Overview of the Reform
The 2026-27 Federal Budget has launched a major tax reset for property investors:
- Negative gearing will be limited to new builds from 1 July 2027, meaning existing property owners and purchases made up to Budget night (12 May 2026, 7:30 PM AEST) remain grandfathered.
- The classic 50% Capital Gains Tax (CGT) discount is set to be replaced with cost-base indexation and a minimum 30% tax on gains, both effective from 1 July 2027. The discount chance will not affect assets acquired before that date, but gains after that will be taxed under the new rules. (budget.gov.au)
What “Grandfathering” Means
| Scenario | Applies now? | What changes from 1 July 2027? |
|---|---|---|
| Properties held or contracts signed before 12 May 2026, 7:30 PM | Full negative gearing against any income, and full 50% CGT discount applies. | No change — grandfathered indefinitely. |
| Properties bought between 12 May 2026 7:30 PM and 30 June 2027 (established dwellings) | As above until 30 June 2027. | From 1 July 2027, rental losses can only offset other residential property income, not wages; gains taxed under new CGT rules. |
| Properties bought from 1 July 2027 | New rules apply for new acquisitions. For new builds, full negative gearing and choice between old discount or new regime. For established properties, ring-fenced negative gearing and new CGT rules. | |
| New builds from then | Treated under current rules: full negative gearing, and can choose between 50% CGT discount or the new cost-base method. |
Practical Examples
- Investor A owns an existing rental property since 2024. All deductions for expenses (interest, repairs, rates) and the 50% CGT discount still apply — full grandfathering.
- Investor B purchases an established dwelling in August 2026. Until 30 June 2027 the old system applies, but from July 1, 2027, any losses can only offset rental income; gains on sale will be subject to new CGT rules.
- Investor C buys a new build property after that date. They retain full negative gearing and can choose which CGT treatment to apply when they sell.
Impacts & Planning Strategies
- For current investors: Keep detailed records of acquisition dates and property details (whether new build or established). Contracts signed before the cut-off are critical.
- For prospective buyers: If purchasing established property, expect restricted benefits after 2027. Consider buying new builds to preserve full benefits.
- Income mix consideration: Moving from using rental losses to reduce non-rental income (like salary) will no longer be possible for many. If rental income can support carry-forward deductions, plan accordingly.
- Sell timing: For those considering changing portfolios, timing of sales and acquisitions relative to 1 July 2027 could affect tax outcome significantly.
Key Takeaways
✅ Grandfathering protects existing arrangements if you're invested before 12 May 2026 at 7:30 PM. ✅ New builds become the only way for future investors to keep the old-style deductions on negative gearing and the 50% CGT discount intact. ✅ Losses from established properties after July 2027 will be ring-fenced to property income.
Planning ahead can help investors avoid unexpected tax hits. Consulting a tax professional before making property moves in the next year is essential.