Negative Gearing Changes Australia 2027: What Property Investors Need to Know
From 1 July 2027, negative gearing on established investment properties is being restricted for new purchases. Here's who is grandfathered, what's exempt, and how the CGT discount is also changing.
From 1 July 2027, the rules around negative gearing on established residential investment properties are changing — and if you own or are considering buying investment property in Australia, these are the most significant tax reforms affecting property investors since the introduction of the 50% CGT discount in 1999. This article explains exactly what changes, what doesn't, who is protected, and what it means for your returns.
What is negative gearing — a quick primer
Negative gearing is when the costs of owning an investment property exceed the rental income it generates, producing a net rental loss. Costs typically include mortgage interest (the largest component), property management fees, council rates, insurance, maintenance, and depreciation on fixtures.
Under current rules, this net loss is fully deductible against your other income — your salary, business income, or other investment income — reducing your total taxable income for the year. This tax benefit is what makes negative gearing attractive: you're effectively subsidising your property holding costs with tax savings while waiting for the property to appreciate in value.
| Annual rental income | Annual property costs | Net rental loss | Tax saving (37% bracket) | After-tax holding cost |
|---|---|---|---|---|
| $28,000 | $43,000 | $15,000 | $5,550 | $9,450/yr |
| $32,000 | $42,000 | $10,000 | $3,700 | $6,300/yr |
| $40,000 | $45,000 | $5,000 | $1,850 | $3,150/yr |
What exactly is changing from 1 July 2027
The 2026 Federal Budget announced two linked changes that work together:
Change 1 — Negative gearing restricted on established homes
For established (existing) residential properties purchased after the relevant cutoff date, the net rental loss can no longer be offset against personal income sources like wages or salary. Instead, the loss is quarantined — carried forward and only useable against future rental income or capital gains from the same property.
This does not mean deductions disappear. You still claim all the same expenses. It just means that if the property runs at a loss, that loss no longer reduces your salary tax bill in the current year.
Change 2 — 50% CGT discount replaced for new purchases
The flat 50% CGT discount — available to individuals on assets held more than 12 months — is being replaced for assets purchased after the cutoff date with a new approach:
- Indexation method: The cost base is indexed to inflation (CPI), so you only pay CGT on real gains above inflation rather than nominal gains.
- 30% minimum tax rate: A minimum 30% effective rate applies to the capital gain, regardless of which method is more favourable.
In practice: for a property held 20+ years with modest appreciation, indexation could be more generous than the flat 50% discount. For a property sold quickly with a large nominal gain, the 30% minimum rate may result in a higher CGT bill than the current 50% discount system.
Who is grandfathered — the most important part
If you already own investment properties, nothing changes for you. The government has confirmed full grandfathering:
- Properties you own before the cutoff date keep full negative gearing deductibility against all income — permanently, with no sunset date.
- When you eventually sell a grandfathered property, the 50% CGT discount continues to apply as normal.
- There is no obligation to sell, restructure, or do anything differently.
The changes apply only to new purchases of established residential property after the cutoff — not to what you already hold.
New builds remain fully exempt
This is the policy's deliberate design: to encourage new housing construction while reducing tax subsidies on the trading of existing stock. If you purchase a newly built residential property (a brand-new house, apartment, townhouse, or house-and-land package) after the cutoff date, negative gearing continues to operate under existing rules — the net loss is fully deductible against all income. The 50% CGT discount also continues for new builds.
This creates a clear tax advantage for investing in new housing versus established property from 2027 onwards.
| Purchase type | Purchase timing | Negative gearing | CGT discount |
|---|---|---|---|
| Established home | Before cutoff (grandfathered) | Full offset against all income | 50% discount continues |
| Established home | After cutoff (new rules) | Loss quarantined only | Indexation + 30% min rate |
| New build | After cutoff (exempt) | Full offset — unchanged | 50% discount continues |
How this changes the numbers for investors
The practical impact depends on whether the property would be positively or negatively geared after the rule change. For properties that are positively geared (rental income exceeds costs), nothing functionally changes — you were never relying on loss deductions anyway.
For properties that would have been negatively geared on established stock, the tax subsidy disappears. The entire investment case must now rest on rental yield and capital growth rather than tax deductions. This changes the maths materially for high-LVR purchases where mortgage interest is large relative to rent.
Use our Rental Yield Calculator to model the gross and net return on an investment property without the negative gearing subsidy — this is the number that matters under the new rules for established property.
Historical context — why this keeps coming up
This is not the first time negative gearing reform has been seriously proposed. Labor took similar — but differently structured — policies to the 2016 and 2019 federal elections, losing both times in part because of property investor backlash and concerns about housing market impacts.
The key structural difference in the 2026 policy versus earlier proposals: full grandfathering of existing properties. Earlier proposals would have applied the new rules to existing holdings, which property owners strenuously opposed. By protecting all existing investments, the political risk of the policy is significantly reduced — the only people immediately affected are those who haven't yet purchased.
The new build exemption is also different from earlier proposals and is designed to neutralise the argument that restricting negative gearing reduces housing supply — because investors are actively incentivised to build new rather than buy existing.
Frequently asked questions
Is negative gearing being abolished in Australia?
No — negative gearing is not being abolished entirely. Under the 2026 Budget measures, negative gearing on established (existing) residential properties purchased after the policy start date will no longer be offsettable against personal income like wages. However, existing investment properties are grandfathered under the current rules, and new builds remain fully exempt — meaning negative gearing on new construction continues to work as it always has.
What is negative gearing and how does it currently work?
Negative gearing occurs when your investment property's expenses (mortgage interest, rates, management fees, depreciation etc.) exceed the rental income it earns — creating a net rental loss. Currently, this net loss can be deducted against your other income, including your salary, reducing your overall taxable income and therefore your tax bill. For a taxpayer in the 37% bracket with a $15,000 annual rental loss, negative gearing currently saves them approximately $5,550 in tax per year.
When do the negative gearing changes take effect?
The changes announced in the 2026 Federal Budget are scheduled to take effect from 1 July 2027. Properties already owned before the relevant cutoff date are grandfathered — the old rules continue to apply to them indefinitely. Only new purchases of established residential properties after the cutoff are subject to the new restrictions.
Are new builds affected by the negative gearing changes?
No — new residential dwellings are specifically exempt from the negative gearing restrictions. The policy is designed to encourage construction of new housing supply. If you purchase a newly built home, townhouse or apartment (or a house and land package), negative gearing continues to operate under existing rules regardless of the purchase date. This distinction between new and established property is the core of the policy design.
How is the CGT discount changing from 2027?
Alongside the negative gearing changes, the flat 50% CGT discount for investment assets purchased after the relevant cutoff date is being replaced. The new approach uses an inflation-adjusted indexation method combined with a minimum 30% tax rate on capital gains. For properties held long-term in a high-inflation environment, indexation can be more generous than the flat 50% discount. For shorter-hold, high-gain scenarios, the 30% minimum tax rate may result in a higher CGT bill.
If I already own investment properties, am I affected?
No — existing investment properties are explicitly grandfathered. The negative gearing deductibility rules that apply today will continue to apply to any property you already own (or purchase before the relevant cutoff date), indefinitely. There is no sunset on the grandfathering. This also means the 50% CGT discount continues to apply when you eventually sell a grandfathered property.
Should I buy an investment property before the 2027 changes?
That depends entirely on your personal financial circumstances, not just the tax changes. Buying a property purely to lock in tax rules is generally poor financial decision-making — the property still needs to generate a worthwhile return and align with your long-term strategy. If you were planning to invest regardless, the timing has become a consideration. A qualified financial adviser or tax agent can model your specific situation including post-2027 tax treatment.
The negative gearing and CGT changes described in this article were announced in the 2026 Federal Budget and are scheduled to take effect from 1 July 2027. Legislation must pass Parliament before these changes are law. The exact cutoff date, definition of "new build", grandfathering scope and CGT indexation calculation method may be refined in the final legislation. Always verify the current legislative status with the ATO or a qualified tax adviser before making investment decisions based on these proposed rules. This article is general information only.