On 1 July 2027 the two tax settings that underpin most Australian property investment change: negative gearing is limited to new builds, and the 50% capital gains tax discount is replaced. The changes are law — the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 — but most of what has been written about them is either headline or panic. This is the plain version: what changes, who is exempt, and what to do with the nine months left.
Who is affected — in one glance
Held at 12 May 2026
Any residential property you owned at 7:30 pm AEST on 12-05-2026. Losses keep offsetting wages and other income after 1 July 2027, as now.
Established, bought after 12 May 2026
From 1 July 2027, losses are quarantined to residential property income (rent, capital gains) and carried forward. No offset against salary or business income.
New build, bought any time
Losses continue to offset other income. On sale, you choose between the old 50% discount and the new indexation arrangements.
Negative gearing today
Negative gearing is not a scheme; it is simply what happens when a rental property's deductible expenses — interest, rates, insurance, agent fees, repairs, depreciation — exceed the rent. The loss reduces your taxable income, so at a 30% marginal rate plus Medicare levy, every $1,000 of loss saves about $320 of tax. The investor still loses $680; the bet is that capital growth outruns it. Our rental property deductions guide covers what is deductible.
Change 1 — negative gearing limited to new builds
From 1 July 2027, a loss on a residential property investment can be offset against other income — wages, business income, interest, dividends — only if the property is a new build. For an established property acquired after the announcement time, the loss can still be used, but only against income from residential property: rent from that or another residential property, and capital gains on residential property. Whatever cannot be used in the year is carried forward to later years without limit.
| Loss can be offset against | Until 30 June 2027 | From 1 July 2027 — established, bought after 12-05-2026 | From 1 July 2027 — exempt or new build |
|---|---|---|---|
| Wages and salary | Yes | No | Yes |
| Business and other investment income | Yes | No | Yes |
| Rent from other residential property | Yes | Yes | Yes |
| Capital gain on residential property | Yes | Yes | Yes |
| Unused loss | Reduces taxable income | Carried forward | Reduces taxable income |
Two practical points. First, the deductions themselves are unchanged: interest, rates and depreciation remain deductible against rent. The change is only about where a net loss can go. Second, the quarantine is per taxpayer across residential property, not per property, so a second property's positive result can absorb the first's loss.
Change 2 — the CGT discount is replaced
For individuals, trusts and partnerships, the 50% discount on gains for assets held more than 12 months is replaced from 1 July 2027 by cost base indexation — the cost base is uplifted for inflation, so only the real gain is taxed — together with a 30% minimum tax rate on the capital gain. Companies, which never had the discount, are unaffected. Complying super funds keep their one-third discount.
The transition is the important part. The ATO states that the reforms apply only to gains that accrue after 1 July 2027. A property bought in 2019 and sold in 2030 will have its gain split: the portion accrued to 30 June 2027 gets the 50% discount; the portion after is taxed under the new rules. That makes the property's value immediately before 1 July 2027 a number worth establishing — see the 1 July 2027 checklist.
Example: established unit bought for $500,000 in 2022, worth $650,000 on 30 June 2027, sold for $750,000 in 2031 (ignoring costs)
| Gain accrued to 30 June 2027 | $150,000 | 50% discount → $75,000 taxable at marginal rate |
| Gain accrued after 1 July 2027 | $100,000 | Indexed cost base, then taxed at no less than 30% |
| Total gain | $250,000 | Two methods, one return |
How the split is measured — valuation, or a time-apportionment default — is the detail to watch in the ATO's guidance. Our CGT on property guide and CGT calculator cover the current rules.
What it does to the numbers
Established property, $520 a week rent, $32,000 interest, $8,000 other costs, $6,000 depreciation; owner on $110,000 salary (2026–27 rates)
| Rental income | $27,040 | |
| Deductions | $46,000 | |
| Net rental loss | $18,960 | |
| Tax saving — exempt property (held at 12-05-2026) | $6,067 | loss offsets salary at 30% + 2% Medicare |
| Tax saving — established, bought after 12-05-2026, from 1 July 2027 | $0 | loss carried forward |
| After-tax holding cost per week — exempt vs new rules | $133 vs $249 | before growth |
Put your own figures into the negative gearing calculator — it shows the position now and after 1 July 2027 side by side.
What to do before 1 July 2027
- Confirm your category. Contract date and settlement date both matter for when you "held" the property; keep the contract. If you exchanged before 7:30 pm on 12 May 2026 and settled after, ask us — the ATO's guidance on acquisition timing decides it.
- Establish the 30 June 2027 value. A written valuation, or at least comparable sales evidence, around that date will anchor the pre/post-2027 gain split when you eventually sell.
- Re-run the numbers on any planned purchase. An established property bought now is under the new rules from 2027. It must work on rent and growth alone; the tax saving on a loss is temporary.
- Think about ownership before buying. Which name, what split, whether a structure makes sense — these decide whose income the loss meets and who pays the CGT. They are hard to change later without triggering CGT and stamp duty.
- Keep depreciation and cost base records tidy. Capital works claimed reduce the cost base; a complete record keeps both the annual return and the eventual sale right.
- Don't rush a sale. Pre-2027 gains keep the discount regardless of sale date. Sell when the property and your income position say so, not because of the calendar.
Sources
- ATO — Tax reform: boosting home ownership, reforming negative gearing and capital gains tax
- Treasury — Budget 2026–27 tax measures
- ATO — Residential rental properties and CGT discount
General information current at 30-10-2026. The definition of a new build, the treatment of contracts straddling 12 May 2026 and the method for splitting gains at 1 July 2027 depend on the Act and the ATO's detailed guidance, which we will reflect here as it is published. Not advice — speak to us about your own property.
Frequently asked questions
Is negative gearing being abolished?
No. From 1 July 2027 it is limited. Losses on a residential investment property can still be offset against wages and other income if the property is a new build, or if you held the property at 7:30 pm AEST on 12 May 2026. For an established property bought after that time, losses can only be offset against income from residential property — rent or capital gains — and anything left over is carried forward.
I already own an investment property. Does this affect me?
If you held it at 7:30 pm AEST on 12 May 2026, no — the ATO states those properties are exempt from the negative gearing change and you keep claiming losses against your wages after 1 July 2027 exactly as now. The CGT change does affect you, but only for the part of the gain that accrues after 1 July 2027.
What counts as a new build?
Broadly, newly constructed residential housing that has not previously been sold or occupied as a residence, bought from the developer or built by you. The precise definition, including how substantial renovations and off-the-plan purchases are treated, sits in the Act and the ATO's guidance, and should be checked for the specific property before you rely on it.
What happens to the losses I can't claim?
They are quarantined, not lost. A loss on an established property bought after 12 May 2026 can be offset against other residential property income in the same year, including a capital gain, and any excess is carried forward to later years. If the property later turns positive or is sold at a gain, the carried-forward losses are used then.
What is changing for capital gains tax?
For individuals, trusts and partnerships the 50% CGT discount is replaced from 1 July 2027 by cost base indexation — you are taxed on the gain above inflation — together with a 30% minimum tax rate on capital gains. The ATO states the reforms apply only to gains accruing after 1 July 2027, so the value of your property immediately before that date will matter when you sell. New-build investors can choose between the old discount and the new arrangements.
Should I sell before 1 July 2027?
Not automatically. Gains accrued before that date keep the 50% discount whenever you sell, so the deadline does not force a sale. What matters is the expected growth after 2027, your other income in the sale year, and the transaction costs of selling. Run the numbers before deciding — our CGT calculator gives the current-rules figure and we can model the post-2027 split.
Should I still buy an established investment property?
It can still work if the property is close to positively geared or you have other residential property income to absorb the loss. The tax subsidy on a loss-making established property disappears from 1 July 2027, so the purchase has to stand on rent and growth. New builds keep the subsidy but carry their own risks. This is a decision to make on your own figures, not a headline.
Does the change apply to commercial property or shares?
No. The negative gearing limit applies to residential property investments. Losses on commercial property, shares and other investments are not affected, and the CGT changes apply to all assets for individuals, trusts and partnerships, but with the same 'gains accruing after 1 July 2027' rule.