns that gain on a $200,000 deposit, while paying interest and carrying the loan risk. A fund interest is normally paid in cash as capital is called.
How do venture and property compare beyond tax?
The wider asset comparison is in Venture in a portfolio.
| Established investment property | ESVCLP fund | |
|---|---|---|
| Tax on the gain from July 2027 | Inflation method and marginal rate, minimum 30%. New builds can choose the 50% discount.1 | Exempt on eligible investments held 12 months or more.8 |
| Upfront tax benefit | None | Up to 10% offset on eligible contributions, carried forward if unused.8 |
| Holding losses | Before: deductible against wages. After (bought post-Budget): quarantined to residential income and gains, carried forward.1 | Capital losses inside the fund are disregarded.8 |
| Leverage | Bank lending against the property is normal. New SMSF borrowing for homes is closed.1 | Normally none. Commitments are paid from the client's capital. |
| Income while held | Rent | Usually nothing until companies are sold or list. |
| Liquidity | Saleable in months, but all or nothing | Locked for 10 years or more, with capital called over three to five. |
| Concentration | One asset, one suburb, one tenant | Many companies, but a few of them usually drive the whole result. |
| Range of outcomes | Narrower. Values are appraised and move slowly. | Wide. Most companies return little or nothing. Top-quartile funds about 4.2× net, median about 1.5×, bottom quartile about 0.4×.10,11 |
| Who can invest | Anyone with a deposit | Wholesale investors only.12 |
| Costs | Stamp duty, agent and management fees, upkeep, land tax | Typically 2% a year management fee and 20% carry above a hurdle |
General comparison. Fund terms vary; manager quartiles are past results.
Both asset classes report appraised values, which look calmer than the underlying risk.13 The spread between venture managers is far wider than between two houses in the same street. How venture returns work explains why.
What does this mean for a client who holds or is weighing property?
A home held (or contracted) at 7:30pm on 12 May 2026 keeps negative gearing until it's sold, and its growth to 1 July 2027 keeps the 50% discount. That growth needs a value at that date or the apportionment formula, which is still in draft.2,7 The 2027 CGT changes covers the date-based planning.
For a new purchase, worth checking:
- Whether it is established or a new build under the final definition. The 24-month window is in the Tax Reform No. 3 Bill, which isn't law yet.4
- How long the losses would take to absorb. If rent rarely exceeds costs, the deduction may wait until sale.
- Which entity buys. The negative gearing limit applies to companies and most trusts as well as individuals, and discretionary trusts face a proposed 30% minimum tax from 1 July 2028.1,14 See Which entity should invest?
Venture is usually a smaller, longer and riskier holding than a house, in a different part of the portfolio. The tax changes widen the after-tax gap on a good outcome without changing the odds of getting one. How much to allocate covers sizing and pacing. Confirm each client's position with their tax adviser while the new-build rules are in draft. The ESVCLP offset is claimed in the tax returns for the years the money goes in, not at the sale.
Frequently asked questions
No. From 1 July 2027, losses on established homes bought from 7:30pm AEST on 12 May 2026 only reduce residential property income and gains, with any excess carried forward. Homes held before then, new builds, commercial property and shares are unaffected.
Only to growth after 1 July 2027. Earlier growth keeps the 50% discount, using a valuation at that date or an apportionment formula still in draft.
On growth before 1 July 2027, yes. After that, only individuals selling a qualifying new build can choose it, and that gain is outside the 30% minimum tax.
Under the Tax Reform No. 3 Bill introduced on 14 October 2026, a dwelling that adds to housing supply, including one bought within 24 months of its first certificate of occupancy; buyers after that window don't qualify. The bill isn't law yet.
The after-tax gap on a good outcome has widened, since eligible ESVCLP gains are exempt and property gains now face indexation and a 30% minimum. The two differ sharply on risk, liquidity and leverage, and tax doesn't change the odds of a good result.
No. Losses on eligible investments inside an ESVCLP are disregarded; the benefit while invested is the offset of up to 10%.
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Talk to us about Fund III
Tall Order is a Melbourne seed fund. Fund III is a registered ESVCLP for wholesale investors. Justine Lum, our Head of IR, works with advisers and their clients.
Sources
- Federal Register of Legislation, Treasury Laws Amendment (Tax Reform No. 1) Act 2026, as made 26 June 2026. ↩
- Australian Government, Budget 2026-27, Tax explainer: Negative Gearing and Capital Gains Tax Reform. Transitional rules, who the negative gearing limit applies to, indexation, minimum tax, new builds, main residence. ↩
- Parliament of Australia, Treasury Laws Amendment (Tax Reform No. 3) Bill 2026: introduced 14 October 2026, referred to the Senate Economics Legislation Committee (report due 13 November 2026). Before the House. ↩
- Parliament of Australia, Explanatory memorandum, Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 (14 October 2026), Schedule 5: four cases for a new residential dwelling, including purchase no more than 24 months after the certificate of occupancy was first issued; certificate first issued after 7.30pm AEST 12 May 2026; separately acquirable (paras 5.7 to 5.21). ↩
- Australian Taxation Office, Tax reform: boosting home ownership, reforming negative gearing and capital gains tax. Confirms the measures are law (updated 29 June 2026). ↩
- Treasury, Capital Gains Tax and Negative Gearing: Tranche 2 Legislation, exposure drafts released 3 August 2026, including how to split gains made before and after 1 July 2027. ↩
- Treasurer, Consultation on next tranche of tax reform legislation, 4 August 2026: draft new residential dwelling definition (24 months from certificate of occupancy) and apportionment method. ↩
- Australian Taxation Office, ESVCLP tax incentives and concessions. ↩
- business.gov.au, Early Stage Venture Capital Limited Partnerships: eligibility, 12-month holding, $10m to $200m fund size, 30% investor limit, proposed 2027 caps and register. ↩
- Cambridge Associates, Venture capital manager persistence and dispersion. ↩
- Hamilton Lane, 2026 Market Overview: return dispersion and manager selection. ↩
- ASIC, Certificates issued by a qualified accountant: net assets of at least $2.5 million or gross income of $250,000 in each of the previous two years; certificates valid for up to two years. ↩
- Hamilton Lane, Portfolio Construction Volume III: Risky Business (October 2024). Appraisal valuations change more slowly than traded prices, so reported private equity volatility understates economic volatility. ↩
- Australian Taxation Office, Tax reform: introducing a minimum tax on discretionary trusts. ↩