Negative Gearing 2027: Before and After the Budget Changes

The 2026-27 Federal Budget handed down on 12 May 2026 introduced two changes that reshape the maths of Australian property investing: negative gearing is being restricted for established residential properties purchased after Budget night, and the 50% capital gains tax discount is being replaced with a new indexation-and-minimum-tax framework. Both take effect from 1 July 2027. If you are weighing up an investment property, this is the article to read before you sign a contract.

Below we walk through what changed, who is (and is not) affected, and run the same couple through a worked before-and-after example so you can see the difference in dollars — year by year and at the point of sale. All figures are illustrative examples based on the announced framework, which remains subject to final legislation, so confirm the detail with a registered tax agent before acting on it.

What Changed on Budget Night — And What Kicks In on 1 July 2027

From 1 July 2027, rental losses from established residential properties purchased after 7:30pm AEST on 12 May 2026 can no longer be deducted against your salary or other personal income. Losses can only be offset against income from residential rental properties (including other rental properties you own) or against capital gains from selling a residential rental property. Anything you cannot use in a given year is carried forward to future years — the benefit is deferred, not deleted.

The same Budget package also removes the 50% CGT discount from 1 July 2027 and replaces it with cost base indexation plus a 30% minimum tax on net capital gains for assets held more than 12 months. This applies broadly to CGT assets held by individuals, trusts and partnerships — not just residential property. Eligible new residential builds retain the more favourable existing treatment.

Timing nuance: an established property purchased today can still be negatively geared under the current rules for the 2026-27 financial year. The quarantining only starts from the 2027-28 year onward.

Who Is Affected — and the Three Big Carve-Outs

The reform is targeted, not blanket. Three exemptions do a lot of work here.

Grandfathered properties. If you owned an investment property, or had exchanged contracts on one, before 7:30pm on 12 May 2026, you keep the current negative gearing and CGT rules for that property until you sell it. Grandfathering attaches to the property, so a sell-and-replace strategy loses the protection on the replacement purchase. Refinancing, switching lenders, or drawing equity for property improvements does not disturb it.

Eligible new builds. A qualifying brand-new dwelling — generally a never-previously-occupied home — retains full negative gearing and the current CGT discount treatment. For growth corridors like Ipswich in Queensland, Melton in Victoria, and the outer north of Perth where new stock is plentiful, this materially widens the after-tax gap between established and new-build purchases.

Certain structures. Residential property held inside superannuation funds (including SMSFs), widely held trusts, and dedicated build-to-rent developments sit outside the reform. Commercial property is also unaffected. These carve-outs will influence how larger investors structure future acquisitions.

Meet Our Example Investors: A Worked Case

Consider a couple — one earning $160,000, the other $90,000 — buying an established investment property in outer Brisbane as 50/50 joint owners after Budget night. Their property profile, held steady for five years to keep the maths clean:

Under the current tax brackets, the partner on $90,000 sits in the 30% bracket and the partner on $160,000 sits in the 37% bracket. Adding the 2% Medicare levy, the true marginal rates applying to their $6,000 shares are 32% and 39% respectively — a detail most published examples miss.

Use our Borrowing Power Calculator to understand how much you can realistically borrow together, before you narrow down the property choice:

Then use our Repayment Calculator to model the true monthly commitment on the loan size you are considering, since post-Budget established properties no longer offer a tax-refund cushion:

The Annual Difference: Old Rules vs New Rules

Under the old rules (still applying to grandfathered properties and eligible new builds), each partner claims their $6,000 share against their salary at tax time. Under the new rules for post-Budget established properties, the annual refund disappears entirely.

Combined, the household receives $4,260 per year in refunds under the old rules — turning the $12,000 annual holding cost into an effective out-of-pocket cost of about $645 per month. Under the new rules, the full $1,000 per month must come from take-home pay. That is a $355-per-month swing in the cash flow the household needs to sustain, before any interest-rate movement is factored in.

Comparing the Five-Year Journey

Assume the couple sells after five years for a $100,000 gross capital gain ($50,000 each), having accumulated $60,000 in quarantined losses ($30,000 each) under the new rules. Here is the whole-journey comparison. The new-rules CGT figure is illustrative at marginal rates without indexation, since the final interaction between cost base indexation, the 30% minimum tax and carried-forward losses will only be confirmed in the enabling legislation.

The whole-journey swing is roughly $18,000 in this example — and that is before considering the time value of money, since a refund received in year one is worth more than the same dollars recovered five years later. The value of your quarantined losses also depends on eventually having rental profits or a capital gain to offset them against; if the property never turns a profit and sells without a gain, those losses may deliver little practical benefit.

These numbers change materially with any change in salary, ownership split, loan structure, or property choice. Model your own scenario with a registered tax agent before signing a contract.

What This Means for Cash Flow, Property Choice, and Structure

Three implications matter for anyone actively looking at investment purchases across Sydney, Melbourne, Brisbane, Perth or Adelaide.

Cash flow is now the gatekeeper. For post-Budget established properties, neither borrower nor lender can lean on an annual tax refund to soften the shortfall. Serviceability conversations should model the pre-tax cash cost — in our example, the full $1,000 per month — as the ongoing commitment. Sydney investors considering established stock in Blacktown or Penrith, Melbourne investors looking at Frankston or Werribee, or Adelaide investors weighing up Salisbury all need to be comfortable funding the raw shortfall from wages alone.

Property selection has shifted. The after-tax gap between an established house and a comparable new build has widened. A qualifying new build in a growth corridor — for example a $650,000 house-and-land package in an outer-suburb development — retains full negative gearing and the existing CGT treatment. The same-priced established home in a middle-ring suburb is now materially more expensive to hold, dollar for dollar. For investors targeting yield rather than growth, a positively geared property in a regional centre may become more attractive because it side-steps the quarantining problem entirely.

Grandfathering has real value. Existing investment properties owned before 12 May 2026 keep the old rules. Selling and replacing means the replacement falls under the new regime, so the tax cost of switching properties in your portfolio has risen. Any restructure conversation should price that in.

Use our Stamp Duty Calculator to size the upfront cost in the state you are buying in, since duty concessions vary between New South Wales, Victoria, Queensland, Western Australia and South Australia:

Use our LMI Calculator to see whether increasing your deposit meaningfully reduces the lenders mortgage insurance premium — a lever that matters more now that the annual tax refund is off the table:

Because this is a tax-driven change, decisions should be made in partnership with a registered tax agent as well as a mortgage broker — a broker can size the loan and structure the ownership, but only a tax professional can confirm how the new rules interact with your specific income, entity mix, and existing portfolio.

Frequently Asked Questions

General Information Disclaimer

This article is general in nature and does not constitute financial or credit advice. Please speak to a licensed mortgage broker before making any lending decisions.

myfundfinder.com.au/find-a-broker