The Fine Print Australia · PUBLISHED 24 JUN 2026 · VERIFIED 24 JUN 2026 · AU EDITION

July 2027 Deadline: Negative Gearing 2026 Budget Changes Explained

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An investor who buys a $800,000 established rental property after Budget night 2026 and runs it at a $15,000 annual tax loss will no longer be able to use that loss to reduce their salary tax from 1 July 2027—it can only be used against current or future residential property income, turning what used to be an immediate cash‑back tax benefit into a long‑term, uncertain tax deferral.

The number that matters

2027 — 100% of new negative gearing tax benefits on residential property will be restricted to new builds only. From 1 July 2027, negative gearing for residential property investments is limited to new builds, with all established properties purchased after 7:30pm AEST on 12 May 2026 only able to deduct rental losses against residential property income and capital gains—not against wages or other income.

How it quietly costs you

Mechanism: quarantining rental losses on established properties purchased after Budget night

From 7:30pm AEST, 12 May 2026, any new established residential property investments fall under a quarantining regime: from 1 July 2027, rental losses on those properties can only be deducted against residential rental income or capital gains from residential property, not against salary, business income, or other investment income.

The ATO and Budget factsheet explain that these changes are intended to apply from 1 July 2027 and will:

• Limit negative gearing to new builds for residential property investments.
• Treat residential investment properties purchased from 7:30pm AEST 12 May 2026 so that losses are only deductible against other residential property income, including capital gains.
• Fully grandfather negative gearing arrangements for established properties held at the announcement time (including under‑contract purchases before 7:30pm AEST 12 May 2026).

Impact: loss of immediate tax refunds

Under the old rules, a typical PAYG worker could offset rental losses against their wage income and reduce tax payable at their marginal rate (say 37% plus 2% Medicare, effective 39%). For example:

• Assume a $15,000 rental loss (interest, rates, repairs, less rent).
• At a 39% effective marginal rate, the immediate tax reduction would be $5,850 per year under old, unrestricted negative gearing.
• Under the new quarantined rules for an established property purchased after Budget night, that **$15,000 loss produces no immediate tax refund; instead, it is carried forward and can only offset future residential property income or capital gains.

That turns negative gearing on established properties into a tax deferral rather than a current‑year tax benefit. Over 10 years, a consistent $15,000 annual loss could mean $58,500 in forgone immediate tax refunds for a 39% taxpayer, assuming no use of the losses until a later sale.

Old vs better comparison (for tax efficiency)

• Old unrestricted negative gearing (pre‑Budget night rules):

• Rental losses can offset any income (wages, business, interest, etc.).

• Immediate cash‑flow benefit equal to loss × marginal tax rate.

• New quarantined regime for established properties purchased after Budget night:

• Rental losses can only offset residential rental income or capital gains, and unused losses are carried forward.

• Immediate cash‑flow benefit is $0 if rental losses exceed current residential property income.

• “Better” tax outcome going forward:

• Buying new builds still allows full negative gearing against other income, preserving the annual tax refund mechanism.

The second, compounding trap

Mechanism: CGT discount removal plus a 30% minimum tax interacts with deferred losses

From 1 July 2027, the Government will replace the 50% CGT discount for individuals, trusts and partnerships with cost base indexation and a 30% minimum tax rate on net capital gains.

Key elements:

• The 50% CGT discount is removed for gains accruing after 1 July 2027.
• Instead, cost base indexation will apply to long‑held assets and a 30% minimum tax will apply to net capital gains for individuals, trusts and partnerships.
• CGT reforms apply only to gains that accrue after 1 July 2027, meaning pre‑2027 growth retains old treatment.

For investors in newly‑purchased established properties, deferred rental losses can be used to reduce capital gains upon sale, but that gain is now taxed under the 30% minimum CGT regime rather than being half‑taxed via the old 50% discount.

Impact: higher tax on the eventual sale reduces the value of deferred losses

Under the old settings (no quarantining, 50% CGT discount):

• Suppose an investor buys an established property and later sells for a $300,000 capital gain after more than 12 months.
• With a 50% CGT discount, only $150,000 is included in assessable income.
• At a 39% effective tax rate, tax payable is $58,500.

Under the new settings (quarantined losses + 30% minimum CGT):

• Assume the investor has $100,000 accumulated rental losses carried forward from years where they could not offset against wages.
• On sale, they offset the $300,000 capital gain with the $100,000 carried‑forward loss, giving a $200,000 net capital gain.
• Under a 30% minimum CGT, tax payable is $60,000 (30% of $200,000), slightly higher than in the old regime even after applying losses.

So although the losses do eventually reduce the taxable gain, the effective tax rate on that reduced gain is higher than under the previous 50% discount framework. Over a long horizon, this can significantly erode net proceeds:

• Without carried‑forward losses, tax on a $300,000 gain at 30% minimum is $90,000.
• Compared to the old system’s $58,500, that is an extra $31,500 in tax on the same nominal gain.

For investors who had previously relied on the dual benefit of negative gearing (current cash‑flow tax relief) and the 50% CGT discount, the combined changes mean less benefit upfront and more tax at the end, especially for established properties bought after Budget night.

What this looks like in practice

Persona

• Name: Sarah
• Age: 38
• Job: Senior marketing manager
• Income: $140,000 gross per year (approximate tax bracket where marginal rate is 37% plus 2% Medicare).
• Fund/account type: Individual investor holding properties in her own name.
• Current position: Owns one established investment unit bought in 2022 for $650,000 (pre‑Budget night), currently worth $750,000 with a $450,000 interest‑only loan generating a $12,000 annual rental loss.
• New decision: Considering buying a second established investment property in late 2026 for $800,000 with a $600,000 loan, expected to run at a $18,000 annual rental loss.
• Years to retirement: 27 years (target age 65).

Discovery 1 — Her existing property is fully grandfathered

Sarah learns from the ATO and Budget papers that any properties held before 7:30pm AEST 12 May 2026—including those under contract before that time—are fully exempt from the new negative gearing limits.

For her 2022 property:

• She can continue to claim the $12,000 annual rental loss against her $140,000 salary, reducing her taxable income to $128,000 and generating an annual tax saving of around $4,680 (39% of $12,000).
• Over 10 years, if the loss pattern persists, that’s roughly $46,800 in cumulative tax savings compared with not negatively gearing.

Versus a benchmark:

• A new investor buying the same property type after Budget night—under the new rules—would have the same $12,000 loss but no immediate tax saving against salary; the loss is carried forward and only offsets future residential property income or capital gains.

Discovery 2 — Her planned second established purchase won’t give her the annual refund she expects

Sarah had assumed another negatively geared property would generate an extra $18,000 in tax‑deductible losses each year and a $7,020 annual tax refund (39% of $18,000).

She discovers:

• Because the second property would be an established dwelling purchased after Budget night, its $18,000 annual loss will not be deductible against her salary from 1 July 2027.
• Instead, those $18,000 losses per year can only offset income or capital gains from residential property, and unused losses are carried forward.

Over 10 years, assuming no offsetting residential property income beyond break‑even:

• She would accumulate $180,000 in quarantined losses with $0 immediate tax refund, contradicting her initial expectation of $70,200 in tax savings over that period (10 × $7,020).

Discovery 3 — New builds still allow full negative gearing plus better interaction with CGT changes

Sarah learns from the Budget papers that new residential builds purchased after Budget night remain eligible for full negative gearing against other income.

If instead of an established dwelling she buys a new build for $800,000 with the same $18,000 annual rental loss:

• She can deduct the $18,000 loss against her $140,000 salary, reducing taxable income to $122,000 and generating an annual tax saving of about $7,020 (39% of $18,000).
• Over 10 years, that equates to $70,200 in real‑time tax savings versus $0 for an established property bought after Budget night under the new rules.

Compared with doing nothing:

• If she does not invest at all, she keeps paying tax on the full $140,000 salary, missing out on both the potential negative gearing tax shelter and any long‑run capital growth—but she avoids the new CGT rules and the risk of higher tax on future property gains.

The full cost of doing nothing

Assuming Sarah buys the second established property in late 2026 and holds both properties for 20 years:

• Existing 2022 property (grandfathered):

• Annual loss: $12,000 with full negative gearing against salary.

• Tax saving per year: $4,680, or $93,600 over 20 years (ignoring changes in rent and costs).

• New established property (post‑Budget night, subject to quarantining):

• Annual loss: $18,000.

• Immediate tax saving against salary: $0; losses accumulate and can only offset future residential property income or capital gains.

• Over 20 years, total quarantined losses: $360,000.

Suppose both properties are sold after 20 years with:

• Existing property gain: $400,000.
• New established property gain: $500,000.

Under the post‑2027 CGT regime:

• For the new property, Sarah applies $360,000 quarantined losses to reduce the $500,000 gain to a $140,000 net capital gain.
• At the 30% minimum CGT, tax is $42,000.

If negative gearing had remained unrestricted and the 50% CGT discount remained:

• She would have enjoyed approximately $140,400 in tax savings over 20 years from the second property (20 × $7,020) plus a lower CGT bill via the 50% discount.
• On a $500,000 gain, with a 50% discount, assessable gain is $250,000; at 39%, tax is $97,500.

Under the new rules:

• She loses roughly $140,400 in expected tax refunds from the second property over 20 years.
• She pays $42,000 CGT after applying losses, compared to $97,500 under old rules—but this saving is heavily offset by the lost annual cash‑flow tax refunds.

Net combined impact for Sarah over 20 years:

• Lost annual tax refunds on second property: ≈ $140,400.
• CGT benefit from using quarantined losses vs old rules for second property: ≈ $55,500 lower CGT bill (97,500 – 42,000).
• Overall, Sarah is still around $84,900 worse off over 20 years versus a world where she could fully negatively gear both properties and retain the 50% CGT discount—driven by the lack of immediate negative gearing benefits on the second, established property and higher minimum CGT settings.

What to do about it

Move 1 — Confirm which of your properties are grandfathered

1. Action: Check your property purchase dates and contracts to identify which investments are exempt from the new negative gearing limits.
2. Tool/portal & figure:

• Use myGov to access your ATO online account and review past income tax returns and rental property schedules to see acquisition dates and property details.
• Cross‑check with your settlement statements or title records for the contract date.

3. Steps:

• Log in to myGov, then select the ATO link and open your income tax returns for 2022–2026.
• View the rental property schedule, noting acquisition dates and whether the properties are residential.
• Compare those dates to 7:30pm AEST 12 May 2026—any property held or under contract before that time is fully grandfathered and can still be negatively geared against other income.

4. Benchmark (“good” looks like):

• All properties you intend to keep using for negative gearing against salary have contract dates before 7:30pm AEST 12 May 2026, or are eligible new builds purchased after that date.

Move 2 — Model your future tax position under quarantined losses

1. Action: Project how much tax you will (or won’t) save annually if you buy an established property after Budget night versus a new build.
2. Tool/portal & figure:

• Use the ATO individual tax calculator (via the ATO online tools) with your expected taxable income and rental loss figures to compare scenarios.

3. Steps:

• Calculate your expected annual rental loss (rent minus interest, rates, insurance, repairs) for the property you’re considering.
• Run two scenarios in the ATO calculator:
• Scenario A: Include the loss, as if it were deductible against your wages (this applies for grandfathered properties and new builds).
• Scenario B: Exclude the loss from your wage income (reflecting quarantined losses on post‑Budget established properties).
• Record the difference in tax payable between Scenario A and B—that gap is the annual tax refund you would lose by buying an established dwelling under the new rules.

4. Benchmark (“good” looks like):

• For new purchases, your projected annual tax refund from negative gearing (Scenario A minus Scenario B) is material (several thousand dollars) and you recognise it applies only if you buy new builds; if it is $0 for an established property, you are correctly modelling the quarantining rules.

Move 3 — Plan around the 2027 CGT changes for long‑term exits

1. Action: Map out when you expect to sell each property and how the CGT changes will affect your net proceeds.
2. Tool/portal & figure:

• Use the ATO’s CGT property and shares calculators accessed via ATO online or the ATO CGT publications to estimate CGT under both the old (50% discount) and new (30% minimum tax, cost base indexation) rules.

3. Steps:

• For each property, note: purchase price, expected sale price, holding period, and whether it is pre‑Budget night, post‑Budget established, or

Sources

• https://budget.gov.au/content/04-tax-reform.htm
• https://www.ato.gov.au/about-ato/new-legislation/in-detail/individuals/tax-reform-boosting-home-ownership-reforming-negative-gearing-and-capital-gains-tax
• https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf

Researched 2026-06-24.

Corrections & disclosure: an AI-assisted, human-reviewed guide. Every figure is dated and sourced above. Spot something out of date or wrong? Tell us and we’ll correct it — corrections are noted here and in the video description.