The 2026 Federal Budget redraws the rules on negative gearing for property investors.
If you bought after Budget night, or you are weighing your next move, understanding what changed and when it kicks in matters. These rules will affect your cash flow, your tax bill, and in some cases the structure of your entire portfolio.
Status as at July 2026: The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 passed both houses of Parliament on 25 June 2026 and received royal assent on 26 June 2026. The negative gearing changes are now law, commencing 1 July 2027. Seek professional advice before making any investment decisions based on how these rules apply to your specific situation.
The New Rules from 1 July 2027
Here is what the Government has announced, with the legislation currently before Parliament as the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026.
Note that this measure is not yet law.
If You Already Own an Investment Property
Good news: you are grandfathered. Properties held at 7:30 pm AEST on 12 May 2026, including those already under contract on that date, are fully exempt from the negative gearing changes. You can continue to offset rental losses against your wages and other income as before, for as long as you hold that property.
Nothing changes for you until you sell.
If You Buy an Established Property After Budget Night
If you purchase an established residential property after 7:30 pm AEST on 12 May 2026, the new rules apply from 1 July 2027.
From that date, any rental losses on that property can only be offset against residential property income, meaning other rental income you receive or capital gains from residential property sales. You cannot offset those losses against your salary, wages, or any other non-residential income.
Excess losses that cannot be absorbed in a given year are quarantined and carried forward. They do not disappear, but they are locked away until you have enough residential property income or a capital gain to absorb them. Instead of reducing your tax bill this year, those losses sit on a ledger and wait.
If You Buy a New Build
New residential properties remain fully exempt from these changes. If you invest in a newly built property, you can still negatively gear against your full income including wages, the same way everyone can today.
Exemptions also apply to investors who support government housing programs such as affordable housing and build-to-rent developments.
One important detail: the “new build” exemption applies to the first purchaser only. A subsequent buyer of the same property is treated the same as any other established property purchase. Also, under the legislation as passed, a knock-down-rebuild project where a single dwelling is demolished and replaced with a single dwelling on the same site does not qualify as a new build.
The property must genuinely add to housing supply. Replacing one house with two separately titled dwellings on the same site does qualify. If you are considering a development strategy, confirm the classification with your adviser before committing.
Who Is Affected and Who Is Not
Situation | Negative Gearing Treatment |
Property held before 7:30pm 12 May 2026 | Unchanged, fully grandfathered |
Established property bought after Budget night | Losses quarantined to residential property income from 1 July 2027 |
New residential build (any purchase date, first purchaser) | Full negative gearing retained |
Widely held trusts, superannuation funds, SMSFs | Exempt from changes |
Grandfathering applies to the negative gearing changes only. The CGT changes apply to all eligible assets including those held before Budget night, for gains accruing after 1 July 2027. These are two separate changes with separate rules.
What the Quarantined Loss Means for Your Cash Flow
When a rental loss is quarantined, you do not lose it permanently. But you do lose the immediate cash flow benefit, and that matters.
Say you bought an established property in August 2026. From 1 July 2027, your $15,000 annual rental loss can no longer cut your income tax bill on wages. That loss is carried forward. If next year you collect $20,000 in rent from another property and make a $10,000 capital gain on a residential property sale, you can apply some of that $15,000 carried-forward loss against those amounts.
But in the year the loss occurs, you pay the full tax on your wages without relief. For investors already running thin yields on established houses in major capital city markets, often between 2.5% and 3.5%, the loss of that immediate deduction changes the numbers significantly.
CBA estimates the quarantining effect is equivalent to roughly a 90 to 155 basis point increase in investor mortgage rates in immediate cash-flow terms. The ability to carry losses forward reduces some of that sting, but it does not eliminate it.
What This Does Not Change
Commercial property and other asset classes including shares keep the current negative gearing rules entirely. These reforms are residential property-specific.
The main residence CGT exemption is untouched. Selling your own home remains exempt from CGT.
Superannuation funds including SMSFs are exempt from the negative gearing changes. Their existing CGT discount rate is also not affected by the passed legislation, though the 30% minimum tax on discretionary trusts from 1 July 2028 is a separate measure still going through a second Bill.
Income support recipients, including Age Pension recipients, are exempt from the 30% minimum CGT tax on capital gains.
The Transition Window: What to Think About Before 1 July 2027
The CGT changes only apply to gains that accrue after 1 July 2027. Gains built up before that date are still calculated under the current rules, including the 50% discount.
If you have owned an investment property for many years and are thinking about selling, there may be a case for selling before 1 July 2027 to lock in the 50% CGT discount on the full gain, rather than having part of it taxed under the new indexation method. Whether that makes sense depends entirely on your position, your marginal tax rate, and how long you expect to hold.
Also worth noting: even if you do not sell, you will need a credible market valuation of your investment properties as at 1 July 2027. The ATO will use this to calculate the pre- and post-2027 gain split when you eventually sell. Getting a valuation now, or planning to obtain one on that date, removes complexity later.
That is a decision worth running through with a registered tax adviser rather than acting on general guidance.
What the Research Says About the Broader Market Impact
Commonwealth Bank’s economists estimated in May 2026 that the combined negative gearing and CGT changes are expected to push established house prices around 3% lower than they otherwise would have been, using a modified version of the RBA’s Saunders-Tulip housing model.
Their June 2026 update revised the near-term price forecast down further, with national dwelling prices now expected to be flat over 2026, down from the 3% growth forecast in May. CBA’s economists noted the market reaction to the tax changes has been faster than expected, with auction clearance rates falling and sales volumes softening since Budget night.
The impact on rents is expected to be smaller. Treasury estimates rents could rise by around $2 per week for a household paying current median rents. The quarantined loss structure means investors are not fully exiting established property since they can still use those losses eventually, making a sharp pullback in rental supply less likely than an outright loss of the deduction would suggest.
Read our detailed guide on what the new discretionary trust tax rules mean for investors.
What You Should Be Doing Now
If you already own established investment properties, review your portfolio with a tax adviser well before July 2027. Understand the value of your properties at that date, because the ATO will require a market valuation to split pre- and post-1 July 2027 gains at the time of any future sale.
If you are weighing a new purchase, the tax treatment now clearly differs between a new build and an established property. That does not automatically mean a new build is the right choice. You still need to factor in location, yield, vacancy rates, build quality, and developer risk. But the tax equation has shifted in a way that makes new builds more attractive from a pure tax standpoint, and that shift is now locked into law.
If you are in a discretionary trust structure, there are separate changes coming. A minimum 30% trust-level tax from 1 July 2028 is announced but not yet law. A restructure window from 1 July 2027 to 30 June 2030 allows movement out of discretionary trusts into a company or fixed trust without triggering CGT or income tax consequences on the restructure itself. State stamp duty may still apply.
The rules have changed. The outcome for you depends entirely on your numbers, your structure, and the decisions you make before 1 July 2027.
Book a strategy session with Number Solutions to map your property tax position and model the numbers before the deadline.
Frequently Asked Questions
Yes. The grandfathering applies to properties under contract at 7:30 pm AEST on 12 May 2026, not just those where settlement had already occurred. If your contract was signed before that time, you are covered under the existing rules for as long as you hold that property.
Yes, if you owned the property before Budget night. Properties held before 7:30 pm AEST on 12 May 2026 are fully grandfathered. If you bought it after that date, the quarantining rules will apply from 1 July 2027 when you use it as an investment property.
The quarantining applies to net rental losses from residential dwellings acquired after Budget night. Losses from grandfathered properties and income from all your residential properties are pooled together. The carried-forward losses can be offset against any residential property income or capital gains, not just the specific property that generated them. Your accountant should model how this works across your portfolio as a whole.
Not directly, but the economics shift. Lenders will still assess your borrowing capacity based on income and expenses. What changes is the after-tax cost of holding an established investment property, and how quickly you can access the tax benefit of a rental loss. CBA estimates the quarantining is equivalent to a 90 to 155 basis point increase in investor mortgage rates in immediate cash-flow terms. That affects how much leverage makes sense for a given property.
Carried-forward rental losses from a property can be applied against the capital gain when you sell that or another residential property. This is one of the features that softens the impact for investors who plan to hold long term. Your accountant needs to track these losses carefully from 1 July 2027 onwards to ensure they are used at the right time.
Related Articles:
