If you already hold an established investment property and plan to use the rental loss to reduce your tax bill, you’re fine.
But if you’re looking to buy an established residential property now, or any time after Budget night on 12 May 2026, the rules have shifted, and not in your favour.
The Australian Government announced on 12 May 2026, as part of the 2026-27 Federal Budget, that negative gearing on established residential properties will be restricted from 1 July 2027.
Here’s what it actually means for investors, and what you need to think through before your next move.
What Is Changing and When
The core change is straightforward. From 1 July 2027, rental losses on established residential properties bought after 7:30 pm AEST on 12 May 2026 can no longer be offset against your salary, wages, or other non-property income.
Instead, those losses can only be used to offset residential rental income or residential property capital gains. Any remaining losses don’t disappear; they carry forward and can be applied in future years against residential property income.
This is a major shift from how negative gearing has worked for decades. Today, if your investment property costs more to hold than it earns in rent, that loss can reduce your taxable income from your job. That’s the tax benefit most investors have relied on.
From 1 July 2027, that benefit is limited to new builds for properties purchased after the announcement date.
Who Is Protected: The Grandfathering Rules
The government has built clear protection for existing investors.
If you held an established residential property at 7:30 pm AEST on 12 May 2026, you are grandfathered. That means you can continue to use negative gearing under the existing rules for as long as you hold that property. This protection continues until the property is sold, not just until 2027.
If you had signed a contract before 7:30 pm on 12 May 2026, you are protected regardless of when settlement occurs. The grandfathering is based on the contract date, not the settlement date.
There are a few other exemptions worth knowing:
- Properties held in widely held trusts and complying superannuation funds
- Build-to-rent developments
- Private investors participating in Government housing programs
So if your property was already in your portfolio before Budget night, nothing changes for you until you sell it.
We see this question often: “Should I sell my existing property now and reinvest?” In most cases, the answer is no.
Your grandfathered property retains full negative gearing until disposal. Selling to reinvest in another established property would mean your new purchase falls under the restricted rules. Unless there is a strong non-tax reason to sell, hold.
If You Buy Established Property After Budget Night
For established properties purchased after 7:30 pm on 12 May 2026, there is a short transition window. You can still negatively gear that property up to 30 June 2027. But from 1 July 2027, the restricted rules apply.
That means if you’re purchasing an established investment property today, you need to think carefully about your cashflow.
Without the ability to offset rental losses against your wage income, the immediate tax relief most negative gearing strategies rely on is gone. Any losses will still be deductible, but only against your rental income from other residential properties or against residential property capital gains when you eventually sell.
This is what some advisers are calling a ‘ring-fencing’ of residential property losses. Your losses stay within the residential property category rather than flowing through to reduce your broader taxable income.
New Builds Still Get Full Negative Gearing
This is the key split the government has introduced. If you buy a qualifying new build, you still get access to negative gearing under the current, unrestricted rules, including the ability to offset losses against wages and other income.
For new builds, investors can choose between the existing 50% CGT discount and the new indexation-plus-minimum-tax regime, giving them flexibility to pick whichever produces a better outcome at the time of sale.
So what actually counts as an eligible new build?
Eligible New Build | NOT an Eligible New Build |
A newly constructed apartment bought off-the-plan | An established property recently extended to add bedrooms |
A duplex built through a knock-down rebuild replacing a single house | A free-standing house rebuilt to replace an older, smaller house of the same type |
Any residential construction on previously vacant land | A granny flat built adjacent to an established property (likely ineligible, pending the Minister’s legislative instrument on what qualifies as a new build) |
A newly built property occupied for less than 12 months before being first sold | A newly built property is occupied for more than 12 months before being sold to an investor |
The intent is clear. The government wants tax support directed at properties that add new housing supply.
A knock-down rebuild that replaces one house with a duplex qualifies because it creates more dwellings.
A knock-down rebuild that replaces one older house with one newer house of the same size does not.
Check also the latest update about Capital Gains Tax and Discretionary Trust
The Practical Decision Investors Face Now
There are two distinct situations most residential property investors are in right now.
- If you already own established property: Nothing changes. You keep full negative gearing entitlements on that property until you sell. But think carefully before selling and reinvesting in another established property, because that new purchase would fall under the restricted rules.
- If you are planning to buy: The tax treatment of a new build vs an established property is now materially different. A new build keeps full negative gearing and gives you a choice of CGT method on sale. An established property purchased after Budget night limits your loss offsets and subjects all post-1 July 2027 gains to the new CGT rules.
This is not a simple “new builds are better” conclusion. New builds often carry developer premiums, carry construction risk if off-the-plan, and may sit in markets where comparable established properties offer stronger rental yields or capital growth potential. The tax advantage of a new build is real, but so are the non-tax considerations.
The right answer depends heavily on your income level, existing property portfolio, how you structure your investments, and your long-term goals. These are decisions that benefit from a proper tax review, not a generic rule of thumb.
If you want to understand how these changes apply to your specific situation, talking through your current structure and plans with a qualified tax adviser is the right first step.
Note: The CGT changes apply to all CGT assets held by individuals and trusts, not just property. This article focuses on the residential property implications.
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