Negative gearing has not been abolished. But for established residential property bought after Budget night, it stops doing the one thing most investors rely on. From 1 July 2027, rental losses on those properties can no longer be deducted against your salary or business income. The change is law, passed as part of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026.
Whether it affects you depends almost entirely on one date and one time: 7:30pm AEST on 12 May 2026.
Negative gearing changes at a glance
- Residential property you held before 7:30pm AEST on 12 May 2026 is grandfathered. Nothing changes for it.
- Established residential property acquired after that time can be negatively geared as usual until 30 June 2027.
- From 1 July 2027, losses on those properties are quarantined. They can only offset residential property income and gains.
- New builds are exempt and keep full negative gearing.
- Commercial property, shares and managed funds are not affected.
Which properties are grandfathered?
A property is grandfathered if you owned it before the Budget night cut-off. That includes a property where you signed the contract before the cut-off, even if settlement happened afterwards. It also includes a home you owned before the cut-off that you later turn into a rental, because the test looks at when you acquired it, not when it first earned rent.
Draft follow-up legislation released in August 2026 is intended to preserve the treatment where a property passes to a spouse on death or as part of a relationship breakdown.
Grandfathering attaches to your ownership, not to the property. When you sell, the buyer comes under the new rules. And be careful with restructures: moving a grandfathered property into a trust, a company or a family member’s name is a new acquisition by them. Outside the death and relationship breakdown situations, expect the grandfathering to be lost, on top of the CGT and stamp duty the transfer triggers.
What quarantined losses actually means
For an affected property, from the 2027–28 income year a net rental loss can only be used against:
- Net rental income from your other residential properties, including grandfathered ones
- Capital gains on residential property
Anything left over is carried forward to later years. The loss is not gone, but the tax benefit is delayed, sometimes until you sell.
Take Priya, who earns $110,000 and buys an established unit in September 2026. Rent is $28,000 and interest and other costs come to $40,000, a loss of $12,000 a year.
| 2026–27 | 2027–28 onwards | |
|---|---|---|
| Net rental loss | $12,000 | $12,000 |
| Deductible against salary | $12,000 | Nil |
| Tax saved that year (32% including Medicare levy) | $3,840 | Nil |
| Loss carried forward | Nil | $12,000 each year |
Priya’s holding cost rises by about $74 a week in after-tax terms. The losses accumulate and reduce her tax later, when the property turns cash-flow positive or is sold.
New builds: the exception
A new residential dwelling keeps full negative gearing, and on sale the investor can choose the 50% CGT discount instead of the new indexation rules. Under the draft definition released in August 2026, a dwelling is new where it genuinely adds to housing supply and is acquired within 24 months of the certificate of occupancy being issued.
| Likely to qualify | Unlikely to qualify |
|---|---|
| Off-the-plan apartment or townhouse | Established house or unit |
| House built on vacant land | Knock-down rebuild that replaces one house with one house |
| One house demolished and replaced with two or more dwellings | Renovation or extension of an existing dwelling |
| Non-residential building converted to dwellings | Granny flat added to an established property |
The concession belongs to the first investor only. A later buyer of the same dwelling is buying an established property. Because the definition is still in draft, check the position before you sign a contract that depends on it.
Who the rules apply to
The quarantining rules apply to individuals, partnerships, companies and most trusts. Holding the property through a family trust or a partnership does not avoid them. Widely held trusts and super funds are excluded, although since 10 August 2026 an SMSF can no longer enter into a new limited recourse borrowing arrangement to buy residential property.
How this interacts with the CGT changes
The same legislation removes the 50% CGT discount from 1 July 2027. An established property bought after Budget night faces both changes: quarantined losses on the way through, and indexation with a 30% minimum tax on the way out. One offsetting point is that carried-forward rental losses can be applied against the capital gain when the property is sold. Our article on the end of the CGT discount on 1 July 2027 covers that side.
What property investors should do now
- Confirm your dates. Pull the contract for every investment property and check it against 12 May 2026.
- Do not disturb a grandfathered property without advice. A change of ownership can end the grandfathering permanently.
- Rerun the numbers on any affected property without the annual tax refund. Many cash flow projections still assume the old rules.
- Look at where your debt sits. Interest deductibility follows the use of the borrowed money, so with a mix of grandfathered and affected properties, how deposits, offsets and repayments are allocated matters more than it did. Our article on loan structuring and offset accounts explains the principle.
- If you are buying, compare new and established property on an after-tax basis, including the CGT outcome on sale.
- If you have a PAYG withholding variation in place for an affected property, it will need to change from 1 July 2027.
Common questions about negative gearing after 2027
Can I still negatively gear in 2026–27 if I bought after Budget night?
Yes. The quarantining rules start with income years beginning on or after 1 July 2027. A loss in 2026–27 is deductible against your other income in the usual way.
Are quarantined rental losses lost?
No. They are carried forward and can be used against future residential rental income or a capital gain on residential property.
Do the changes apply to commercial property or shares?
No. Commercial property, shares and managed funds can still be negatively geared against other income. The CGT changes from 1 July 2027 do apply to them.
I bought before 12 May 2026. Do I need to do anything?
Not to keep your negative gearing. Keep the purchase contract on file as evidence of the acquisition date, and get advice before changing how the property is owned.
Need a hand with this?
If you bought after Budget night, or you are weighing up a purchase now, the after-tax numbers are different from what most calculators still show. We can confirm whether each of your properties is grandfathered, model the cash flow under the new rules and review how your loans are structured. We are Chartered Accountants and registered tax agents in Cairnlea, in Melbourne’s west.
Related reading
- CGT discount ends 1 July 2027: indexation and the 30% minimum tax
- Loan structuring, offset accounts and why the setup matters more than the rate
- Rental property tax mistakes: why the ATO says 9 in 10 landlords get it wrong
- Depreciation schedules: when they’re worth it and when they’re not
- Our full range of services
Sources
- ATO – Tax reform: reforming negative gearing and capital gains tax
- Budget 2026–27 – Tax explainer: negative gearing and capital gains tax
- Treasury – Consultation on next tranche of tax reform legislation
This article is general information only and does not take your personal circumstances into account. It reflects the law and announced measures as at October 2026. Measures described as draft or proposed may change before they are enacted. Speak to us before acting on anything you read here.
