Negative Gearing After the 2027 Reform: What Changes and What Stays

Negative gearing occurs when the deductible expenses on a rental property exceed the rental income it earns. Under the rules that apply up to 30 June 2027, an investor can deduct that net rental loss against other income, including salary and wages, which reduces their total taxable income for the year.

The main deductible expenses on a rental property include interest on the investment loan, council rates, property insurance, property management fees, repairs, and depreciation on the building and fittings.

Negative gearing has been available to Australian property investors since income tax was introduced. The reform does not abolish it. It restricts it for a specific category of property acquired after a specific date.

From 1 July 2027, the Act quarantines rental losses on established residential dwellings acquired after 7:30 pm AEST on 12 May 2026. An investor who bought such a property can no longer offset that property's net rental loss against salary or other non-rental income.

Instead, the losses are ring-fenced. They can only be applied against residential rental income from the same or other rental properties, or against net capital gains on residential rental assets when the property is eventually sold.

The losses are not lost permanently. They carry forward and can be used in future income years once sufficient rental income or a capital gain arises.

A transitional rule allowed negative gearing against salary on post-budget established purchases up to 30 June 2027. That transitional window ends at the close of the 2026-27 income year. From 1 July 2027, the ring-fencing applies in full.

Established dwellings held at 7:30 pm AEST 12 May 2026: Fully grandfathered. Investors who held an established property, or who had entered into a binding contract to purchase one, before the budget night cut-off retain full negative gearing against any income for as long as they hold the property. There is no per-taxpayer cap on the number of grandfathered properties.

New residential dwellings: Unaffected by the quarantining rules. A new dwelling is one that has not been previously occupied or sold as a place of residence, including substantially renovated properties. Negative gearing and the 50% CGT discount both continue to apply. New-build status is lost after the property has been sold and occupied for more than 12 months, so a buyer of a second-hand new-build after that 12-month period is treated as buying an established dwelling for the purposes of the Act.

Commercial property: Interest and holding costs on commercial property remain fully deductible against all income regardless of when the property was acquired. The Act does not apply to commercial real estate.

Widely-held trusts, complying superannuation funds, and build-to-rent developments: Exempt from the quarantining changes.

7:30 pm AEST 12 May 2026 is the grandfathering cut-off. Established dwellings held at this time, or under a binding contract entered into before this time, keep negative gearing against all income indefinitely under the pre-reform rules. The date and time are fixed in the legislation and cannot change.

30 June 2027 is the last day of the transitional period for post-budget established dwelling purchases. During the 2026-27 income year, investors who bought an established dwelling after the budget cut-off could still negatively gear against salary under the transitional provisions. That access ends at the close of the 2026-27 income year.

1 July 2027 is the commencement date. From this date, rental losses on post-budget established dwellings are ring-fenced to residential rental income and future residential rental capital gains.

The negative gearing changes do not operate in isolation. The same Act also replaces the 50% CGT discount with CPI cost-base indexation for most asset types from 1 July 2027. A net capital gain after indexation is then subject to a 30% minimum tax rate, or the investor's marginal rate if that is higher. Both changes take effect on the same date.

The practical interaction for a post-budget established dwelling: an investor cannot offset annual losses against salary, and when they eventually sell, the gain accrued after 1 July 2027 is taxed under the indexation rules rather than the 50% discount.

For new residential dwellings, neither the negative gearing quarantining nor the CGT discount change applies. New builds keep both negative gearing against all income and the 50% CGT discount.

For grandfathered established dwellings, the CGT transitional rules apply separately. The gain accrued up to 1 July 2027 retains the 50% discount when the property is eventually sold, under the deemed acquisition rules in Subdivision 112-E of the Act.

The cut-off date of 12 May 2026 is fixed in the legislation. If you hold an established dwelling purchased after 7:30 pm AEST on that date, the loss quarantining rules will apply to it from 1 July 2027.

A few things worth reviewing with a registered tax agent before 1 July 2027: whether each property you hold is grandfathered or affected by the quarantining rules; how much rental loss has accrued on post-budget established dwellings and when it is likely to be absorbed; how the CGT transitional rules interact with any plans to sell or hold; and whether any planned purchases would qualify as new residential dwellings under the Act.

No action is required for grandfathered properties. They continue under the current rules for as long as you hold them.