Negative Gearing and CGT Reforms Are Now Law: What Property Investors Need to Know
The speculation surrounding changes to negative gearing and the capital gains tax discount has now ended.
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and the accompanying Income Tax Rates Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. The reforms substantially change the taxation of residential property losses and capital gains, although most operative changes will commence from 1 July 2027.
Negative gearing will generally be limited to new residential properties
From the 2027–28 income year, the ability to offset net rental losses from residential property against salary, wages and other unrelated assessable income will generally be limited to eligible new builds and certain prescribed housing investments.
Subject to applicable exemptions and transitional provisions, established residential properties acquired under contracts entered into after 7.30 pm AEST on 12 May 2026 will be subject to the new restrictions from 1 July 2027. Net rental losses attributable to those properties will generally be quarantined and may only be applied against:
assessable income derived from residential property, including net rental income; and
capital gains arising from residential property.
Any unapplied net rental loss may be carried forward and applied against qualifying residential property income or gains in a subsequent income year. It will not be available to reduce unrelated assessable income, such as salary and wages.
What qualifies as a new build?
A newly constructed property will not necessarily qualify merely because it has recently been completed.
Eligible new builds will generally include:
a dwelling constructed on previously vacant land;
a newly constructed apartment purchased off the plan;
a development replacing an existing dwelling with a greater number of dwellings, such as a duplex replacing a single house; and
a newly built property first owned by the builder and occupied for no more than 12 months before its first sale.
A one-for-one knock-down rebuild, substantial renovation or extension that does not increase housing supply will generally not qualify. Subsequent purchasers of a qualifying new dwelling will also not inherit its new-build status.
Investors acquiring newly constructed property should therefore verify its eligibility rather than relying solely on descriptions such as “new”, “recently completed” or “fully renovated”.
Existing residential property investments are grandfathered
Residential investment properties held at 7.30 pm AEST on 12 May 2026 will remain subject to the existing negative gearing rules until they are disposed of. This preserves the taxation treatment applicable to investment decisions made before the changes were announced.
The transitional protection also extends to properties acquired under contracts entered into before that time, even where settlement occurred after the announcement.
An established residential property acquired after 7.30 pm AEST on 12 May 2026 but before 1 July 2027 may continue to be negatively geared under the existing rules until 30 June 2027. From the 2027–28 income year, however, any net rental losses attributable to that property will be subject to the new quarantining provisions and will no longer be available to offset unrelated assessable income, such as salary and wages.
The 50 per cent CGT discount will be replaced
The CGT reforms are broader than residential property.
For eligible CGT assets held by individuals, partnerships and trusts for at least 12 months, the existing 50 per cent CGT discount will be replaced from 1 July 2027 with:
cost-base indexation based on inflation; and
a minimum tax rate of 30 per cent on the real capital gain.
The new system is intended to tax the economic gain remaining after inflation rather than automatically reducing every nominal gain by 50 per cent.
The reforms will apply across asset classes, including investment properties, commercial property, shares and business assets, subject to specific exemptions and existing concessions.'
Gains accruing before 1 July 2027 will retain their existing CGT treatment
For an eligible CGT asset held before 1 July 2027 and disposed of after that date, the capital gain will be apportioned between the periods before and after commencement of the new regime.
The existing CGT discount rules will apply to the gain arising between the asset’s cost base and its value as at 1 July 2027. Any gain accruing from 1 July 2027 will be calculated using the asset’s value at that date as its transitional cost base and will be subject to cost base indexation and, where applicable, the minimum tax arrangements.
Accordingly, the reforms will not retrospectively alter the taxation treatment of gains accruing before 1 July 2027.
The value of an asset as at 1 July 2027 will therefore be significant. When the asset is subsequently disposed of, the taxpayer may determine that value by obtaining an appropriate valuation as at 1 July 2027 or by applying the specified statutory apportionment formula. The formula will estimate the asset’s value at that date by reference to its growth over the relevant ownership period.
Owners of substantial or complex property and investment portfolios should consider maintaining comprehensive acquisition and ownership records and making arrangements to obtain contemporaneous valuations as at 1 July 2027. This may be particularly important for real property, private companies, unlisted investments and other assets for which there is no readily ascertainable market price. Appropriate valuation evidence may provide greater certainty and reduce the risk of a future dispute with the Australian Taxation Office.
A choice remains for qualifying new builds
Investors acquiring eligible new residential properties will receive more favourable treatment.
They may continue to offset rental losses against other income and, when the property is sold, may choose between:
the existing 50 per cent CGT discount; or
the new cost-base indexation and minimum-tax regime.
The more favourable option will depend on matters including the purchase price, period of ownership, inflation, capital growth and the investor’s tax position at the time of sale.
What should investors do now?
The changes do not mean investors must immediately sell, acquire or restructure their property holdings. They do, however, make accurate transaction records, careful structuring and early planning increasingly important.
Before entering into a property transaction, investors should consider:
whether the property is established or qualifies as an eligible new build;
the date on which the acquisition contract is entered into;
how rental losses will be treated after 1 July 2027;
the effect of the new CGT rules on the proposed ownership structure;
whether a valuation should be obtained as at 1 July 2027; and
whether the investment remains commercially viable without an immediate deduction against salary, wages, or other unrelated income.
Negative gearing should never be the sole reason for acquiring an investment property. The underlying investment, financing arrangements, expected income, holding costs, capital growth prospects and exit strategy remain fundamental.
The reforms also highlight the importance of obtaining coordinated legal, taxation and financial advice before acquiring, restructuring or disposing of significant property or investment assets.
This article is provided for general information only and does not constitute legal, taxation, financial or investment advice. The application of the law will depend on the particular facts and circumstances of each matter. You should obtain appropriate professional advice before acting or relying on any information contained in this article.