The negative gearing changes announced in the Federal Budget on 12 May 2026 start on 1 July 2027. They limit negative gearing on residential property to new builds, while properties investors already held on Budget night keep the current rules. The capital gains tax (CGT) discount is also changing. According to the Australian Taxation Office, these measures are now law, through the Treasury Laws Amendment (Tax Reform No. 1) Act 2026.
This guide explains who the changes affect, how the rules define new builds, what happens to losses and capital gains, and what the changes mean for borrowing and loan structure. We are mortgage brokers, not tax advisers, so we focus on the lending side and list the questions to take to your accountant.
The Negative Gearing Changes in Brief
Based on the Budget tax reform summary and the Treasury tax explainer:
- From 1 July 2027, you can only deduct losses on established residential investment properties bought from 7.30pm AEST on 12 May 2026 against residential property income, including capital gains, not against wages or other income.
- You can carry unused losses forward to offset residential property income in future years.
- Properties held at 7.30pm on 12 May 2026, including contracts signed but not yet settled, are exempt until sold.
- Eligible new builds can still be negatively geared against other income.
- Cost base indexation and a 30% minimum tax on gains accruing from 1 July 2027 replace the 50% CGT discount.
What Is Negative Gearing?
A property is negatively geared when the rent is less than the costs of holding it, such as interest, rates, insurance, repairs and management fees. Until now, investors could generally deduct that loss from their salary and other income, which reduced their tax. By contrast, a positively geared property earns more than it costs, and the surplus is taxable income.
Who Do the Negative Gearing Changes Affect?
The outcome depends mainly on when you bought and what you bought. The Treasury explainer sets out these transitional rules.
Property You Held on Budget Night
If you owned an investment property at 7.30pm AEST on 12 May 2026, or had signed a contract that had not yet settled, you can keep negatively gearing it in future years until you sell. Nothing changes for that property.
Established Property Bought After Budget Night
Established property bought between the announcement and 30 June 2027 can be negatively geared during that period, but not from 1 July 2027. Established property bought from 1 July 2027 cannot be negatively geared at all. In both cases, losses can still offset residential property income, and you can carry them forward.
New Builds
New builds are residential properties that genuinely add to housing supply. The government’s examples include:
- Eligible: a new apartment bought off the plan, construction on vacant land, and a duplex built through a knockdown-rebuild that replaces a single house.
- Not eligible: a single house knocked down and replaced with another single house, an established property extended with extra bedrooms, or a granny flat added to an established property.
A new build generally cannot have been sold before, unless the builder owned it and it was not occupied for more than 12 months. Subsequent buyers of the same dwelling do not get the new build treatment.
Who Else the Rules Cover
The negative gearing changes apply to individuals, partnerships, companies and most trusts. The rules exclude super funds, including SMSFs, and widely held trusts. Commercial property and shares are not affected by the negative gearing change.
Losses Are Deferred, Not Lost
For an established property bought after Budget night, you don’t waste a rental loss from 1 July 2027. Instead, you carry it forward and use it against future residential rental income or a capital gain when you sell. The difference is timing: the tax benefit arrives later, so your after-tax holding cost is higher in the early years. That matters for cash flow and for how much buffer you keep.
Capital Gains Tax Changes From 1 July 2027
For individuals, trusts and partnerships, cost base indexation, calculated using CPI, together with a 30% minimum tax on real capital gains, will replace the 50% CGT discount. These rules only apply to gains that accrue after 1 July 2027:
- Nothing changes for assets you buy and sell before 1 July 2027.
- For assets held on 1 July 2027 and sold later, the 50% discount applies to the gain up to that date, and the new rules apply to the gain after it. The ATO will provide tools to estimate the value on that date.
- Investors in new builds can choose either the 50% discount or the new arrangements when they sell.
- Your main residence remains exempt from CGT.
What It Means for Borrowing and Loan Structure
The tax outcome is for your accountant. Even so, the negative gearing changes also flow through to how lenders assess you and how your loans should be set up.
Borrowing Capacity
Some lenders take the tax benefit of negative gearing into account when they calculate how much you can borrow. For an established property bought after Budget night, lenders may treat that benefit differently or leave it out, which can reduce your borrowing capacity. Lender policies differ and have been changing, so compare several before you sign a contract. After several rate rises in 2026, serviceability is already tighter for many investors.
Loan Structure
- Keep investment borrowing in separate loan splits from your home loan, so the purpose of each loan is clear.
- Think carefully before redrawing or topping up against a property you held on Budget night. Ask your accountant how the tax rules treat the new funds.
- Compare an offset account with redraw on investment loans. Our offset versus redraw guide explains the difference.
- Keep records of contract, settlement and construction dates, because the transitional rules depend on them.
Building New
If you choose a new build to keep negative gearing, you will usually need a construction loan with progress payments, or a loan for an off-the-plan purchase that settles at completion. Valuations at completion can differ from the contract price, so plan for that risk.
Questions to Ask Your Accountant
- Does my existing property qualify as held on Budget night, and what records prove it?
- Is the property I am considering a new build under the new rules?
- How would carried-forward losses affect my tax over the next five to ten years?
- Should I own the property in my name, jointly or through another structure?
- How will refinancing, redrawing or converting my home into a rental affect my deductions?
- How will the CGT changes affect my plans to sell?
A Sutherland Shire Investor Angle
For Shire investors, the new build definition is the key detail. The government lists a duplex knockdown-rebuild replacing a single house as an eligible new build, whereas a like-for-like single house rebuild does not qualify. Consequently, dual occupancy projects may suit some investors, subject to council approval and the site.
Meanwhile, established homes and units in areas such as Cronulla, Kurnell, Miranda and Caringbah bought after Budget night fall under the new loss rules. That puts more weight on rental yield, cash flow and long-term growth rather than the tax refund. See our investment loans page for how we structure investor finance, or visit the Sutherland Shire hub. We also help investors across Australia by phone and video.
Negative Gearing Changes: FAQs
Timing and Eligibility
The changes apply from 1 July 2027. They affect established residential property bought from 7.30pm AEST on 12 May 2026.
Yes. The ATO states the measures are now law, through the Treasury Laws Amendment (Tax Reform No. 1) Act 2026.
Under the published transitional rules, you can negatively gear it until 30 June 2027 but not from 1 July 2027. After that, you can carry losses forward. Confirm your position with your accountant.
New Builds, CGT and Lending
Only if it adds to supply. A duplex replacing a single house is an eligible example, but a single house replaced by another single house is not.
From 1 July 2027, CPI indexation and a 30% minimum tax replace the 50% discount for gains accruing after that date. New build investors can choose either method.
They can. Some lenders count the tax benefit of negative gearing in serviceability, and that may not apply to established property bought after Budget night. Policies vary, so compare lenders.
Planning an investment purchase or reviewing your current investment loans? Book a free chat and we will compare lenders and structures for your situation.
The information on this page is general in nature and does not take into account your objectives, financial situation or needs. Lending criteria, fees and charges apply. Consider whether it is appropriate for you and speak to us for advice specific to your situation. Speak to your accountant or tax adviser about tax.
