Negative gearing rules change for established residential property acquired after 12 May 2026, with existing properties grandfathered.
Download the Full Autumn 2026 Budget Edition Newsletter
Every measure from the 2026-27 Federal Budget explained in one document, with practical guidance for your situation.
The 2026-27 Federal Budget changes will affect investors who own or are planning to acquire investment properties. The impact varies significantly depending on your current position. For background on the deductions involved, our guides to rental property depreciation and borrowing expenses describe how the current rules apply.
Key dates
- 7:30pm AEST, 12 May 2026 — The cutoff. Properties acquired (or contracted) before this time are grandfathered.
- 1 July 2027 — New quarantining rules begin for established residential property acquired after the cutoff
What Has Changed and What Has Not
The Budget draws a clear line based on when a property was acquired. The table below shows the practical effect.
| Property type / timing | Loss deductible against salary? | Loss deductible against rental income? | Carried forward? |
|---|---|---|---|
| Existing properties (contracted before 7:30pm 12 May 2026) | Yes – grandfathered | Yes | Yes if needed |
| Established residential acquired after the cutoff | No – from 1 July 2027 | Yes | Yes – against future residential property income |
| New build (adds to housing supply) | Yes – exempt | Yes | Yes if needed |
| Properties held in widely held trusts or super funds | Yes – exempt | Yes | Standard rules |
| Build-to-rent developments | Yes – exempt | Yes | Standard rules |
What This Means for Different Investor Profiles
| Your situation | Practical impact |
|---|---|
| Own existing properties, no plans to acquire more | Limited. Existing arrangements fully protected. Change becomes relevant only at next acquisition. |
| Planning to buy another established residential property | Material. Losses no longer reduce salary. Quarantined against future residential income and gains. |
| Planning to buy a new build | Unchanged. Negative gearing against salary remains fully available. |
| Hold a contract signed before 12 May 2026 not yet settled | Protected. Grandfathering covers contracts entered before the cutoff. |
| High-income earner using rental losses against salary | Significant. The strategy that worked for established property no longer works for new acquisitions. |
The Exception for New Builds
An important exception applies to newly constructed properties. Where you purchase a new build, one that adds to Australia’s housing supply rather than simply changing ownership of existing stock, negative gearing deductions remain fully available against your other income. This is a deliberate policy lever.
Worked example: $15,000 annual rental loss – established vs new build
An investor on the 47% combined marginal rate acquires an investment property in 2027. The property generates a $15,000 annual rental loss for the first five years of ownership.
| Property type | Annual tax benefit of loss | 5-year cumulative benefit |
|---|---|---|
| Established residential (post-cutoff acquisition) | $0 against salary (quarantined) | $0 unless other rental income available |
| New build | $7,050 against salary | $35,250 |
For the same property loss, the after-tax cost of holding differs by up to $7,050 per year between an established property and a new build.
The Combined Effect With the CGT Changes
The negative gearing changes do not exist in isolation. They interact directly with the CGT changes confirmed in the same Budget, which replace the 50% CGT discount with cost base indexation from 1 July 2027.
For a high-income investor who has historically relied on negative gearing during the holding period and the CGT discount on exit, both pieces of that strategy now look different. The loss of negative gearing deductions against salary income represents a real increase in annual after-tax cost. The shift from CGT discount to indexation reduces the after-tax return on sale.
Watch out
The case for established residential property as a primarily tax-driven investment is weaker than it has been in years. The investment still works on its commercial merits, but the historical tax tailwinds have shifted. If you are considering holding property in a trust structure, our article on why buying property in a trust can destroy you covers traps that have not gone away with these changes.
What This Does Not Change
- Existing investment properties continue to be negatively geared exactly as they are today
- Capital growth on existing properties is preserved under the current treatment until 1 July 2027, when the CGT changes commence
- The deduction itself has not been removed. The loss is quarantined, not eliminated
- The new rules apply only to established residential property. Commercial property is not affected by the new quarantining rules
What to Do Before You Buy Again
If you are considering purchasing another investment property, the rules have changed in ways that affect both your ongoing cash flow and your future capital gains position. Talk to us about your tax planning before you commit. We can model the after-tax return under the new rules and help you decide whether a new build or established property better suits your circumstances.
This article is part of our 2026-27 Federal Budget guide. Read the full overview for a summary of every measure announced on Budget night.
