CHANGES TO NEGATIVE GEARING
The Government has announced reforms to negative gearing as part of the 2026–27 Federal Budget.
The changes are intended to apply from 1 July 2027. Broadly, negative gearing for residential property will be limited to new builds; established residential properties held at 7:30pm AEST on 12 May 2026 (including contracted but not settled) are expected to be exempt, while investors who acquire established residential property after that time will generally be able to deduct rental losses only against residential property income (with unused losses carried forward).
Under current tax settings, net rental losses from an investment property can generally be deducted against other assessable income (for example, salary and wages).
From 1 July 2027, for established residential investment properties acquired from 7:30pm AEST on 12 May 2026, net rental losses are intended to be quarantined so they can only be offset against residential property income (including residential property capital gains). Unused losses can be carried forward to offset residential property income in future years. The proposed rules are intended to apply to individuals, partnerships, companies and most trusts, but exclude widely held trusts (including most managed investment trusts) and superannuation funds (including SMSFs).
What’s Not Changing
Commercial property and shares remain under existing rules; the main residence stays CGT-exempt; small business CGT concessions unchanged, and the 60% CGT discount for qualifying affordable housing is being retained.
Existing property owners can continue to negatively gear properties held before the announcement time (7:30pm AEST, 12 May 2026). Going forward, negative gearing remains available for new-build residential investments. The changes are designed to improve affordability for first home buyers, preserve existing investors’ positions, and encourage additional housing supply.
Key Takeaways
From 1 July 2027 negative gearing for residential investments is limited to new builds; for other residential investments, rental losses are generally quarantined to residential property income (with carry-forward of excess losses).
• For established residential properties, grandfathering of these rules will occur. The ability to negative gear depends on when the property was purchased:
1. Properties held (including contracted but not settled) at announcement time (7:30pm AEST, 12 May 2026), can continue to be negatively geared until sold.
2. Purchased between announcement and 30 June 2027 – may be negatively geared during this period, but not from 1 July 2027.
3. Purchased from 1 July 2027 – cannot be negatively geared.
New Build Exemption
Eligible new-build investors will continue to have access to negative gearing (that is, net rental losses can still reduce taxable income, including salary and wages).
New builds are residential properties which genuinely add to supply. This will include:
• dwellings constructed on vacant land, or
• where existing properties are demolished and replaced with a greater number of dwellings.
Knock-down rebuilds or substantial renovations that do not increase supply will not be eligible. A new build cannot have been previously sold, unless first owned by the builder and not occupied for more than 12 months. Subsequent purchasers of the dwelling will not be able to access the 50% CGT discount or negative gearing in relation to that property. This is similar to how stamp duty exemptions apply to new builds under some state-based arrangements.
MKT Comment:
Overall, the proposal is designed to push more investor demand toward new housing by reducing the tax advantages of buying established residential properties. As existing owners keep the current settings, investors could face a dual system with different outcomes depending on when they purchased the property.
If you would like to discuss any of these proposed Budget Changes please contact our MKT Federal Budget team of Ross Prosper, Mimi Ngo, Chris Schoeman or Sean Pearce.