Negative Gearing Australia: What's Actually Changing in 2027 (And What Isn't)

On 12 May 2026, the federal government announced changes to negative gearing that will affect millions of Australian property investors. But the confusion in the weeks since the Budget has been significant — and a lot of investors are either panicking unnecessarily or, more dangerously, assuming they are protected when they are not.

This article cuts through the noise. Here is exactly what changed, exactly who is affected, and what the practical implications are depending on whether you bought before or after Budget night.

What Negative Gearing Is and Why It Mattered

Negative gearing occurs when the costs of owning a rental property — interest, rates, insurance, property management, repairs — exceed the rental income. The resulting net rental loss can currently be offset against any other income, including salary and wages, reducing the investor's total taxable income.

For a property investor on a $150,000 salary with a $15,000 annual rental loss, negative gearing reduces their taxable income to $135,000 — saving roughly $7,050 in tax at the 47% marginal rate. Across Australia, around 2.3 million individuals claim negative gearing deductions. It has been a cornerstone of property investment strategy for decades.

What the Budget Actually Changed

From 1 July 2027, negative gearing for established residential investment properties will be limited. Specifically: net rental losses from established residential properties purchased after 7:30pm AEST on 12 May 2026 will no longer be deductible against salary or wage income. Instead, those losses can only be offset against income from other residential rental properties, or carried forward to offset future rental income or capital gains from residential property.

Three categories are exempt: properties held at 7:30pm AEST on 12 May 2026 (including properties under contract awaiting settlement); new residential builds (freshly constructed dwellings, knock-down rebuilds on a single dwelling site, or construction on previously vacant land); and properties that support government affordable housing programs.

Commercial property and all other asset classes (shares, ETFs, managed funds) are completely unaffected. The changes are limited to established residential investment properties purchased after the Budget night cut-off.

Who Is Fully Protected

If you owned an established investment property at 7:30pm AEST on 12 May 2026, you are fully protected on the negative gearing side. You can continue to offset rental losses against your salary income for as long as you hold that property. There is no time limit on this grandfathering — it continues until you sell.

If you had signed a purchase contract before 7:30pm on 12 May 2026 but had not yet settled, you are also protected. The cut-off is contract date, not settlement date.

This means the majority of existing property investors — the roughly 2.3 million Australians who already own negatively geared investment properties — are unaffected in their current holdings.

Who Is Affected

Anyone who purchased an established residential investment property after 7:30pm AEST on 12 May 2026 will lose the ability to claim net rental losses against salary income from 1 July 2027 onwards. The property will still be an investment, and all expenses are still deductible against rental income — but if the property generates a net loss, that loss is quarantined to residential property income rather than offsetting your salary.

The practical impact: a new investor buying an established investment property in June 2026 who expects to be negatively geared by $12,000 per year will not receive the $5,640 annual tax saving (at 47%) they might have expected. That loss carries forward but cannot be used against their salary income until they have rental profits or sell.

This changes the economics of buying established investment properties significantly for people in higher tax brackets who relied on negative gearing to offset holding costs. A property that looked viable at a 47% tax offset looks materially different without it.

New Builds: The Deliberate Carve-Out

New residential builds are deliberately exempt from the changes. Investors who purchase a newly constructed property — one that has not been previously occupied, or who demolish a single dwelling and rebuild, or who build on vacant land — retain access to both negative gearing and the CGT discount (or can choose between the discount and indexation under the new CGT rules).

This is intentional government policy: by restricting negative gearing on established properties but preserving it on new builds, the government is attempting to redirect investment towards new housing supply. Whether this works in practice is debatable — but for investors assessing their next purchase, the tax treatment of new builds is now materially more favourable than established properties.

The definition of 'new build' matters here. It is not simply 'recently renovated' or 'substantially improved'. It requires a genuinely new dwelling — either newly constructed, a knock-down rebuild replacing a single free-standing house with a double, or construction on vacant land. A newly subdivided property is not automatically a new build. Investors should get specific advice on whether a particular property qualifies.

How This Interacts With the CGT Changes

The negative gearing changes do not operate in isolation. They were announced alongside the replacement of the 50% CGT discount with cost base indexation and a 30% minimum tax from 1 July 2027. Understanding both together is essential for any investor assessing the impact on their portfolio.

For established properties bought before Budget night: negative gearing entitlements are fully protected until sale; but the CGT discount is only partially protected — it applies to gains accruing up to 1 July 2027, with gains accruing after that date subject to the new indexation and 30% minimum tax regime.

For established properties bought after Budget night: no negative gearing against salary income; and post-2027 gains subject to indexation and 30% minimum tax.

For new builds purchased after Budget night: negative gearing preserved; choice between 50% CGT discount or indexation on sale.

For the full CGT picture: Australia's CGT Discount Is Gone From 2027: What Property Investors Need to Do Before Then

What This Means for Investors Who Were Planning to Buy

The analysis for any new property purchase now has an additional variable. For buyers considering established versus new build properties, the comparison is no longer just yield, location, and growth — it is also the tax treatment over the holding period.

At a 47% marginal rate, negative gearing on a $15,000 annual loss saves $7,050 per year. Over a ten-year hold, that is $70,500 in tax benefits. Losing that changes the required gross return on an established property by a meaningful amount. For investors on lower marginal rates (32.5% bracket), the impact is smaller — around $4,875 per year on the same $15,000 loss — but still significant.

The calculus is clearest at the extremes: high-income investors planning to negatively gear significantly should weight new builds more heavily than before. Lower-income investors or investors targeting high-yield (positively geared) properties are less affected.

What This Means for Investors Who Already Own

For grandfathered investors — the majority — the immediate question is whether to hold, sell, or acquire new properties. The answer depends heavily on what comes next in your portfolio strategy.

If you plan to hold your existing properties indefinitely, the grandfathering fully protects your negative gearing until sale. Nothing changes for your current portfolio.

If you were planning to expand the portfolio, the new tax environment favours new builds for any incremental purchases. Established properties bought now carry the quarantined-loss treatment from 2027.

If you were planning to sell in the next few years, the CGT transition window (before 1 July 2027) may be worth modelling carefully — the 50% discount applies to the entire gain for any sale completed before that date.

For the full framework on selling strategy: How to Avoid Capital Gains Tax on Investment Property in Australia (Legally)

Is This Actually Law Yet?

No. These changes were announced in the 2026-27 Federal Budget and are not yet enacted legislation as at May 2026. The government has a strong majority, the policy has cross-party support in direction if not detail, and the direction is clearly towards passage. The cut-off date of 12 May 2026 at 7:30pm AEST has been formally announced — the practical consequence is that contracts signed after that time are already exposed to the proposed rules assuming they pass.

The Senate may introduce amendments. The final law may differ in detail from the announcement. Investors making significant decisions based on these changes should seek specific tax advice and monitor the legislative progress.

The Bottom Line

If you already own investment property: you are protected on negative gearing. Focus your attention on the CGT transition — that is where the planning decisions are most time-sensitive.

If you are buying next: factor in that established properties no longer have negative gearing deductibility against salary from 2027, and new builds now carry a structural tax advantage they did not have before.

If you are advising someone who is confused: the single most important distinction is the 7:30pm AEST 12 May 2026 cut-off, and whether their property (or the contract they signed) falls before or after it.

For property investment strategy that accounts for the new tax environment: Property Investment Strategy Australia

For how many properties you need given the changed landscape: How Many Investment Properties to Retire

For how SMSF property is affected (it isn't, on the negative gearing side): SMSF Property Investment Australia

General advice disclaimer: This article is general in nature and does not constitute specific advice. The measures described are not yet enacted legislation. All investments carry risk. Please consult a qualified tax adviser before making decisions based on proposed changes to tax law.

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Australia's CGT Discount Is Gone From 2027 | How to Avoid Capital Gains Tax on Investment Property in Australia (Legally) | Negative Gearing Investment Property Australia | Property Investment Strategy Australia | SMSF Property Investment Australia | How Many Investment Properties to Retire