Quick Summary
From 1 July 2027, negative gearing for residential property will generally be limited to new residential builds.
Properties owned before Budget night are protected, while investors purchasing established properties after Budget night will no longer be able to offset rental losses against salary and wage income. Instead, those losses will be quarantined and carried forward.
The key reforms are:
Existing properties are grandfathered.
New builds retain full negative gearing.
Established properties purchased after Budget night lose traditional negative gearing benefits.
Rental losses become quarantined.
Losses can be carried forward.
Various exemptions apply.
The reforms commence from 1 July 2027.
Key Dates
| Date | Event |
|---|---|
| 12 May 2026 | Budget announcement |
| 25-26 June 2026 | Legislation passed Parliament and enacted |
| 1 July 2027 | Negative gearing reforms commence |
| 1 July 2027 | Loss quarantining begins for affected established properties |
| 1 July 2027 | New builds continue to qualify for full negative gearing |
Impact on Property Investors
Winners
New build investors
Build-to-rent projects
First home buyers
Housing developments adding new supply
Potential Losers
Investors purchasing established dwellings after Budget night
Highly leveraged investors relying on tax deductions to support cash flow
Practical Considerations
Clients may now need to consider:
New build vs established property purchases
Cash flow impacts of quarantined losses
Long-term holding strategies
Interaction with the new CGT reforms commencing 1 July 2027
1. What Was Negative Gearing Before the Reform?
Under the old rules, if rental expenses exceeded rental income, the resulting loss could be deducted against other taxable income such as:
Salary and wages
Business income
Investment income
For example:
| Item | Amount |
|---|---|
| Salary | $120,000 |
| Rental Loss | ($15,000) |
| Taxable Income | $105,000 |
The rental loss immediately reduced taxable income and therefore reduced tax payable.
2. Existing Property Owners Are Grandfathered
One of the most important aspects of the reform is that existing investments are protected.
If a property was held before 7:30pm AEST on 12 May 2026, the existing negative gearing rules continue to apply to that property. Investors can continue offsetting rental losses against salary and other income as they do today.
This means:
Existing investors generally keep current tax treatment.
No forced restructuring.
No requirement to sell or refinance.
3. Negative Gearing Is Limited to New Builds
The Government's policy objective is to encourage investment that increases housing supply.
Accordingly, investors purchasing qualifying new residential properties will continue to receive full negative gearing benefits after 1 July 2027.
This means losses can still be offset against:
Employment income
Business income
Other assessable income
exactly as they are today.
4. Established Properties Purchased After Budget Night Are Affected
The biggest change affects established residential properties acquired after 7:30pm AEST on 12 May 2026.
From 1 July 2027:
Rental losses can no longer reduce wages and salary income.
Traditional negative gearing is effectively removed for these properties.
The Government's intention is to reduce investor competition for existing homes while retaining incentives for the construction of new housing.
5. What Does "Quarantined Losses" Mean?
Losses are not lost.
They are simply restricted.
For affected established properties, rental losses will only be deductible against:
Future residential rental income
Future gains from residential property investments
and cannot be used against wages, salaries or business income.
Example
Year 1
Rent received: $25,000
Expenses: $40,000
Loss: $15,000
Under current rules:
Taxpayer claims $15,000 immediately against salary.
Under new rules:
$15,000 becomes a quarantined loss.
It is carried forward for future use.
6. Losses Can Be Carried Forward Indefinitely
A common misconception is that the deductions disappear.
They do not.
Unused losses can generally be carried forward and used against future:
Rental profits
Property-related income
Residential property capital gains
subject to the relevant tax rules.
This means maintenance costs, interest expenses and other deductible costs are still recognised, but the tax benefit may be delayed by several years.