Negative Gearing Reform Australia 2027

From 1 July 2027, rental losses on established residential property acquired after 7:30 PM AEST on 12 May 2026 can only be used to offset rental income or capital gains from residential property — they can no longer reduce tax on your salary, business income, or other earnings. Pre-cutoff properties, new builds, SMSFs, and build-to-rent developments are exempt. This is the most significant structural change to Australian property taxation since negative gearing was introduced in 1936.

Data in this article reflects legislation and Budget announcements as at 5 July 2026.

How the quarantining works

Negative gearing occurs when the costs of owning an investment property — mainly mortgage interest, but also rates, insurance, repairs, and depreciation — exceed the rental income it generates, creating a net rental loss. Currently, that loss can be deducted against any assessable income, including salary and wages.

From 1 July 2027, for affected properties, rental losses can only be deducted against:

Rental income from other investment properties
Capital gains from the sale of residential property

They cannot reduce tax on:

Your salary or wages
Business income
Dividend or interest income
Capital gains from shares or other non-property assets

Unused losses can be carried forward indefinitely and applied against future rental income or property capital gains.

The cutoff date: 12 May 2026

The cutoff date is 7:30 PM AEST on 12 May 2026 — the time the Federal Budget was handed down. Properties acquired before this date and time are grandfathered: they retain full negative gearing (subject to existing rules).

Properties acquired after this cutoff date are subject to quarantining from 1 July 2027.

What counts as "acquired"?

Acquisition generally occurs at the date of exchange of contracts, not settlement. If you signed a contract before 7:30 PM AEST 12 May 2026 but settle after, you are grandfathered. If you signed after the cutoff, you fall under the new rules — even if you were actively negotiating before the Budget.

Who is exempt?

Several categories are explicitly exempt from the quarantining rules:

Pre-cutoff acquisitions: Any property with a contract dated before the cutoff
New builds purchased by the first investor: The first investor purchaser of a newly constructed dwelling retains full negative gearing
SMSFs and complying super funds: Not subject to quarantining
Widely held trusts: Exempt from the new rules
Build-to-rent developments: Excluded from quarantining

The new build exemption is particularly important — it aligns with the government's objective of channelling investor capital into new housing supply rather than competing with first home buyers for established stock.

Interaction with the CGT changes

The negative gearing reform does not exist in isolation. It is part of a broader package of property tax changes that includes:

CGT discount replacement from 1 July 2027: The 50% discount is replaced by cost base indexation with a 30% minimum tax floor
Pre-CGT assets brought into the tax net for post-July 2027 gains
Discretionary trust 30% minimum tax from 1 July 2028

For an investor buying an established property after 12 May 2026, the combined effect is significant:

Losses are quarantined to property income (limiting immediate tax benefits)
When sold, the CGT treatment shifts from a 50% discount to indexation with a 30% floor (potentially increasing the taxable gain)
If held in a discretionary trust, a 30% minimum tax applies from 2028

Strategies for property investors

Before 1 July 2027

If you are considering purchasing an established investment property, the 2026-27 financial year is the last full year of unrestricted negative gearing for post-cutoff properties. Properties acquired this year can use rental losses against all income until 30 June 2027, after which losses are quarantined.

New builds

The first-investor exemption makes new builds a compelling alternative. You retain full negative gearing and can elect between the 50% CGT discount and the new indexation method on sale. New builds also avoid the established dwelling supply competition that is central to the policy rationale.

Portfolio restructuring

Investors with multiple properties might consider:

Holding pre-cutoff properties for the long term (grandfathered negative gearing)
Directing new investment into new builds to capture the exemption
Evaluating whether trust structures remain tax-efficient given the 30% minimum tax from 2028
Using the 2022-23 to 2026-27 years to maximise depreciation deductions before the switch to quarantined losses

Build-to-rent

For institutional and larger-scale investors, build-to-rent offers the most favourable treatment — exempt from both negative gearing quarantining and the broader CGT changes, with additional tax incentives including reduced MIT withholding rates (15% vs 30%) and accelerated capital works deductions at 4% per annum.

Revenue and market impact

Treasury estimates the negative gearing quarantining and CGT changes will raise significant revenue over the forward estimates. The policy is explicitly designed to:

Reduce competition between investors and first home buyers for established housing
Channel investment capital into new housing supply
Improve housing affordability by reducing the tax advantage of geared property investment
Generate revenue to fund housing programs including the expanded Help to Buy scheme

FAQ

I bought an investment property in March 2026 — am I affected?

No. Properties acquired before the 7:30 PM AEST 12 May 2026 cutoff are grandfathered. You retain full negative gearing.

Can I still claim depreciation on post-cutoff properties?

Yes. Depreciation (both capital works and plant and equipment) remains deductible. However, from 1 July 2027, the resulting rental losses can only offset rental income or residential property capital gains.

What happens to carried-forward losses?

Unused quarantined rental losses are carried forward indefinitely. They can be applied against future rental income or residential property capital gains, but never against salary or non-property income.

Do the rules apply to commercial property?

No. The negative gearing quarantining applies only to residential investment property. Commercial property negative gearing is unaffected.

Can I avoid the rules by buying through a company?

Companies are not directly subject to the same CGT discount replacement, but using a company for property investment introduces other tax issues — including the inability to access the 50% CGT discount and potential Division 7A loan complications. Seek professional advice before restructuring.