Negative gearing reform is no longer a proposal. Announced in the 12 May 2026 federal budget, the changes to negative gearing and the capital gains tax discount passed Parliament on 25 June 2026 and received royal assent the next day. Both start on 1 July 2027.
If you own investment property, or you’re planning to buy, here is what actually changed, who is protected, and what it means for your strategy. The headline: this is not the two-property cap that was rumoured. It is a split between established homes and new builds.
What’s actually changing
Two reforms take effect on 1 July 2027.
Negative gearing is limited to new builds. From 1 July 2027, investors who buy an established residential property after 7:30pm on 12 May 2026 can no longer offset that property’s rental losses against their salary or other income. The losses can only be offset against rental income or future capital gains from investment property, with any excess carried forward. Negative gearing survives in full for new builds.
The CGT discount is replaced. The flat 50% capital gains tax discount is being replaced with a discount based on inflation (indexation of your cost base) plus a minimum 30% tax on the gain. It applies to assets held by individuals, trusts, and partnerships. Investors in new-build property can choose, when they sell, between the current 50% discount and the new regime.
Both start 1 July 2027. Both are law: Act No. 49 of 2026, assented 26 June 2026.
Established vs new build
The old debate was about how many properties you own. That is not what the reform does. It draws a line between established and new, and between what you already hold and what you buy next.
- Already owned it, or were under contract, before 7:30pm on 12 May 2026? You are grandfathered. Nothing changes. You keep negative gearing and the 50% CGT discount on those properties until you sell.
- Buying a new build after that? You keep negative gearing, and you choose the better of the two CGT regimes when you sell.
- Buying an established property after that? From 1 July 2027 you cannot negatively gear it against your salary, and your CGT is worked out under the new indexation-plus-30% regime.
For investors, the decision is no longer “how many.” It is “established or new, and when.”
How negative gearing works until then
For anyone who needs the refresher: negative gearing means your investment property costs more to hold than it earns in rent. The difference, your net rental loss, is deducted against your other income, including your salary.
If you earn $120,000 and your property runs at a $15,000 annual loss, you are taxed as though you earned $105,000. At the 37% marginal rate, that is around $5,550 in tax saved. The property still costs you money each year, just less than it would without the deduction. From 1 July 2027 this simply stops applying to newly-bought established homes.
Run the numbers on any investment property. See your after-tax cost and when it turns positively geared.
Use the calculator →
Who’s grandfathered
Grandfathering is the most important word in this reform for existing investors.
If you owned an investment property, or had exchanged contracts on one, before 7:30pm on 12 May 2026, the new rules do not touch it. You keep negative gearing and the 50% CGT discount on that property for as long as you hold it. Sell it, and the concession goes with the sale, but while you hold, nothing changes.
This is the same approach floated at the 2019 election. It means the reform bites gradually, on future purchases of established homes, not on the existing market all at once.
What it means for property prices
The modelling is less dramatic than the headlines.
Government figures put the combined effect at house prices growing a little under 3% slower than they otherwise would have, over time. The Grattan Institute is more conservative, estimating prices up to 2% below the baseline with little effect on rents. Treasury modelling points to prices growing around 2 percentage points slower over the next couple of years, roughly 75,000 additional owner-occupiers entering the market over the decade, and rents rising by less than $2 a week above their existing trajectory.
None of that is a crash. With national rental vacancy still tight at 1.2% (SQM Research, May 2026), the supply picture matters more to rents than this reform does.
The savings behind it
The reform is a revenue measure. The reduced CGT discount is projected to save the budget around $3.7 billion a year. The negative gearing change raises roughly $2 billion a year initially, easing to about $1.6 billion as quarantined losses are written off against future investment income. Those numbers are the reason the policy exists.
The New Zealand comparison
New Zealand is the closest real-world test. In 2021 its government removed interest deductibility for residential investors entirely, phased over several years. Investor demand fell, rents rose by an estimated 7% to 12% over two years, and affordability for first-home buyers did not visibly improve. The policy was reversed in 2024.
Australia’s reform is milder. It keeps negative gearing for new builds and grandfathers every existing holding, where New Zealand removed the deduction across the board. The direction is similar. The severity is not.
What investors should actually do
Here is the practical takeaway now that this is confirmed, not rumoured.
You have time. The changes start 1 July 2027. Nothing about your current tax position changes before then, and existing properties are grandfathered for good.
The new-build vs established choice now carries tax weight. After the cutoff, an established purchase loses salary-offset negative gearing while a new build keeps it. That does not automatically make new builds the better investment. New builds often carry a price premium and weaker land content, which can cost you more in growth than the tax break returns. Weigh the growth and yield against the tax treatment, not the tax treatment alone.
Model your CGT before you sell. Swapping a flat 50% discount for indexation plus a 30% minimum tax changes the maths, and the outcome depends on how long you hold and inflation over that time. Our capital gains tax calculator now models both regimes side by side, and we’ve answered the should you sell before July 2027 question in full.
Talk to your accountant. The specifics for your portfolio, especially anything held in a trust, need professional advice.
Keep buying good properties. The fundamentals have not moved. A well-located property that grows and rents well still builds wealth. The tax treatment shifts at the margin for future established purchases; growth, yield, and compounding do not.
Where this leaves you
This is settled policy now, not a proposal, but it does not start until 1 July 2027 and it leaves every existing investment untouched. The investors who come out ahead will be the ones who understand the established-versus-new line, use the runway before it starts, and keep buying on the numbers rather than reacting to headlines.
If you are buying interstate or building a portfolio, the fundamentals of due diligence and location still matter more than any single tax change.
Sources
- ATO: reforming negative gearing and capital gains tax
- 2026-27 Budget: tax reform
- Grattan Institute: negative gearing and CGT analysis
- SQM Research: national rental vacancy rates
For the strategy layer with worked numbers, see our 2027 negative gearing and CGT playbook.
This is general information only and not financial or tax advice. Speak to your accountant or financial adviser about how these changes apply to your specific situation.
If you want to discuss how the 2027 changes affect your investment strategy, book a free discovery call.
