Negative Gearing Has Changed: What Property Investors Need to Know Now the Law Has Passed

By Blackfox Financial Group

For more than a quarter of a century, negative gearing has been a cornerstone of Australian property investment — the ability to offset rental losses against your salary, business income or other earnings has shaped how millions of Australians build wealth through property. That era is now ending for established residential property.

On 25 June 2026, the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 passed both houses of Parliament, receiving Royal Assent the following day. Among its sweeping reforms is a fundamental restructuring of negative gearing for residential property, taking effect from 1 July 2027.

Here’s exactly what’s changed, who’s protected, and what it means for your investment strategy.

The New Rule in a Nutshell

From 1 July 2027, full negative gearing — deducting net rental losses against your other income, such as wages — will only be available for new builds. For established residential properties purchased after Budget night, rental losses will be quarantined: still deductible, but only against other residential property income.

The critical date is 7:30pm AEST on 12 May 2026 — Budget night. Everything turns on whether you acquired your property before or after that moment.

If You Owned Your Property Before Budget Night: You’re Grandfathered

The good news first. If you held an interest in a residential investment property before 7:30pm on 12 May 2026, nothing changes for you. Your existing negative gearing arrangements continue exactly as before — losses remain fully deductible against your salary, business income and other earnings — until you sell the property.

Importantly, the grandfathering also extends to straddle contracts: if you entered into a contract to purchase before Budget night but settled afterwards, you’re still protected. What matters is the contract date, not settlement.

One known gap: as the law currently stands, jointly owned grandfathered properties may lose their protected status if ownership changes due to death of a co-owner or relationship breakdown. The government has acknowledged this issue and committed to fixing it in a second tranche of legislation later this year — but until that passes, it’s a live risk that co-owners of investment properties should be aware of. We’re watching this closely.

If You Bought (or Buy) an Established Property After Budget Night: Losses Are Quarantined

For established residential dwellings acquired after 7:30pm on 12 May 2026, the new quarantining rules apply to net rental losses incurred in income years starting on or after 1 July 2027:

• Losses can only be deducted against residential property income — rent from other properties, or capital gains on residential property.
• They cannot be offset against wages, business income or investment income from other asset classes.
• Unused losses carry forward indefinitely to future years, so deductions for interest, maintenance and other holding costs aren’t lost — they’re deferred until your property portfolio generates enough income (or a capital gain) to absorb them.
• Quarantined losses cannot be added to the property’s cost base — the legislation specifically prevents double-dipping.

The practical effect: the after-tax cash flow benefit that made negatively geared property affordable for many investors disappears for established dwellings. If you bought an established investment property after Budget night on the assumption of a tax refund subsidising your holding costs, your projections need to be redone — from FY2027–28, you’ll be carrying the full shortfall out of pocket until the losses can be absorbed.

Note that the 2026–27 financial year we’ve just entered is unaffected — quarantining only starts for income years beginning on or after 1 July 2027.

The New Build Exception

The entire policy is designed to channel investment into new housing supply, so new residential dwellings retain full negative gearing — and, under the companion CGT reforms, investors in new builds can also choose to keep the 50% CGT discount.

Here’s the catch: the definition of a “new residential dwelling” will be set by the Minister through a legislative instrument that hasn’t been released yet. The explanatory materials suggest a dwelling purchased from a builder that hasn’t been occupied for more than 12 months would qualify, and that a subsequent sale would cause the property to lose its “new” status — meaning the concession likely attaches to the first investor purchaser only. But until the instrument is published, important boundary questions remain: house-and-land packages, off-the-plan purchases, substantial renovations, and knock-down rebuilds all sit in a grey zone.

If you’re weighing up a new-build purchase to access the concessions, the fine print of this instrument will matter enormously. We’ll update clients as soon as it’s released.

Other Exemptions and Carve-Outs

The quarantining rules also don’t apply to:

• Dwellings supporting government housing programs — for example, properties provided as affordable housing (details to be prescribed).
• Widely held unit trusts and complying superannuation funds — which leads to an interesting quirk worth knowing about.

The SMSF angle: superannuation funds are exempt from the quarantining rules, which means an SMSF remains one of the few structures able to negatively gear a newly purchased established residential property. However, the same legislation — via a Senate amendment — bans new SMSF limited recourse borrowing arrangements (LRBAs) for residential property from 10 August 2026. So the borrowing pathway is closing even as the tax treatment survives. SMSFs with existing residential LRBAs are unaffected, and contracts exchanged before 10 August are protected. Anyone mid-way through an SMSF residential property purchase with borrowing needs to move immediately.

What Isn’t Changing

• Commercial property — negative gearing on commercial, industrial and retail property is completely untouched.
• Shares and other asset classes — margin-loan and other investment interest deductions continue as normal.
• Positively geared properties — if your property makes money, nothing changes; these rules only bite on net rental losses.
• The deductions themselves — interest, repairs, agent fees, depreciation and other holding costs all remain deductible; it’s what they can be deducted against that’s changing.

What Investors Should Do Now

1. Confirm your grandfathered status. Document acquisition dates and contract dates for every property in your portfolio. If you hold property jointly, understand the co-ownership risk until the fix-up legislation passes.
2. Re-run the numbers on any post-Budget purchases. If you’ve acquired an established property since 12 May 2026, model your cash flow from FY2027–28 without the negative gearing offset against your salary.
3. Think carefully before selling a grandfathered property. Once sold, grandfathering is gone forever — and any replacement established property comes under the new rules. The “hold” decision now carries embedded tax value.
4. Assess the new-build pathway. For future purchases, new dwellings carry both full negative gearing and the CGT discount — but wait for the legislative instrument before committing on the strength of the concessions alone.
5. SMSF trustees: if a residential LRBA is on your radar, the window closes 10 August 2026.
6. Review your structure. With the rules now differing by asset type, entity and acquisition date, the right ownership structure for your next property purchase deserves fresh analysis.

Get Your Property Strategy Reviewed

These changes rewrite the economics of residential property investment in Australia. Whether you’re a long-term investor sitting on grandfathered properties, someone who purchased after Budget night, or you’re planning your next acquisition, the right move depends on modelling your specific numbers — not rules of thumb.

At Blackfox Financial Group, we’re helping clients map their portfolios against the new rules, model post-2027 cash flows, and structure future purchases to make the most of the concessions that remain.

Contact our team today or call us on 03 8910 8940 to book a property investment tax review.

Mike Carter
Managing Director
BLACKFOX Financial Group

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This article contains general information only and does not constitute financial or tax advice. Key details, including the definition of a “new residential dwelling”, are still to be finalised through legislative instruments. Please contact Blackfox Financial Group for advice tailored to your circumstances.