Negative Gearing Changes from 1 July 2027 - What Property Investors Need to Know
Significant changes to the taxation of residential investment properties were announced as part of the 2026-27 Federal Budget and have how been legislated.
The Treasury Laws Amendment (Tax Reform No 1) Act 2026 received Royal Assent on 26 June 2026. The changes to negative gearing will apply from the 2027-28 financial year, commencing 1 July 2027.
The changes are designed to restrict the ability to negatively gear established residential properties while continuing to provide the existing tax treatment for new housing.
What is changing?
Currently, if the deductible expenses associated with a rental property (interest, rates, insurance, repairs, depreciation etc) exceed the rental income received, the resulting rental loss can generally be deducted against an investor’s other assessable income.
This commonly allows an investor to offset a rental property loss against salary and wages, business income or other investment income.
From 1 July 2027, this treatment will change for certain residential properties.
For affected properties, where the rental property deductions exceed rental property income, the excess loss will no longer be available to reduce unrelated income such as salary and wages.
Instead, the loss will be quarantined for use against residential property income and certain residential property capital gains. Any amount that cannot be used will generally be carried forward for use in a future income year.
Existing investment properties grandfathered
Importantly, the changes do not apply to residential properties already held before the Budget announcement.
Properties acquired before 7:30pm AEST on 12 May 2026 will continue to receive the existing negative gearing treatment.
This means investors who owned an investment property before that time can continue to offset qualifying rental losses from that property against their other assessable income, including salary and wages, after 1 July 2027.
For properties purchased under a contract, the legislation treats the property as acquired when the contract was entered into. Accordingly, a contract entered into before 12 May 2026 may qualify for grandfathering even where settlement occurred later.
New residential properties will continue to qualify
The Government has preserved negative gearing for new residential dwellings.
Where a property satisfies the requirements to be treated as a new residential dwelling, investors will continue to be able to deduct eligible rental losses against their other income.
The policy objective is to encourage investors to direct capital towards the construction of additional housing rather than competing with owner-occupiers for existing properties.
What happens if you buy an established property now?
The 12 May 2026 cut-off date is important.
An established residential property acquired after 12 May 2026 will generally become subject to the new rules from 1 July 2027.
This creates a transition period. For example, an investor who purchased an established residential investment property in June 2026 may be able to apply the existing negative gearing rules during the 2026-26 financial year.
From 1 July 2027, however, excess deductions for the property will be subject to the new quarantining rules.
Losses are not necessarily lost
The new rules do not simply eliminate deductions associated with an affected residential property.
Rental expenses will continue to be deductible up to the amount of relevant residential property income.
Where deductions exceed that income, the excess is quarantined rather than being permanently denied. The quarantined amount may be used against other residential property income, capital gains associated with residential property or future residential property income.
Unused amounts can generally continue to be carried forward.
Can losses from one property offset income from another?
The legislation operates across residential property income, rather than simply quarantining losses property-by-property.
This means income from one residential investment property may potentially absorb losses arising from another affected residential property.
The legislation also contains rules allowing income from grandfathered or otherwise exempt residential properties to reduce a quarantined residential property loss in certain circumstances.
The practical operation of these rules will therefore become particularly important for investors who own multiple properties acquired at different times.
What should property investors do?
There is no immediate need for existing property investors to restructure simply because of these changes.
However, anyone considering purchasing a residential investment property should take the new rules into account when modelling the investment.
In particular, the tax benefit previously associated with purchasing a negatively geared established property may be significantly reduced from 1 July 2027.
What does this mean for you?
These changes represent a significant shift in the tax treatment of residential property investment in Australia.
Existing investors are largely protected, but the tax consequences of purchasing an existing investment property after 12 May 2026 have changed substantially.
If you are considering purchasing, selling or restructuring a residential property investment, we recommend obtaining advice before proceeding so the negative gearing and CGT implications can be considered together.
If you would like to discuss the tax implications of the budget proposals, please call us on (07) 56656469.
DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.
Jeanette has over 20 years experience as an accountant in public practice. She is a Chartered Accountant, registered tax agent and accredited SMSF Association advisor. When she is not helping business owners grow their empires, you will likely find her out running on the trails or at the gym. Book in to see Jeanette today.
