Negative Gearing Limits 2027: What Investors Lose

The negative gearing changes announced in the 2026 Budget are the most significant restriction on residential property investment in Australia's recent tax history, and they are now law. Announced in the 2026-27 Federal Budget on 12 May 2026 and enacted in June 2026, the change means that from 1 July 2027, investors who purchase established residential property after 7:30pm AEST on Budget night will no longer be able to offset rental losses against their salary or business income. The cut-off is clear: existing property holders are grandfathered indefinitely, new builds remain fully exempt, and the change affects only established dwellings acquired from that point forward. It was arguably the most politically contested element of the entire Budget package.

Disclaimer: This article provides general information only and does not constitute tax advice or financial advice. Tax treatment of investment property is fact-specific and can be complex. Consult a registered tax agent and a licensed financial adviser for advice tailored to your circumstances. The negative gearing and CGT changes described here became law in June 2026 and apply from 1 July 2027.

What the 2026-27 Budget Proposes

According to Budget Paper No. 2 (2026-27), the Government would restrict negative gearing on established residential properties acquired after 7:30pm AEST on 12 May 2026, and that is now law. The commencement date for the new rules is 1 July 2027, so there is a transitional window of roughly thirteen months between the grandfathering cut-off and when the new tax treatment actually kicks in.

The mechanics of the change are important to understand precisely. Negative gearing itself is not being abolished. What changes is where the losses can be applied. Under current law, if your investment property generates a rental loss (your interest, rates, repairs, and other costs exceed your rental income), you can deduct that loss against any other income: salary, freelance revenue, business income, or investment income from elsewhere. The loss offsets your total taxable income and reduces your overall tax bill.

Under the new rules, for affected properties, that same rental loss can only be offset against other income from residential property, such as rent from other properties you hold or a capital gain on residential property. It cannot reduce your salary or other personal income. The deduction is not permanently lost: it carries forward and can be used in future years when you have residential property income or a capital gain on residential property. But the immediate tax benefit that makes negative gearing attractive to most PAYG investors (the in-year reduction in income tax) disappears for newly acquired established dwellings.

New builds are explicitly carved out of these restrictions. According to Budget Paper No. 2 (2026-27), investors who purchase newly constructed residential property will retain full negative gearing treatment regardless of when they acquire it. The Government's stated rationale is to preserve the incentive to increase housing supply while reducing the tax advantage that currently drives competition for existing stock.

Who's Affected (and Who Isn't)

Property investors who buy established residential property after 12 May 2026: affected

If you exchange contracts on an existing house, unit, or apartment after 7:30pm AEST on Budget night, even during the transitional period before 1 July 2027, the new rules will apply to that property from 1 July 2027 onwards. During the 2026-27 financial year (before commencement), existing rules apply. From 1 July 2027, the restricted loss-offsetting rules kick in for that property.

The precise legal definition of "established residential property" matters here, and it is set out in the legislation, so check it (or ask your tax agent) before you buy. The Government's Budget explainer describes an eligible new build as a dwelling that genuinely adds to housing supply: one built on vacant land, or where an existing property is demolished and replaced with a greater number of dwellings. Knock-down rebuilds and substantial renovations that don't add dwellings don't qualify. A new build also can't have been sold before (unless the builder owned it first and it wasn't occupied for more than 12 months), and later buyers of that dwelling don't get the exemption. Off-the-plan apartments are listed as eligible new builds, but get legal and tax advice before assuming this applies to your specific situation.

Investors who held property at 7:30pm on 12 May 2026: grandfathered, no change

If you already owned an investment property at 7:30pm AEST on Budget night, or had signed a contract to buy one that hadn't yet settled, your negative gearing treatment is unaffected for as long as you hold the property. You continue to deduct rental losses against your total income under the existing rules. The law doesn't change the treatment of existing portfolios: the ATO confirms that properties held at the time of the announcement are exempt. If you've been a property investor for years, or had a purchase under contract before Budget night, nothing changes for you.

Buyers of new builds: explicitly exempt

Investors purchasing newly constructed residential property are outside the scope of the restrictions entirely. Full negative gearing against general income is retained for new-build acquisitions regardless of when you buy. This exemption applies whether you buy off the plan, from a developer on completion, or as the first purchaser of a newly finished dwelling. The policy intent is to direct investor capital toward construction rather than existing stock.

Commercial property investors: not in scope of these residential rules

The restrictions apply specifically to residential property. Commercial property (offices, retail premises, industrial sheds, warehouses) is not affected by the negative gearing changes, although the CGT changes discussed below apply to all assets. If your investment portfolio is weighted toward commercial real estate, nothing about your gearing treatment changes. The ATO confirms that rental property tax rules have always distinguished between residential and other investment property in various respects; this Budget measure follows that existing boundary.

Why the Government Made This Change

The Government's stated rationale, as set out in the Budget papers, is twofold: housing affordability and revenue.

On housing, the argument is that negative gearing creates a structural tax advantage for investors purchasing existing dwellings over owner-occupiers purchasing their first home. By removing that advantage for established residential purchases, while preserving it for new builds, the Government aims to tilt investor demand away from existing stock and toward construction, which increases supply. Whether this actually improves affordability at the scale required is a contested empirical question; Treasury's own modelling has historically been cautious about the magnitude of any effect.

On revenue, restricting negative gearing for new established-property buyers raises significant money for the Budget. The fact that the losses are deferred rather than eliminated (they carry forward, not disappear) reduces the long-run cost, but the in-year revenue gain is real and material. This is a significant Budget measure, not a token policy gesture.

What Changes for Tax Returns

A worked example makes the difference concrete.

Suppose an investor (call them Alex) purchases a $750,000 established investment unit on 15 July 2026. That is after Budget night but before the 1 July 2027 commencement date.

FY2026-27 (existing rules still apply): Alex's annual rental income is $32,000. Interest, rates, property management fees, insurance, and repairs total $52,000. The rental loss is $20,000. Under current law, Alex deducts that $20,000 against their $130,000 salary, reducing taxable income to $110,000 and saving about $6,400 in tax (the 30% marginal rate plus the 2% Medicare levy).

FY2027-28 onwards (new rules apply to this property): Same numbers. Same $20,000 loss. But now that loss cannot reduce Alex's salary income. It can only offset rental income from other residential properties Alex holds, or a capital gain on residential property (such as when Alex eventually sells). If Alex has no other rental income and no capital gain that year, the $20,000 loss carries forward to a future year. The immediate $6,400 tax saving disappears. It doesn't vanish forever, but it's deferred until Alex has offsetting residential rental income or a gain.

For investors who hold a portfolio with multiple properties, the loss-ring-fencing can be partially mitigated: losses on the new established property can offset income and gains from their other residential properties. But for the typical single-investment-property buyer who relies on the annual tax saving to make the cash flow work, the impact is material and immediate from 1 July 2027.

Keep meticulous records. Every repair call-out, every agent invoice, every insurance renewal and every rates notice feeds into the deductible loss calculation. If losses are being carried forward rather than applied immediately, you want clean documentation going back to the day of settlement. One exception to note: since 1 July 2017, travel to inspect, maintain or collect rent from a residential rental property is generally not deductible for individual investors (unless you're carrying on a business of letting rental properties). Our vehicle and travel expense deductions guide covers the travel you can claim.

Action for Existing Investors (Pre-Budget-Night Holders)

If your investment property or properties were already settled, or under contract, before 7:30pm AEST on 12 May 2026, the practical answer is straightforward: nothing changes. Your current negative gearing treatment is grandfathered. You do not need to restructure, refinance, or reconsider your portfolio strategy in response to this Budget measure.

The temptation to panic-sell or restructure a perfectly functional investment portfolio based on a change that doesn't apply to you is real, and it tends to spike whenever negative gearing reform is in the news. Resist it. Selling a property generates capital gains tax consequences (and the CGT changes discussed below apply from 1 July 2027) and transaction costs that typically dwarf any tax exposure you might be trying to avoid from a change that isn't actually affecting you.

If you want a structural review of whether your property investment sits within the right entity (individual ownership versus a company or trust), that conversation is always worth having with a tax agent, independently of this Budget measure. Our sole trader vs company guide covers the general trade-offs for business income, and the same structural considerations apply to investment assets.

Action for Investors Considering Purchases Now

If you were already planning to buy an established investment property and haven't yet exchanged, you're now in a meaningfully different situation. The tax treatment of any established property you buy from this point forward will be restricted from 1 July 2027. Before proceeding:

• Get tax and financial advice before transacting. The interaction between the new negative gearing rules, the CGT changes, and your personal income and tax position is fact-specific. A registered tax agent and a licensed financial adviser, ideally working together, can model your actual after-tax position. If you work with an accountant, Taxr for accountants explains how they can see your receipts through Taxr's free accountant portal.

• Compare new-build versus established property treatment. New builds retain full negative gearing. If your investment thesis is primarily tax-driven, a new build may now be a structurally better outcome than an established dwelling of similar price. Compare yields, growth expectations, and total return (not just the gearing treatment), but factor the tax difference into your modelling.

• Model cash flow with the restricted gearing assumption. Run the numbers assuming the annual rental loss cannot offset your salary. Can the property sustain itself, or can you absorb the shortfall from your after-tax cash flow, without the in-year tax saving? If it can't, the investment's viability depends on assumptions about rental growth, capital appreciation, or other factors that carry their own uncertainty.

• Don't make property decisions on tax alone. This bears repeating. Property decisions driven primarily by tax timing rarely produce the best outcomes. The property's fundamentals (location, yield, capital growth prospects, vacancy risk) matter far more than any single gearing treatment. The grandfathering cut-off creates a perception of urgency that deserves scepticism.

Also worth reviewing: for the investment property you do hold, every legitimately deductible expense matters more when the tax benefit of losses is deferred rather than immediate. The losses still count (they carry forward and can offset future residential property income), so maintaining complete records is just as important as before.

Interaction with CGT Reform

The negative gearing changes don't land in isolation. The same law replaces the 50% capital gains tax discount with cost base indexation and a 30% minimum tax on capital gains, for gains accruing from 1 July 2027. Unlike the negative gearing change, this applies to all CGT assets held by individuals, partnerships and trusts, including shares as well as property.

Under current law, if you hold an investment property for more than 12 months and sell it, you pay tax on only 50% of the capital gain. From 1 July 2027 this is replaced with indexation: adjusting the cost base for inflation and taxing only the real (inflation-adjusted) gain, with a minimum tax rate of 30% on that real gain for people whose marginal rate would otherwise be lower. Gains made before 1 July 2027 keep the 50% discount, and investors who buy new builds can choose either the discount or the new method.

Both reforms hit the same investment simultaneously from 1 July 2027: restricted loss-offsetting on the way in, and a changed CGT treatment on the way out. For an investor buying an established property now, both elements of the Budget's property tax package apply. Full analysis of the CGT reform, including how it interacts with properties held at different cost bases, is in our companion post on CGT indexation and the 30% minimum rate from 2027.

Status: Now Law

Negative gearing reform is one of the most politically contentious tax questions in Australia, and this measure went through. The negative gearing limits became law in June 2026 in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, together with the CGT changes, and the Treasury Laws Amendment (Tax Reform No. 2) Act 2026 made further negative gearing amendments in August 2026. The new rules apply from 1 July 2027.

This post was first written on Budget night from Budget Paper No. 2. The design described above matches the ATO's summary of the law, but check the ATO's guidance, or ask a registered tax agent, for the final detail before you make an irreversible property decision.

Updates

12 May 2026: initial publication based on Budget Paper No. 2 (2026-27). Proposals subject to passage of enabling legislation.

1 October 2026: updated for the law. The negative gearing limits were enacted by the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Royal Assent 26 June 2026) and amended by the Treasury Laws Amendment (Tax Reform No. 2) Act 2026 (Royal Assent 26 August 2026).

Frequently Asked Questions

When do the negative gearing changes take effect?

From 1 July 2027. The change is now law (Treasury Laws Amendment (Tax Reform No. 1) Act 2026). The grandfathering cut-off is 7:30pm AEST on 12 May 2026 (Budget night). Properties purchased after that cut-off but before 1 July 2027 will be subject to the new rules from commencement, but governed by existing rules during FY2026-27.

Are existing rental properties affected?

No. Properties held at 7:30pm on 12 May 2026 are grandfathered indefinitely. The new rules apply only to established residential properties purchased after Budget night. The law doesn't apply the change retrospectively to existing portfolios.

Do new builds still allow negative gearing?

Yes. New builds are explicitly outside the new restrictions. Investors can continue to offset losses on new-build residential property against general income, including salary and business income, regardless of when the property is acquired. This carve-out is a deliberate policy choice to maintain the incentive to invest in new housing construction.

What does the change actually do?

For affected properties, rental losses can only offset other income from residential property (rent or capital gains on residential property), not other personal income (salary, business income). The deduction isn't lost: it carries forward and can be applied in a future year when you have residential property income or a capital gain on residential property. But the immediate in-year tax reduction against salary income that makes negative gearing valuable to most investors is removed for newly acquired established dwellings.

Will the changes be retrospective?

No. The Budget paper explicitly grandfathers all properties acquired before 7:30pm on Budget night, and the ATO confirms that properties held at that time are exempt under the law. If you already hold investment property, your current tax treatment is unaffected.

Should I rush to buy before 1 July 2027?

Not without independent advice. Property decisions driven primarily by tax timing rarely work out. The property's fundamentals matter far more than gearing treatment. The commencement date of 1 July 2027 is not the relevant deadline anyway; the grandfathering cut-off for established properties was 7:30pm AEST on 12 May 2026. If you are considering purchasing an established property, consult a registered tax agent and a financial adviser to model your actual position under the new rules. For sole traders and business owners considering their first investment property, the interaction with business income is an important part of that modelling.

Clean property records are your defence in an audit. Taxr keeps your property-related receipts (repairs, agent fees, insurance, depreciation invoices) categorised and exportable to your accountant as an Excel or PDF report. Download Taxr and stop losing receipts.