TL;DR — Key takeaways
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On 12 May 2026, the Federal Government announced the most significant change to property investor tax rules in almost 30 years. Negative gearing — the ability to offset rental losses against your other income — will be restricted from 1 July 2027 for established properties purchased after Budget night.
If you already own an investment property, or signed a contract before 7:30pm AEST on 12 May 2026, your existing arrangements are protected. But if you are planning to buy an established property now or in the future, the tax landscape has fundamentally shifted.
According to Budget.gov.au, the reform is designed to redirect tax incentives away from established housing stock and toward new supply. The ATO has confirmed it is preparing guidance for the transition, though the legislation has not yet passed Parliament.
12 May 2026, 7:30pm AEST: Budget cut-off. Properties owned or under contract before this time are grandfathered.
1 July 2027: New rules take effect. Established properties bought after Budget night can no longer offset losses against salary.
Now to July 2027: Transition window — the right time to review your portfolio and borrowing strategy with a broker.
What is negative gearing?
Negative gearing occurs when the costs of owning an investment property — mortgage interest, rates, repairs, property management fees — exceed the rental income it generates. Under current rules, that net loss can be deducted against your salary or other income, reducing your overall tax bill each year.
For decades, this has been a cornerstone of Australian property investment strategy. According to ATO data, in 2022–23, more than 1.3 million Australians declared rental losses totalling over $18 billion — making this one of the most widely used tax strategies in the country.
The typical negatively geared investor is a salary earner in the top two tax brackets. A $20,000 annual rental loss is worth $9,000 in tax savings at the top marginal rate. That is exactly the group the 2026 Budget changes are targeting for new established property purchases.
That strategy is now being restricted for new purchases of established homes. For investment loan borrowers who built their strategy around the tax offset, this is a fundamental shift.
What exactly is changing from 1 July 2027?
From 1 July 2027, if you purchase an established residential property after 7:30pm AEST on 12 May 2026, any rental losses will be quarantined. Quarantined does not mean the losses disappear — they are ring-fenced and can only offset specific types of income going forward:
Important: These changes are subject to the passage of legislation through Parliament. They have been announced as Budget measures but are not yet law. Seek professional advice before making investment decisions based on the proposed changes.
How does the quarantine work in practice?
Under the proposed rules, losses from affected established properties will be placed into a separate residential property loss pool. Each year you must declare these losses in your tax return — even though you cannot use them immediately against your salary. The pool carries forward indefinitely and can be accessed in two ways:
Critical admin note: The ATO requires you to declare quarantined losses every year in your tax return, even when you cannot use them. You only have two years to amend a lodged return. Miss a year and those carried-forward losses are permanently gone.
What counts as a new build?
New builds remain fully eligible for negative gearing under the proposed changes. According to Budget.gov.au, an eligible new build is a property that genuinely adds to Australia’s housing supply:
EligibleNewly constructed dwelling A new build on vacant land or a knock-down rebuild that increases the number of dwellings on the site. Also includes properties not previously occupied for more than 12 months — but only for the first buyer. The exemption does not carry to subsequent owners on resale. | Also eligibleTargeted exemptions Build-to-rent developments, private investors supporting Government Housing programs, and properties in widely held trusts or superannuation funds are also exempt from the proposed negative gearing restrictions. |
What happens to your borrowing power?
This is where investors need to pay close attention. Lenders typically factor negative gearing tax benefits into their serviceability calculations — the annual tax saving is added back to your assessed income. If those benefits are quarantined for established properties, your borrowing capacity may reduce by tens of thousands of dollars.
To illustrate: on a $900,000 established property with a $650,000 investment loan at 6.5% interest and $28,000 in annual rent, the investor currently generates approximately $20,000 in deductible losses. At a 37% marginal tax rate, that is a $7,400 annual tax saving — which lenders add back to serviceability. Remove that add-back and the same borrower qualifies for less.
Use our borrowing power calculator to model your position, and our loan repayment calculator to see what different rate scenarios look like on your repayments.
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Not sure how the changes affect your borrowing capacity? Talk to a Rateseeker broker. We’ll walk you through your options — new build, established, or refinancing your existing portfolio. |
Should existing investors refinance?
If you own an investment property purchased before 12 May 2026, your negative gearing is protected — but that does not mean your loan rate is competitive. Many investors are sitting on legacy variable rates that are 0.5% to 1.0% above what a broker could negotiate today.
On a $600,000 investment loan, a 0.75% reduction saves $4,500 per year — and that saving is still fully deductible under your grandfathered negative gearing position. Use our refinance page and savings calculator to model the impact.
Refinancing does not trigger the new negative gearing rules. Grandfathering attaches to the property based on when it was purchased, not the loan. Get in touch to find out where you stand.
What about capital gains tax?
The CGT changes run alongside the negative gearing reforms. For established properties purchased after Budget night, the 50% CGT discount will be reduced to 25% for gains that accrue after 1 July 2027. Properties owned before 12 May 2026 retain the full 50% CGT discount.
In dollar terms: on an established property that grows from $900,000 to $1.2 million over 10 years, the $300,000 gain would attract only a 25% discount rather than 50%. At a 37% marginal rate, that is an additional $27,750 in tax at the point of sale. For detail, see the ATO’s guidance and the Government’s CGT reform factsheet.
Frequently asked questions
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