If you own an investment property, or you're thinking about buying one, you've probably heard that negative gearing is being wound back. The headlines are broadly right, but the detail matters a lot, and the detail depends heavily on when you bought and what you bought.
Here is what the legislation actually says, as confirmed by the ATO.
What Changed, and When
On 12 May 2026, as part of the 2026-27 Federal Budget, the Government announced it would reform negative gearing and capital gains tax arrangements. These measures are now law.
Negative gearing for established residential properties will be abolished from 1 July 2027 for properties purchased after 7:30pm on 12 May 2026. That is the trigger date: Budget night, not 1 July 2027.
Investors affected by the changes will no longer be able to offset rental losses against salary or other personal income. Instead, losses can only be offset against residential rental income or future capital gains from rental properties. The losses are not extinguished. Excess rental losses may be carried forward to future years.
Who Is Grandfathered
If you already own an investment property, or were under contract before Budget night, you are protected.
Properties held at 7:30pm AEST on 12 May 2026 are exempt from the new rules and may continue to be negatively geared in the ordinary way for as long as they are held. The exemption extends to properties under contract but not yet settled as at the announcement time.
Properties acquired between announcement and 30 June 2027 may be negatively geared during that period only, with the new rules applying from 1 July 2027.
One thing worth understanding: if you sell a grandfathered property, that protection goes with it. Your grandfathered property retains the old negative gearing rules for as long as you hold it. If you sell, you lose that protection, and any replacement established property purchase would be subject to the new rules.
What Counts as a "New Build"
New builds are fully exempt from the negative gearing changes. Eligible new builds will remain exempt, with investors still able to access both negative gearing and the 50% CGT discount.
According to Budget Paper No. 2 (Revenue Measures), the government defines an "eligible new build" as a property that "genuinely adds to the housing stock." The paper specifically lists three categories that qualify: dwellings constructed on previously vacant land; newly constructed apartments bought off-the-plan; and properties where an existing dwelling is demolished and replaced with a greater number of dwellings.
What does not qualify:
- Knock-down rebuilds or substantial renovations that do not increase the housing supply do not qualify.
- A newly built property which is occupied for more than 12 months before being sold to a subsequent investor.
- A granny flat on the same title is treated as an ancillary improvement, not a new build for the purpose of negative gearing eligibility.
The ATO is expected to release detailed guidance before 1 July 2027. There are edge cases, particularly around subdivisions and certain knock-down-to-multiple-dwellings scenarios, where the final ATO ruling will matter. Confirm the classification of any specific property with a registered tax agent before committing.
The CGT Change: The Other Half of the Reform
Negative gearing is only one side of the 2026 reform. The capital gains tax discount is also changing.
The 2026-27 Budget removes the current 50% CGT discount, which will be replaced with cost base indexation and a 30% minimum tax on net capital gains from 1 July 2027. Under the revised framework, cost base indexation will apply to CGT assets held for more than 12 months.
The CGT reforms will only apply to gains that accrue after 1 July 2027, so long-term holders of existing properties are partially protected. The longer you hold past that date, however, the greater the proportion of your eventual gain that falls under the new regime.
Eligible new builds will remain exempt, with investors still able to access both negative gearing and the existing 50% CGT discount. That is a meaningful structural advantage for new build investors over the long term.
What about SMSF investors? Properties in widely held trusts and superannuation funds will be exempt from these changes, in addition to targeted exemptions for build-to-rent developments and private investors supporting Government Housing programs. Tax treatment inside super is governed by separate ATO rules, and that is a conversation to have with an SMSF specialist accountant.
A Simple Scenario to Illustrate the Difference
To show the practical effect, consider two investors, both with a $120,000 salary and an investment property generating $22,000 in annual rental costs above rent received.
Investor A holds a property purchased before 7:30pm on 12 May 2026. Under the grandfathering rules, she continues to offset that $22,000 loss against her salary, reducing her taxable income to $98,000. The existing rules apply for as long as she holds the property.
Investor B buys an established property in August 2026. From 1 July 2027, he cannot offset his $22,000 rental loss against his salary. Instead, those losses are quarantined and can only be applied against future rental income from residential properties or capital gains when he sells. His taxable income for PAYG purposes is assessed on the full $120,000.
Investor C buys a house-and-land package in August 2026, on previously vacant land. Being a new build, she retains full negative gearing against salary and keeps access to the 50% CGT discount on sale. The reform does not touch her position.
These are illustrative scenarios only. Actual tax outcomes depend on individual circumstances and should be worked through with a registered tax agent.
What to Think About Next
The reform creates a genuinely different set of incentives depending on what you buy and when you buy it. Here are three practical steps worth taking:
- Confirm the status of any property you're considering. For established properties, check your purchase date against the 12 May 2026 trigger. For new builds, confirm the property meets the "genuinely adds to housing stock" definition with a registered tax agent before contract.
- Talk to an SMSF specialist accountant if you're considering property through super. The negative gearing rules inside an SMSF operate differently to personal investment, and the structure of the purchase matters.
- Speak with a licensed mortgage broker about how the change affects your borrowing capacity modelling, particularly if you have been relying on a tax refund to service a loan on an established property.
EWC sources new build investment properties for individual investors and SMSFs across Australia. If you'd like to understand what properties are currently available and how the purchase process works, visit /services or book a free call to speak with our team.
General information only, not personal financial advice. Speak with a licensed adviser before acting.