The Australian government has passed the most significant change to property investment tax rules in a generation. On 12 May 2026, the federal budget announced limits to negative gearing for established residential properties — and on 25 June 2026, the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 passed both houses of parliament.
If you own investment properties, are planning to buy, or are weighing your options after years of using negative gearing as a wealth-building strategy, this article breaks down exactly what changed, who it affects, and what it means for your portfolio.
The Quick Summary (Key Dates and Facts)
| What | When |
|---|---|
| Budget announcement (cut-off date) | 7:30pm AEST, 12 May 2026 |
| Law passed parliament | 25 June 2026 |
| New rules take effect | 1 July 2027 (2027–28 income year) |
| Who is exempt | Properties owned before 12 May 2026 (grandfathered), new builds, SMSFs, widely held trusts, BTR, government housing |
| CGT discount changes | From 1 July 2027, 50% discount replaced by cost base indexation + 30% minimum tax (new builds can still choose old 50% discount) |
What Is Negative Gearing? (Quick Refresher)
Negative gearing occurs when your investment property costs — including mortgage interest, rates, insurance, repairs, and property management fees — exceed your rental income. Under the old rules, you could deduct that shortfall (loss) against your total taxable income, including your salary.
For example: if your rental property produces $20,000 in rent but costs $28,000 to hold, you have a $8,000 loss. At a 37% marginal tax rate, that loss reduces your tax bill by about $2,960 — an effective government subsidy for holding the property through a period of low yield while hoping for capital growth.
For a full breakdown of how this works, see our complete guide to negative gearing in Australia.
What Changed: Old Rules vs New Rules
Old Rules (Properties Purchased Before 7:30pm AEST 12 May 2026)
- Rental losses could be offset against any income — salary, business income, interest, dividends
- The 50% CGT discount applied to properties held for more than 12 months
- No restrictions on property type
New Rules (Properties Purchased After 7:30pm AEST 12 May 2026)
From 1 July 2027 (2027–28 income year), for properties purchased after the budget announcement:
- Rental losses can only be offset against residential property income — rental income from other properties or capital gains from selling residential property
- You cannot deduct the rental loss against your salary or other personal income
- Excess losses are not lost — they carry forward to future years and can be applied when you earn rental income or sell the property
What This Means in Practice
Under the new rules, negative gearing still exists technically — but its immediate tax benefit for high-income earners largely disappears.
Old scenario (grandfathered property): Rental loss of $10,000 on a $130,000 salary reduces taxable income to $120,000, saving approximately $3,700 in tax immediately.
New scenario (post-budget property): The same $10,000 rental loss cannot offset the $130,000 salary. Taxable income stays at $130,000. The loss carries forward to use against future rental income or a capital gain when you sell.
Who Is Grandfathered (Exempt from New Rules)?
If you already owned — or were under contract to purchase — a residential property before 7:30pm AEST on 12 May 2026, you are fully grandfathered. The old negative gearing rules continue to apply to those properties indefinitely, for as long as you hold them.
This means:
- You can continue offsetting rental losses against your salary
- The 50% CGT discount still applies when you sell
- No changes whatsoever until you sell or the property is no longer income-producing
The grandfathering applies regardless of when settlement occurs, as long as the contract was signed before the budget night cut-off.
New Builds: The Key Exemption
The government deliberately carved out new residential dwellings from these restrictions. If you purchase a newly constructed home — defined as a new dwelling that has not previously been sold as a residential property — you retain access to:
- Full negative gearing (losses offsetting all income, including salary)
- The choice between the 50% CGT discount or the new cost base indexation framework
This exemption is designed to incentivise housing supply. By making new builds more attractive than established properties for investors, the government hopes to push investment dollars toward construction rather than competition for existing homes.
What counts as a new build? The ATO has confirmed that “eligible new builds” means new residential dwellings — broadly, a dwelling that hasn’t previously been sold. Off-the-plan apartments are expected to qualify. Always confirm with your accountant and the developer before committing.
Also exempt from the new rules:
- Self-managed superannuation funds (SMSFs) — the changes do not apply to super funds
- Widely held trusts — managed property funds are not affected
- Build-to-rent (BTR) developments — specific exemption for purpose-built rental projects
- Private investors supporting government housing programs — targeted exemption for affordable housing providers
CGT Changes: The 50% Discount Is Going
The negative gearing changes come alongside an equally significant capital gains tax reform. From 1 July 2027, the 50% CGT discount for individuals, trusts, and partnerships is replaced for assets acquired after 12 May 2026.
What Replaces the 50% Discount?
Two mechanisms replace the old discount:
- Cost base indexation: Your cost base is indexed for inflation over the holding period, reducing the nominal gain. This particularly benefits long-term holders.
- 30% minimum tax on net capital gains: A minimum 30% tax applies to net capital gains, regardless of the investor’s marginal rate.
CGT on Gains Already Accrued
Importantly, the CGT changes only apply to gains that accrue after 1 July 2027. So if you bought a property in 2022 that’s increased in value since then, gains accrued before 1 July 2027 are still calculated under the old 50% discount rules. Only future gains (after 1 July 2027) are subject to the new framework.
New Builds: Your Choice
Investors in eligible new builds can choose which CGT framework to apply at the time of sale — the existing 50% discount or the new cost base indexation approach. This gives new build investors flexibility to choose whichever method produces the better outcome depending on holding period and inflation levels.
For a detailed breakdown of how CGT is calculated on investment properties under both the old and new rules, see our CGT investment property guide.
How This Affects Property Held in a Trust
The negative gearing changes apply to individuals, partnerships, companies, and most trusts — specifically discretionary (family) trusts. However, widely held trusts (like listed property trusts or managed investment trusts) are excluded.
If you hold property through a family trust:
- Properties purchased after 12 May 2026 are subject to the new rules
- Losses from those properties can only offset residential property income from within the trust or capital gains from selling
- The trust cannot distribute those losses to individual beneficiaries to use against their salary income
The more significant change for trusts is on the CGT side: the 50% CGT discount is no longer available to trusts for properties purchased after 12 May 2026 (unless they’re new builds with an election).
For investors using trusts for property ownership, the case for trusts has become more complex. Read our guide on buying property through a trust in Australia.
What Should Property Investors Do Now?
If You Already Own Investment Properties
You’re grandfathered — your current properties are unaffected. The critical question is whether to continue holding, sell, or expand your portfolio.
Expand into new builds: If you want to grow your portfolio, new builds now have a clear tax advantage over established properties for future purchases. Run the numbers with your accountant.
Review your debt structure: Under the new CGT rules, you’ll want to maximise your deductible interest across grandfathered properties (still fully deductible) while future acquisitions are new builds.
If You’re Planning to Buy in the Next 12 Months
You have two real options:
- Established property: Accept that you can no longer use rental losses to offset salary — evaluate the investment purely on capital growth, yield, and equity-building potential
- New build: Access full negative gearing and the CGT flexibility; evaluate whether the developer quality and location justify the premium
For High-Income Earners ($120K+)
The immediate tax benefit of negative gearing was always highest for people on the 37% or 45% marginal rate. For new purchases of established properties, that benefit is now gone. This changes the maths significantly for high-income investors who previously relied on tax offsets to make a negatively-geared property cashflow-neutral. Your accountant should model whether a positively-geared property, a new build, or a different asset class makes more sense for your situation.
Frequently Asked Questions
The Bottom Line
Australia’s negative gearing rules have fundamentally changed for new investors buying established properties from 12 May 2026. The ability to offset rental losses against your salary — long the cornerstone of wealth-building strategies for high-income Australians — is now restricted to new builds and grandfathered properties.
If you already own investment properties, nothing changes immediately. If you’re planning to buy, you need to model the impact carefully and consider whether a new build, a different structure, or a shift in strategy now makes more sense.
We’ll continue updating this article as ATO guidance is released and the rules are finalised for the 2027–28 income year.
If you’re new to property investing, start with our complete guide on getting started with property investment in Australia before working through the tax implications.
For investors using a self-managed super fund, the 2026 negative gearing changes interact with SMSF rules differently. Our guide to SMSF property investment in Australia covers the full tax picture, including how income and capital gains are treated in accumulation vs pension phase.
This article covers the changes passed by the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and is intended for general information only. Tax law is complex — always consult a qualified tax adviser or accountant before making investment decisions.
General Advice Warning: This article is general in nature and does not constitute personal financial advice. Please consult a licensed financial adviser before making investment decisions.