Negative gearing -- claiming rental losses against your salary -- has shaped Australian property investing for decades. That era is ending for most established properties. From 1 July 2027, negative gearing is limited to new builds, and whether you keep it on an existing property depends entirely on when you bought. Here is what changed, who is grandfathered, and what still works.
What changed
The reform was announced in the 2026-27 Federal Budget on 12 May 2026 and is now law: it passed both houses on 25 June 2026 and received royal assent on 26 June 2026, as part of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. This is the same package that abolishes the 50% CGT discount from 2027.
The change applies to residential property only. From 1 July 2027, rental losses on residential property can only be deducted against your other income (salary, business income, dividends) if the property is a new build. For established properties bought after budget night, losses are quarantined to rental income instead.
The two dates that matter
- 7:30pm AEST, 12 May 2026 (budget night). The dividing line for grandfathering. Established residential properties owned or under contract before this moment keep negative gearing under the current rules. Purchases after it lose the salary offset.
- 1 July 2027. The day the new rules start operating. Until then, all existing arrangements continue as they are -- the FY2026-27 year is unaffected regardless of when you bought.
Grandfathering: who keeps negative gearing forever
If you owned a residential investment property -- or had one under contract -- before 7:30pm AEST on 12 May 2026, nothing changes for that property. You keep full negative gearing under the current rules indefinitely: rental losses continue to offset your salary and other income for as long as you hold the property.
Grandfathering attaches to the ownership, not to a time window. There is no phase-out date for existing owners in the legislation. Selling, however, ends it -- the next buyer of an established property is subject to the new rules.
Bought an established property after budget night? What you can still do
If you bought an established residential property after 7:30pm on 12 May 2026, your rental losses are not gone -- they are quarantined. From 1 July 2027, two mechanisms remain:
- Rental-income offset. Losses on one residential rental can still be deducted against rental income from your other residential rentals in the same year.
- Carry-forward. Excess losses carry forward without a time limit, usable against future rental income or against capital gains from rental property when you sell. What they can never touch is your salary or other non-rental income.
A small worked example. Suppose your post-budget-night established property runs an $8,000 rental loss this year, and a second rental you own makes $3,000 of net rental income. The $3,000 is offset immediately, and the remaining $5,000 carries forward -- available against next year's rental income, or against the capital gain when a rental property is eventually sold. None of the $8,000 reduces the tax on your salary.
The new-build exemption
New residential dwellings are the carve-out the whole policy is built around. Buy a new build and you keep full negative gearing -- rental losses continue to offset salary and other income exactly as under the current rules.
New builds also come with a second concession: buyers can elect to keep the 50% CGT discount instead of the new CPI-indexation-plus-minimum-tax regime that applies to everything else from 1 July 2027. Together, the two concessions are designed to steer investor demand toward new housing supply.
What is NOT affected
- Shares and margin loans. Borrowing to invest in shares or ETFs is completely untouched. Interest on a margin loan remains deductible against your other income.
- Commercial property. The new rules apply to residential property only.
- Pre-budget owners. Grandfathered indefinitely, as above.
- Owner-occupiers. Your own home was never negatively geared -- nothing changes.
How this interacts with the CGT changes
The same Acts abolish the 50% CGT discount for CGT events from 1 July 2027, replacing it with CPI indexation and a 30% minimum tax -- for property investors, both reforms land on the same day. A post-budget established property therefore faces the new world twice over: quarantined rental losses while you hold, and indexation rather than the discount when you sell. Carried-forward rental losses offsetting a capital gain on sale soften that, and the transitional rules protect gains accrued before 1 July 2027. For the full CGT side -- the transitional split, the minimum tax, and what to do before the deadline -- read our guide to the 2027 CGT changes.
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