The 2026 Federal Budget delivered the most significant change to property investment tax in a generation. For most investors the headlines were alarming and short on detail, so this is what the change actually does — and, just as importantly, what it doesn't.
A quick note before we start: this is general information, not tax advice. The mechanics below reflect the announced measures (Budget 2026 and ATO guidance) as we understand them in June 2026, and the detail can shift as legislation is finalised. Always confirm your position with your accountant — and we're happy to model the lending side with you.
What exactly is changing?
Negative gearing on established residential investment properties will be removed from 1 July 2027, for properties purchased after 7:30pm AEST on 12 May 2026. In practice that means losses on an affected property — where the interest and costs exceed the rent — can no longer be offset against your salary or other personal income. Instead, those losses are "quarantined": they can only be used against residential rental income, or against a future capital gain on rental property, and any unused amount is carried forward to later years.
The 50% capital gains tax discount on those established properties is also being pared back as part of the same package. The net effect is to raise the after-tax cost of holding a negatively geared established property.
Does this affect the property I already own?
No. Existing investors are grandfathered. If you owned your investment property — or were under a contract of sale — before 7:30pm on 12 May 2026, you continue under the current negative gearing and CGT rules for that property. The change is not retrospective. If your whole portfolio predates the cut-off, nothing about your current tax position changes.
Are new builds affected?
This is the part most investors miss: new builds are exempt. Eligible newly built dwellings keep both negative gearing and the full 50% CGT discount. The policy was deliberately designed this way — to cool investor demand for existing housing stock while still channelling money into new supply. For investors, it materially shifts the maths in favour of house-and-land and new-build strategies, and it's a big reason we're seeing more clients look at brand-new stock and co-living projects in 2026.
Who is hit hardest — and who isn't?
The change bites most for investors who are highly geared, on a high marginal tax rate, holding low-yield established property with large interest costs — exactly the profile that relied on a salary offset to make the numbers work. Investors with positively geared property, lower leverage, or a new-build focus are far less affected, and may be barely affected at all.
As a rough illustration: on an established property running a $15,000 annual loss, an investor on the top marginal rate would previously have recovered around half of that via their tax return. Under the new rules that benefit is deferred — the loss waits until there's rental income or a capital gain to absorb it. The dollars aren't necessarily lost, but the timing and the cashflow change, and cashflow is what determines whether you can comfortably hold.
What does it mean for your strategy in 2026?
A few practical shifts we're talking through with clients:
- New builds move up the list. The exemption is a genuine, legislated advantage — not a loophole. If growth-through-leverage is your plan, new stock now carries a tax edge over equivalent established property.
- Cashflow matters more than ever. With salary offsets gone on new established purchases, serviceability and rental yield do more of the heavy lifting. It's worth re-checking your investment loan structure — interest-only vs principal-and-interest, offset use, and rate — against the new reality.
- SMSF is now commercial-only. Recent government changes mean a self-managed super fund can no longer borrow to buy residential property — SMSF property borrowing now applies to commercial (business real property) only. For business owners, the own-name vs SMSF question can still matter; for residential investors it's no longer an option.
- Equity still works. Using equity in your home or existing portfolio to fund a new-build deposit is unchanged — and arguably more attractive given where the exemption sits.
Should you rush to buy before a deadline?
Be careful here. The key date — 7:30pm on 12 May 2026 — has already passed, so for established property there's no "beat the clock" window left; the start date of 1 July 2027 simply tells affected investors when the treatment begins. Letting a tax change dictate a rushed purchase is how people overpay. The better move is to decide what you're trying to build — cashflow, growth, or a balance — and then choose the property type and structure that fits, with the tax change as one input rather than the whole decision.
If you're weighing an investment purchase in 2026, we'll model the lending and cashflow with you, and work in alongside your accountant on the tax side, so you can see the real numbers before you commit. Book a 30-minute strategy call below and we'll map it out.
Frequently asked questions
When do the 2026 negative gearing changes start?
The changes take effect from 1 July 2027, and apply to established residential investment properties purchased after 7:30pm AEST on 12 May 2026. Properties owned before that — or under contract before the announcement — keep the current rules.
Can I still negatively gear a new build?
Yes. Eligible new builds are exempt from the changes and continue to access both negative gearing and the 50% capital gains tax discount. The policy is designed to keep directing investment toward new housing supply.
What happens to an investment property I already own?
Existing properties are grandfathered. If you owned the property, or were under contract, before 7:30pm on 12 May 2026, your negative gearing entitlements continue under the current rules.
Can I still claim losses on an established property bought after the cut-off?
Yes, but only against residential rental income or future capital gains on rental property — not against your salary. Unused losses are quarantined and carried forward to offset that income later.
