Important disclaimer: This article is a general exploration of publicly available information as at September 2026. It does not constitute financial, taxation, legal or investment advice. Tax outcomes depend on individual circumstances and the legislation applying at the relevant time. Before purchasing, selling or renovating an investment property, speak with a registered tax agent or accountant and an appropriately licensed financial adviser or financial services provider.
Australia’s recently legislated changes to capital gains tax and negative gearing have generated considerable discussion among property investors.
Most of that discussion has focused on whether investors will continue buying established homes or move towards newly constructed properties. However, there is another question worth exploring:
Could the changes affect the way investors approach renovations?
The new rules do not introduce a special tax on renovations. They do, however, change how future property gains and rental losses may be treated. They also make an important distinction between new housing that genuinely adds to supply and improvements made to an existing property.
For investors considering a kitchen, bathroom or larger internal renovation, understanding that distinction may become increasingly important.
What Is Changing?
The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 has passed Parliament and is now listed as an Act.
From 1 July 2027, the reforms will replace the current 50 per cent capital gains tax discount for eligible individuals, trusts and partnerships with cost-base indexation and a minimum tax rate of 30 per cent on qualifying real capital gains.
Cost-base indexation is intended to adjust the property’s cost base for inflation. Instead of automatically discounting an eligible nominal capital gain by 50 per cent, the calculation will attempt to separate inflation from the real increase in value.
The outcome may be better or worse than the current discount depending on factors including:
- The property’s purchase price
- Its value when sold
- The period for which it was held
- Inflation during that period
- The investor’s applicable tax rate
- The property’s eligible cost base
- Whether transitional or exemption provisions apply
The Australian Government’s 2026–27 Budget tax explainer expressly states that some investors may pay more under the new system while others may pay less.
It is therefore inaccurate to assume that every investment property will automatically receive a larger CGT bill.
What Happens to Properties Already Owned?
The reforms include transitional arrangements for properties and other CGT assets owned before 1 July 2027.
Under the published arrangements, gains accruing before 1 July 2027 will continue to be treated under the current rules. Gains accruing after that date will be treated under the new indexation and minimum-tax arrangements.
For a property held across the commencement date, this may require its value at 1 July 2027 to be established when the property is eventually sold. The Government has indicated that taxpayers will be able to obtain a valuation or use a specified apportionment method supported by ATO tools.
This could make accurate documentation and valuation advice particularly important for investors who intend to hold a renovated property beyond July 2027.
The principal residence exemption remains in place. The changes being discussed here are most relevant to investment properties and other taxable assets.
Negative Gearing Is Changing Too
The negative-gearing reforms may be just as relevant to renovation decisions as the CGT changes.
Established investment properties held before 7:30 pm AEST on 12 May 2026 are protected by transitional arrangements. Their owners can generally continue applying eligible rental losses against other income while they retain those properties.
Different arrangements apply to established residential properties purchased after the announcement.
From 1 July 2027, losses associated with affected established residential investments will generally be quarantined. Instead of reducing salary or other unrelated income, the losses may be carried forward and used against residential property income or relevant property gains in future years.
New residential properties that genuinely add to the housing supply can continue receiving more favourable treatment under the published rules.
This creates a significant distinction between purchasing or constructing additional housing and renovating an existing property.
Does Renovating an Existing Property Make It a New Build?
Usually, no.
The Government’s tax explainer states that new-build concessions are intended for residential properties that genuinely add to the housing supply.
Examples include:
- A dwelling constructed on previously vacant land
- A newly constructed apartment purchased off the plan
- Replacing one house with a greater number of dwellings
- A duplex that replaces a single freestanding house
The same guidance specifically says that a knock-down rebuild or substantial renovation that does not increase housing supply will not qualify for the new-build treatment.
Installing a new kitchen, renovating bathrooms, adding bedrooms or completing a major internal transformation will not ordinarily convert an established investment property into an eligible new build.
This does not make the renovation a poor investment. It simply means that the project should not be undertaken on the assumption that completing substantial work will automatically provide access to concessions intended for new housing supply.
How Are Renovation Costs Normally Treated?
The tax treatment of renovation expenses is separate from the new CGT reforms and can be complicated.
Broadly, rental-property expenditure may fall into different categories:
- Repairs and maintenance
- Initial repairs
- Capital improvements or capital works
- Depreciating assets
- Other acquisition, ownership or disposal costs
Repairing damage or deterioration that occurs while a property is producing rental income may be treated differently from improving the property, replacing an entire structure or correcting defects that existed when it was purchased.
A new kitchen or complete bathroom renovation will generally involve capital expenditure rather than an immediate deduction for the entire project cost.
The ATO advises that eligible construction expenditure may commonly be claimed as a capital-works deduction at 2.5 per cent per year over 40 years. Different components, appliances and circumstances can receive different treatment, so the construction invoice should not be classified without professional tax advice.
Further general information is available through the ATO’s guidance on capital expenses for rental properties.
Renovation Costs and the CGT Cost Base
Capital improvements may also be relevant when calculating the cost base used to determine a capital gain.
In simple terms, a property’s cost base can include more than its original purchase price. Certain acquisition costs, ownership costs and capital improvements may also be relevant.
However, investors cannot necessarily claim the same expenditure twice.
Capital-works deductions that have been claimed, or that the owner was entitled to claim, may require an adjustment to the CGT cost base. Appliances and other depreciating assets may also be treated separately from the building itself.
This is one reason an investor should not assume that spending $50,000 on a renovation will simply add $50,000 to the property’s final CGT cost base.
The correct treatment depends on the work completed, the dates involved, how the property was used and which deductions were available during ownership. The ATO provides further guidance on capital-works cost-base adjustments.
Could the Changes Encourage Investors to Renovate Properties They Already Own?
Potentially, although this will depend heavily on the investor.
An established investment property held before the May 2026 announcement can retain access to the existing negative-gearing arrangements while it remains under the same ownership.
An investor who was already considering selling one established property and purchasing another may now compare that strategy with retaining and improving the property they already hold.
A carefully planned renovation could potentially:
- Improve the property’s rental appeal
- Support a higher market rent
- Reduce recurring maintenance problems
- Improve tenant retention
- Extend the property’s useful life
- Increase its eventual sale value
- Make an older property more competitive with newer housing
That does not mean renovating is automatically better than selling. It means the tax treatment of an existing holding may now become another variable in the comparison.
The renovation still needs to make commercial sense based on its cost, likely rental return, vacancy risk, financing, maintenance requirements and expected value improvement.
Could Renovating After July 2027 Affect the Taxable Gain?
A renovation can affect the property’s market value, and the new CGT calculation will apply to real gains accruing after 1 July 2027.
This does not mean the entire increase in value following a renovation will necessarily be treated as taxable profit. Eligible project costs, indexation, deductions, ownership history and the property’s transitional value may all affect the final calculation.
It does mean that renovation timing, documentation and the property’s value around the commencement date could become important.
For example, an owner holding a property across 1 July 2027 may eventually need to establish how much of the overall gain occurred before that date and how much occurred afterwards.
If substantial renovation work is completed around the same period, the investor should obtain professional advice about the records and valuations required to support future calculations.
The builder determines what work is required and what it will cost. A qualified tax professional determines how that expenditure should be treated.
Record-Keeping Will Become Even More Important
Property investors should already retain detailed records relating to improvements and capital expenditure.
Useful project records may include:
- Building contracts
- Invoices and payment records
- Descriptions of the work completed
- Dates on which construction began and finished
- Separate appliance and fixture costs where available
- Plans, approvals and variations
- Before-and-after photographs
- Quantity-surveyor reports where professionally recommended
- Property valuations obtained for taxation purposes
Clear documentation helps the investor’s accountant or tax adviser determine whether expenditure relates to capital works, depreciating assets, repairs or another category.
Trying to reconstruct the cost and scope of a renovation ten years after the project was completed can be extremely difficult.
Should Tax Rules Determine Whether You Renovate?
Tax should be considered, but it should not be the only reason for renovating an investment property.
A poorly designed $60,000 renovation does not become a good investment because part of the expenditure receives favourable tax treatment. Equally, a commercially valuable renovation does not necessarily become a bad decision because the cost must be claimed over time.
The more useful questions are:
- What problem is the renovation solving?
- Will it improve rent, occupancy or tenant appeal?
- Is the work necessary to protect the property?
- Does the design suit the local rental market?
- Will the finishes survive the expected level of use?
- How long does the owner intend to hold the property?
- What is the after-tax financial outcome?
The answers require input from more than one profession. A renovation builder can assess the building, design and construction requirements. A property manager may advise on tenant demand. A registered tax agent, accountant or licensed financial adviser can assess the investor’s financial and taxation position.
Planning an Investment-Property Renovation
The new CGT and negative-gearing arrangements do not create one universal answer for investment-property owners.
What they do create is a stronger reason to plan before beginning work.
A standard kitchen or bathroom renovation will not normally turn an established property into a new build for the purposes of the new concessions. Renovation expenditure may also interact with capital-works deductions, depreciating assets and the eventual CGT cost base.
At Briswest Renovations, we can help owners understand the construction scope, likely project costs and practical opportunities within the property. We provide clear project documentation that can then be reviewed by the owner’s appropriately qualified taxation and financial professionals.
If you are considering renovating an investment property in Brisbane’s western suburbs or inner city, speak with Briswest Renovations about what may be possible within the home.
Financial-advice disclaimer: This article is based on publicly available information and is intended for general educational purposes only. It is not financial, taxation, legal or investment advice. Briswest Renovations is not a financial-services or taxation adviser. Before making any investment, renovation, sale, financing or taxation decision, obtain advice from a registered tax agent or accountant and an appropriately licensed financial adviser or financial services provider who can consider your individual circumstances.