The negative gearing and CGT changes 2027 debate is over. The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 passed Parliament on 25 June 2026 and received royal assent the next day as Act No. 49 of 2026. Both reforms start on 1 July 2027.
We covered what changed and who is grandfathered when the budget dropped. This post is the strategy layer: the worked numbers on quarantined losses, the maths of indexation versus the 50% discount, and where the smart money moves between now and July 2027.
Now law, not a proposal
Three things worth knowing about the final Act that were not in the budget papers.
The Senate amended it on the way through. The biggest addition: new SMSF borrowing over residential property is banned from 10 August 2026. If a fund purchase was part of your plan, our SMSF borrowing ban guide covers the detail and the window that is closing.
The 30% minimum tax got carve-outs. Age Pension, JobSeeker and DSP recipients are exempt from the new floor, written directly into the Act rather than left to regulation.
“New dwelling” is still being defined. The carve-out that preserves negative gearing and the 50% discount election for new builds hangs off a definition that does not exist in law yet. The government announced on 18 June that the definition will sit in a future tranche of primary legislation, with the final details subject to consultation. Anyone making a large decision based on the new-build exemption is relying on Budget guidance notes, not law. We’ve worked the whole trade-off through in new build vs established after the Budget.
The four positions
Every investor is in exactly one of these boxes.
- Grandfathered. You owned, or had exchanged on, the property before 7:30pm on 12 May 2026. Negative gearing and the 50% discount stay with that property for as long as you hold it. Selling is what ends the concession, because whatever you buy next sits in one of the boxes below.
- Established, bought after budget night. From 1 July 2027, losses on the property no longer offset your salary. They pool against income from your other residential properties, carry forward, and can be applied against future residential capital gains. Your CGT on sale runs through the new indexation regime.
- New build, bought after budget night. Negative gearing survives in full, and at sale you choose between the 50% discount and indexation, whichever leaves you better off.
- Selling anything after 1 July 2027. Gains that accrued before 1 July 2027 keep the 50% discount, split by valuation at that date. Growth after it falls under the new rules.
The decision that matters is no longer how many properties you own. It is which box your next purchase lands in, and what that does to your cash flow and your exit.
Quarantining is a timing problem
Quarantining is the most misunderstood part of the reform. The losses are not lost. They change when you get the money back, and at what rate.
Take an investor on a $120,000 salary who buys an established house after the cutoff and runs it at a $12,000 annual loss. Under the old rules, that loss came off their salary at a 32% marginal rate including Medicare, worth $3,840 back each year at tax time.
From 1 July 2027 that refund is gone. The $12,000 pools instead. Five years of it is $60,000 sitting in the carry-forward pool. That pool soaks up income from any positively geared residential property in the portfolio along the way, and whatever is left comes off residential capital gains when they sell. Applied against a gain that would have been taxed in the top bracket at 47%, a $60,000 pool is worth around $28,200 at settlement.
So the deduction is deferred, not destroyed, and it can even come back at a higher rate than it left. The catch is the years in between. Nobody funds your holding costs while you wait. A property that used to cost you $157 a week after tax now costs you $231, and the difference compounds against your borrowing capacity for the next purchase. Run your own numbers through our negative gearing calculator before you commit to carrying that.
The new CGT maths, worked through
From 1 July 2027 the 50% discount is replaced for individuals, trusts and partnerships. Your cost base gets indexed by CPI, so only the real gain is taxed, and a new Division 119 puts a 30% minimum rate on real gains for resident individuals. Super funds are untouched and keep the 33.3% discount.
Here is the same property under both regimes. Established purchase at $650,000 in July 2027, growing at 5% a year, CPI averaging 2.5%, owner on a $120,000 salary, whole gain taxed in the year of sale.
At a 10-year hold, the new regime costs roughly $10,500 more. At 20 years, about $57,000 more. The gap grows with time because indexation only shields the inflation component, while the old discount halved the entire gain, inflation and real growth alike.
Two things flip that result. The first is growth close to inflation. Index a property that barely beats CPI and the taxable real gain shrinks toward zero, which beats a 50% discount. The new regime punishes strong growth and is gentle on weak growth. The second is that the 30% floor mostly bites lower incomes. A retiree with little other income who sells a big gain would have paid low average rates on it, and now pays at least 30% on the post-2027 real gain unless they are on an exempt payment. On a $120,000 salary, as in the chart, your marginal rate is already above the floor and it never triggers.
Every scenario above is exactly what our capital gains tax calculator models, both regimes side by side, including the pre-2027 grandfathered portion if you already own the asset.
Yield just got a promotion
Follow the two changes to their logical end and they say the same thing. The tax system stops subsidising deep negative cash flow on established property.
The old playbook of buying a low-yield property in an expensive suburb and letting the taxman fund a $25,000 annual loss stops working the moment that purchase happens after budget night. The loss still exists. The refund that made it bearable does not arrive for years.
What sidesteps quarantining entirely is a property that runs at or near neutral from day one. There is nothing to quarantine. That is a yield question, and it has always been where affordable markets beat blue-chip suburbs: stronger rental yields against the purchase price, lower vacancy, and growth that comes from a lower base. We have argued for both growth and yield since long before this reform. The Act just raised the price of ignoring the yield half.
The early market data points the same way. Ray White, which runs roughly one in four Australian auctions, tracked investor purchases dipping to 20.7% of sales in the four weeks to 27 June before recovering to 23.2% by mid July. Investors paused, absorbed the rules, and came back. The ones coming back are buying the numbers, not the deduction, and they’re doing it into the thinnest buyer competition in years: we’ve laid out what markets this fearful did next in every cycle on record.
The new-build carve-out trap
The carve-out will be marketed hard. Negative gearing plus a CGT choice sounds like the government built a runway straight to the house-and-land display village.
Be careful. A tax concession does not repair a purchase price. New builds typically carry a developer margin and thinner land content, and the growth you give up on that trade routinely exceeds what the concession returns. It is telling that HIA’s own June data shows new home sales falling 4.6% with cancellations up 50% on the month: higher rates and uncertainty are doing the talking, not a stampede into the exemption. And as above, the legal definition of “new dwelling” is not even settled.
If a new build stacks up on land content, price against comparable established stock, growth prospects and yield, the tax treatment is a bonus. If it only stacks up because of the tax treatment, it does not stack up. This is exactly the kind of decision where a buyers agent earns their fee by pricing the asset rather than the concession.
Your runway to 1 July 2027
Where that leaves each position between now and the start date.
Grandfathered holders: the concessions are now an asset attached to your properties. Selling one both realises CGT and forfeits grandfathering on the replacement, so hold-versus-sell decisions carry more weight than they did last year. Model the exit under both regimes before you list anything, and read our full sell before July 2027 or hold breakdown first.
Buying established: nothing about the reform starts until 1 July 2027, but a purchase today is already inside the new rules when they arrive. Buy the strongest yield you can find without giving up growth, and stress-test the cash flow with no salary offset. If the deal only works with the refund, it does not work.
Chasing the new-build exemption: wait for the definition to be legislated at minimum, and price the asset as though the concession did not exist.
Everyone: the CGT split at 1 July 2027 will lean on market valuations at that date. Keep your records clean now, and put your accountant across anything held in a trust, because trusts lose the 50% discount too.
The line that matters
The job of negative gearing on established property was to make weak cash flow survivable. From 1 July 2027 that prop is gone for new purchases, and the CGT discount that flattered fast-growth exits is replaced by a regime that taxes real gains in full. Properties that pay their own way and grow off a sensible base were the strategy before the Act. Now they are close to the only strategy the tax system leaves standing.
Sources
- Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 - Parliament of Australia
- Second reading speech, Treasurer Jim Chalmers, 28 May 2026
- Budget 2026-27: tax reform
- ATO: Treasury Laws Amendment (Tax Reform No. 1) Act 2026
- Corrs Chambers Westgarth: CGT and negative gearing amendments, 3 June 2026
- Smart Property Investment: negative gearing and CGT bill passes Parliament, 25 June 2026
- The Adviser: reforms pass Senate, 25 June 2026
- AusTax.tools: what passed in the 2026 CGT reform, 2 July 2026
- Ray White investor auction data via AAP, 21 July 2026
- Tax reform implementation - Prime Minister’s media release, 18 June 2026
- ABS: Consumer Price Index, Australia
This is general information only and not financial, tax, or credit advice. The worked examples use simplified assumptions and 2026-27 resident tax rates. Speak to your accountant about how the 2027 changes apply to your situation.
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