Negative Gearing Australia 2026 — Rules Changed 12 May Budget (Established Property Losses Ring-Fenced 1 July 2027)

Updated 14 May 2026. This guide has been rewritten to reflect the 12 May 2026 federal budget reforms to negative gearing and the 50% CGT discount. If you read the old version, the section labelled "What just changed" below is the key update.

If you have spent any time reading about property in Australia, you have heard the term "negative gearing." It comes up in news headlines, election debates, barbecue conversations, and property investment seminars. Everyone seems to have an opinion on it — and as of 12 May 2026, the rules have materially changed for new investors buying established property.

This guide explains negative gearing in plain English under the post-budget rules. We cover what it is, walk through a worked example with current 2026 numbers, compare it to positive gearing, explain the tax benefits at every income level, lay out exactly what the 12 May 2026 budget changed, and give an honest post-reform assessment of whether negative gearing still makes sense in 2026. No jargon, no sales pitch — just the facts.

What Is Negative Gearing? Simple Explanation

Negative gearing is when you borrow money to buy an investment property and the costs of owning that property exceed the rental income it generates. In other words, you are making a loss on the property each year — and that loss can be deducted from your other taxable income (like your salary), reducing the amount of tax you pay.

The word "gearing" simply means borrowing. If the investment returns more than it costs to hold, it is "positively geared." If it costs more than it returns, it is "negatively geared." Think of it like this: you are paying extra each week to hold an asset that you expect to grow in value over time. The tax deduction softens the blow, but it does not eliminate the loss.

Negative gearing is not a loophole or a dodge — it is a fundamental principle of Australian tax law. Any investment (not just property) where costs exceed income is negatively geared, and the loss is deductible. It applies equally to shares, businesses, and other income-producing assets. Property just happens to be where most Australians encounter it.

How Does Negative Gearing Work in Australia?

Here is how negative gearing works, step by step:

1. You buy an investment property using a home loan (the "gearing" — you are leveraging borrowed money).
2. You rent it out and collect rental income from the tenant.
3. You add up all the costs of owning the property: mortgage interest, council rates, insurance, property management fees, maintenance, and depreciation.
4. You subtract the rental income from the costs. If costs exceed income, you have a net rental loss.
5. You deduct that loss from your salary income on your tax return, reducing your taxable income.
6. You pay less tax because your taxable income is lower. Your tax saving equals the loss multiplied by your marginal tax rate.

The key insight: you are deliberately accepting a short-term loss in exchange for a tax deduction — while banking on the property increasing in value (capital growth) over the long term. When you eventually sell, the capital gain (hopefully) outweighs all your cumulative annual losses.

Negative Gearing Worked Example — Real 2026 Numbers

Let us work through a realistic example with current 2026 numbers to see how negative gearing actually plays out.

The property

You buy a $650,000 investment house in Perth. You put down a 20% deposit ($130,000) and borrow $520,000 at an interest rate of 6.2% per annum. You need to factor in stamp duty and other purchase costs on top of the deposit.

Annual rental income

The property rents for $540 per week, which is $28,080 per year. This is your gross rental income before expenses.

Annual costs of ownership

The loss

Rental income ($28,080) minus expenses ($47,986) = a net rental loss of $19,906 per year.

However, $8,000 of that is depreciation — a non-cash deduction (you do not actually pay it out). Your actual out-of-pocket cash loss is $11,906, or about $229 per week.

The tax saving

You earn $120,000 per year in your day job. Your marginal tax rate is 37% plus 2% Medicare levy = 39%. You deduct the $19,906 loss against your salary income.

Tax saving: $19,906 × 39% = $7,763 per year.

Your after-tax cost of holding the property: $11,906 (cash loss) minus $7,763 (tax refund) = $4,143 per year, or about $80 per week out of pocket.

The growth equation

You are paying $80 per week to hold a $650,000 asset. For the investment to make sense, the property needs to grow by more than $4,143 per year — that is less than 0.7% annual growth. If Perth property grows at the long-term average of 5% per year, you gain $32,500 in equity annually — far outweighing the $4,143 holding cost.

Over 10 years at 5% growth, that $650,000 property would be worth approximately $1,059,000 — a gain of $409,000. Minus your cumulative holding costs of ~$41,430, your net wealth gain would be roughly $367,570 (before capital gains tax on sale). Even after CGT at the discounted rate, the return is substantial.

But if property prices are flat or falling — as they were in some markets between 2017 and 2019 — you are simply losing $4,143 per year with no capital growth to show for it.

Negative Gearing Tax Benefits — Who Benefits Most?

The tax benefit of negative gearing depends entirely on your marginal tax rate. The same $19,906 rental loss produces very different tax savings depending on your income:

Higher earners benefit more — someone on $200,000+ saves $9,356 vs $6,868 for someone on $90,000. That is a 36% bigger tax refund for the same loss.

However, the biggest user group for negative gearing is not wealthy investors. ATO data shows that approximately 1.3 million Australian taxpayers claim rental losses each year, and the majority are middle-income earners — teachers, nurses, police officers, and tradies using it as a long-term wealth-building strategy alongside superannuation. The average claimed rental loss is around $10,000–$12,000 per taxpayer.

Negative Gearing vs Positive Gearing — What Is the Difference?

Understanding the difference between negative and positive gearing is essential for any property investor:

• Negative gearing: Your property costs more than it earns. You make a loss each year, get a tax deduction on that loss, and bank on capital growth making up the difference when you sell. Higher risk, potentially higher reward.
• Positive gearing: Your rental income exceeds your costs. You make a profit each year, pay tax on that profit, and have positive cash flow from day one. Lower risk, more conservative.
• Neutral gearing: Income and costs are roughly equal. You break even — no tax deduction, no surplus income, but the tenant is effectively paying off your mortgage.

Negative gearing suits higher-income earners (marginal rate 37%+) who want to reduce their tax bill and are betting on strong capital growth in a high-demand area. Positive gearing suits people who want reliable cash flow, investors closer to retirement who need income, or those buying in high-yield regional areas.

There is no universally "better" option. Negative gearing gets more attention because of the tax benefits, but positive gearing is a more conservative and often more sensible strategy — especially for people not in a high tax bracket.

Negative Gearing After the 12 May 2026 Budget: What Just Changed

Last updated 14 May 2026 — two days after the federal budget. The Albanese government's 2026–27 budget delivered the biggest reform to negative gearing in more than a generation, plus a companion change to the 50% CGT discount. Here is what changed, who is affected, and what it means for first home buyers.

The two big changes (in plain English)

1. Negative gearing on established residential property is being phased out for new buyers. Any established residential investment property bought from 7:30pm AEST on Tuesday 12 May 2026 onwards will no longer be able to offset rental losses against salary or other personal income. Losses can still be carried forward to offset against future rental income (from any rental property) or future capital gains on rental property — they are simply ring-fenced away from your wage.
2. The 50% CGT discount is being replaced by cost-base indexation plus a 30% minimum tax. From 1 July 2027, the flat 50% discount on capital gains is replaced by indexing the asset's purchase price to inflation, with a 30% minimum tax floor on net capital gains. Pre-1 July 2027 gains keep the existing 50% discount.

Both reforms are legislated to take effect from 1 July 2027, but the trigger date for the negative-gearing change is the announcement itself — 7:30pm on 12 May 2026. That matters because it stops a stampede of pre-deadline buying.

Who is grandfathered

If you already owned an investment property — or were already under contract — before 7:30pm on 12 May 2026, the existing negative-gearing rules continue to apply to that property. Existing investors keep the old rules indefinitely on existing holdings. The reform is forward-looking, not retrospective.

You only fall under the new rules if you sign a contract on an established residential investment property from 12 May 2026 onwards. Off-the-plan contracts signed before that date for properties not yet titled are treated as pre-budget purchases.

⚡ Check your status in 30 seconds: Scroll down to the Negative Gearing Grandfathering Status Checker at the bottom of this guide. Answer 3 questions (contract date, property type, buyer entity) and we'll tell you exactly which rules apply to your property — grandfathered, new-build carve-out preserved, or ring-fenced from 1 July 2027. The first Australian tool to handle the post-12-May-2026 logic correctly.

The new-build carve-out

Newly constructed residential property is exempt from both reforms. Buy a brand-new investment property and you can still:

• Offset rental losses against your salary income, exactly as the old negative-gearing rules allowed
• Choose between the existing 50% CGT discount and the new cost-base-indexation method when you sell

The policy intent is explicit in the budget papers: redirect investor capital away from established stock (where investors compete with owner-occupiers, including first home buyers) and toward genuine new housing supply.

Established vs new build — side-by-side comparison

If you are weighing a post-budget investment purchase, the two property types now sit on completely different tax rails. This table sums up where the divergence happens:

The practical takeaway: a 37% bracket earner choosing between two near-identical $800,000 properties — one new build, one established — is now looking at roughly $3,500-$5,000 per year of after-tax cash-flow difference in favour of the new build. Over a typical 10-year hold, that compounds materially.

Worked example — new-build investor (post-1-July-2027 rules)

Same investor as the worked example earlier in this guide ($120,000 salary, 37% marginal rate, 30 years to retirement), but this time buying a new-build townhouse for $750,000 with a 20% deposit and an 80% mortgage at 6.4% interest. We use the same rental yield assumptions for a like-for-like comparison.

• Rental income: $620/week × 52 = $32,240
• Loan interest (year 1, 80% LVR on $750K): $600,000 × 6.4% = $38,400
• Council rates, strata, insurance, property management, maintenance: ~$8,800
• Depreciation (a NEW build advantage — Division 40 + Division 43 schedules typically deliver $9,000-$13,000 of non-cash deductions per year in years 1-5): ~$11,000
• Total deductible costs: $38,400 + $8,800 + $11,000 = $58,200
• Net rental loss for tax: $58,200 − $32,240 = $25,960
• Tax saving (37% marginal + 2% Medicare = 39%): $25,960 × 39% = $10,124 reduction in tax payable
• Real out-of-pocket cash: $25,960 cash loss − $11,000 paper-only depreciation − $10,124 tax saving = ~$4,836 per year cash cost

The new-build version of the same investor stays fully eligible for salary offset and captures the depreciation uplift that established property simply does not offer (depreciation rules tightened in 2017 for second-hand assets, so established-property buyers cannot claim Division 40 plant on existing fittings). The post-budget effective tax outcome on a new build can therefore be materially better than the equivalent established property even before the carve-out — the carve-out compounds an advantage that already existed.

One genuine caveat: new-build pricing typically carries a "developer premium" of 5-15% over established stock of similar size and location. Run your numbers against an established comparable; the carve-out alone does not justify overpaying for a new build.

How big is the cohort actually affected?

ATO 2022-23 data on Australia's 2.26 million property investors gives a sense of the scale:

• ~1.27 million claim a net rental loss in any given year — these are the "negative gearers"
• Of those, the bulk own one or two properties — they make weekly cash contributions in exchange for the tax offset against salary
• The average claimed loss is ~$10,000-$12,000 per investor per year

None of those 2.26 million existing investors lose anything on their current holdings. The reform changes the maths for the next investment purchase — and tilts it sharply toward new builds.

Edge cases — SMSFs, family trusts, and partnerships

The budget papers and the ATO's new-legislation page describe the reform as it applies to a natural person holding investment property directly. The treatment of indirect ownership structures is, as Treasury and Pitcher Partners have both flagged, currently unclear pending the enabling legislation. Three structures to watch:

• Self-managed super funds (SMSFs). An SMSF that uses a limited-recourse borrowing arrangement (LRBA) to buy residential investment property already cannot offset rental losses against the member's personal salary — fund income is taxed within the fund at 15%, separately from the individual return. The 12 May 2026 reform should therefore not change anything for SMSF-held property at the salary-offset level. CGT changes (cost-base indexation + 30% minimum floor) will flow through to SMSF gains on established property contracted from 1 July 2027 onwards, and that is a meaningful change for long-hold accumulation-phase funds.
• Family discretionary trusts. Where investment property is held in a trust and rental losses are distributed to a beneficiary on a high marginal rate, those distributed losses are functionally offsetting that beneficiary's salary income today. It is not yet clear from public budget detail whether the new ring-fencing applies at the trust level (losses trapped inside the trust) or at the beneficiary level (losses still trapped at beneficiary level). Treasury's stated policy intent — discouraging investor competition for established stock — argues for the loss-trapped-at-trust interpretation. Until the enabling legislation drops, this is one of the most important uncertainties for high-income clients.
• Partnerships and joint tenancy. Two natural-person partners (often spouses) holding investment property as a partnership or as joint tenants are each treated as direct individual investors for tax purposes — the reform applies in the same way as for any sole investor. No new mechanism here, just a reminder that two-name title doesn't dodge the change.

What to do until the legislation lands: if you are considering a property purchase through a trust or SMSF specifically to preserve negative-gearing benefits on established stock, get a written opinion from a tax adviser before signing anything. The grey area is real, the policy direction is one-way, and retrofitting a structure after the rules clarify is expensive. This guide reflects publicly available information as of 15 May 2026 and is not personal advice.

What this means for first home buyers

Three direct effects worth understanding:

1. Investor competition on established stock should ease over time. Removing salary-offset on established property makes new investor entries materially less attractive. Buyers' agents and broker networks are already reporting investor pipelines pivoting toward new builds. Whether that translates to lower auction-clearance pressure on established homes will play out over the next 12-24 months — early signals are likely from late 2026 onwards.
2. Rentvesting becomes a different calculation. A rentvester who buys an established investment property from now on can no longer use the tax shield against their salary. The "buy in Brisbane, rent in Melbourne" structure still works mechanically — but the headline tax benefit drops materially unless you buy new build. See the worked comparison further down this guide for the post-budget version.
3. New-build supply is being incentivised, not penalised. If you're a FHB considering a new build (house-and-land package, off-the-plan apartment), you're now operating in a market the federal government is actively tilting in your direction — both via the new build carve-out and through the existing First Home Guarantee scheme.

For the full mechanics of how CGT applies to investment property under the new and old rules, see our capital gains tax in Australia 2026 guide.

This section reflects budget announcements as of 14 May 2026. The enabling legislation is expected to be introduced before 1 July 2027. We update this guide after each major Treasury or ATO ruling.

Is Negative Gearing Worth It in 2026?

Here is the honest assessment that property investment seminars will not give you:

Negative gearing only works if the property grows in value. The tax deduction does not make you money — it reduces how much you lose. You are still out of pocket each year. The strategy only pays off when capital growth exceeds your cumulative losses, and that is not guaranteed.

The tax benefit is often overstated. In our example above, the tax saving was $7,763 on a $19,906 loss. That means you got back 39 cents for every dollar you lost. You are still losing 61 cents. People who say "the government pays half your costs" are either using the top tax bracket in their examples or misunderstanding the maths.

It favours high-income earners. As the tax table above shows, someone on $200,000+ gets nearly 40% more tax benefit per dollar of loss compared to someone on $90,000.

It ties up capital. The deposit you put into an investment property is capital you cannot use for anything else — including buying your own home. For first home buyers especially, this is a significant opportunity cost. Not sure how much you can actually borrow? Use our borrowing power calculator to crunch the numbers.

It works best with time. Over 10 to 15 years, even modest capital growth delivers substantial returns. Over 2 to 3 years, it is much riskier. If you buy at a market peak and need to sell during a downturn, you can lose your deposit and more.

When negative gearing works: You are in a high tax bracket (37%+), the property is in a high-growth area, you have a long-term hold strategy (10+ years), and you have surplus income to cover the weekly shortfall comfortably.

When it does not work: The property stagnates in value, you cannot cover the cash flow shortfall, interest rates spike unexpectedly, or you need to sell within a few years.

The bottom line: negative gearing is a legitimate investment strategy for people who have a stable, high income, a long time horizon, surplus cash to cover the holding costs, and a genuine understanding of the risks. It is not a magic formula, it is not "free money from the government," and it is not suitable for everyone.

Negative Gearing for First Home Buyers: Should You Rentvest Instead?

Most negative gearing content is written for established investors. But there's a question first home buyers ask constantly that doesn't get good answers: should I buy an investment property to rent out, while I keep renting where I want to live?

This strategy is called rentvesting, and for some FHB profiles it makes more sense than owning their primary residence.

When rentvesting beats buying your own home

Rentvesting can be the better path when:

• Your dream suburb is unaffordable. Perth/Sydney/Melbourne FHBs often face $1.2M+ for the area they actually want to live in. Rent there for $700-900/week and invest in a $500-700K property in a growth corridor — it's often more financially efficient than committing 30 years of mortgage to a smaller home in a less-loved suburb.
• You're high-income, single or DINK couple. With both partners earning $135K+, your marginal rate makes negative gearing's tax shield meaningful. The cash flow burden becomes manageable.
• Your career involves moves. Police, defence, medical professionals, FIFO mining workers — you can't commit to 5+ years in one location, but property investment can run while you move.
• You're under 30 and want to keep optionality. Locking into a primary residence at 27 is a heavier decision than locking into a $500K investment with renters paying most of the mortgage.

When buying your own home wins

Rentvesting is NOT a default-better choice. Owning your primary residence wins when:

• CGT-free growth matters. Your primary residence is fully CGT-exempt at sale. An investment property's gain is taxed (with the 50% discount). Over 20 years on a strong-growth property, the CGT bill on an investment property can run $80K-$200K+. Your own home: zero. See our capital gains tax guide for the mechanics.
• You want long-term housing certainty. You can't be evicted from a home you own. Rent renewals in tight markets can spike 10-20%; owning insulates you.
• Most state grants only apply to owner-occupiers. First Home Owner Grant ($10K-$30K depending on state), stamp duty exemptions ($15K-$35K), First Home Guarantee (5% deposit no LMI) — most of these require you to live in the property for 6-12 months. Rentvesting forfeits this grant stack. Check what you qualify for on our grants hub.
• You're moderate-income. At marginal rates of 16-30%, the negative gearing tax shield isn't large enough to offset the cash flow burden.

Worked comparison: First home buyer choosing between paths

Sarah, 28, single, earns $145K/year (37% bracket). Has a $120K deposit. Wants to live in inner Melbourne but $850K is the stretch number for her dream area.

Path A — Own home, $850K in inner Melbourne:

• Loan: $730K @ 5.5% over 30 years = $4,140/month repayments
• Property pays itself off, fully CGT-exempt at sale
• Stamp duty exemption (VIC FHB): saves ~$32K
• FHBG eliminates LMI: saves ~$30K (use the LMI calculator to model your own scenario)
• Total grant value: ~$62K
• Monthly cost (interest + rates + maintenance + insurance): ~$3,200 net
• Lifestyle: lives where she wants, fully owns it long-term

Path B — Rentvest in Brisbane:

• Buys $620K investment in outer Brisbane growth corridor
• Loan: $500K @ 6.0% interest-only = $2,500/month (deductible)
• Rents in inner Melbourne for $750/week ($3,250/month)
• Annual rental loss after costs/depreciation: ~$22,000
• Tax saving at 39% rate: ~$8,580
• Net monthly cost (rent + investment cash gap): ~$3,250 rent + $300 investment cash gap ≈ $3,550
• Loses access to FHB grants (~$32K stamp duty + $30K LMI savings = $62K forfeited)
• Lifestyle: rents where she wants, builds equity in Brisbane

The honest answer: at $145K income, Path A is roughly $350/month cheaper (cash flow), CGT-free at exit, and captures $62K in grants she loses with Path B. Unless Brisbane outperforms Melbourne by ~$150K-$200K in capital growth over the holding period, Path A wins financially.

But if Sarah's salary climbs to $200K within 3 years, the math flips — the higher tax bracket makes Path B materially better, and her grant losses become smaller relative to compounded tax savings.

Key questions before rentvesting as your first property

Before going down this path, get honest answers on these:

1. Where will I want to live in 5 years? Locking yourself out of FHB grants is a one-time decision — you only get them on your FIRST property purchase ever in most states.
2. Can I service two housing costs at once? Rent + investment loan + investment cash gap = potentially $60K-$80K/year of housing exposure. Job loss during that period is brutal.
3. What's my marginal rate, today and projected? If you're not at 30%+ today and not climbing toward 37%+ within 2-3 years, the tax case for negative gearing weakens significantly.
4. Am I willing to be a landlord? Tenant disputes, repairs at midnight, vacancy periods, tribunal hearings — these are real time costs that primary-residence ownership doesn't impose.

Get matched with a mortgage broker who specialises in both investment loans AND FHB schemes →

For the mechanics of how investment property repayments work — including interest-only structuring — see our mortgage repayment calculator or home loan interest rates guide.

How to Claim Negative Gearing on Your Tax Return

If you do own a negatively geared investment property, here is how to claim the deduction:

1. Declare all rental income in your tax return under the rental property section. This includes rent received, bond money retained, and any insurance payouts.
2. Claim all deductible expenses: mortgage interest, council rates, water rates, insurance, property management fees, repairs, maintenance, advertising for tenants, and travel to inspect the property (limited to one deduction per property per year).
3. Claim depreciation: Get a tax depreciation schedule from a qualified quantity surveyor. This covers the building structure (Division 43 — 2.5% per year for buildings constructed after 1985) and plant and equipment inside (Division 40 — appliances, carpets, blinds, hot water systems). A depreciation schedule typically costs $600–$800 and pays for itself many times over in deductions.
4. Keep records for 5 years — the ATO requires you to retain all receipts, bank statements, rental agreements, and expense records for at least 5 years from the date you lodge your return.
5. Use a registered tax agent who specialises in investment property. The fee is tax-deductible, and they will ensure you claim everything you are entitled to without overclaiming (which triggers ATO audits). Rental property is the ATO's number one area of focus for tax audits — incorrect claims are extremely common.

Frequently Asked Questions

What is negative gearing in simple terms?

Negative gearing is when you borrow money to buy an investment property and the costs of owning it (mortgage interest, rates, insurance, maintenance) exceed the rent it earns. The resulting loss can be deducted from your salary income, reducing your tax bill. You are deliberately making a short-term loss while hoping the property increases in value over time.

How does negative gearing work in Australia?

In Australia, negative gearing works by allowing investors to deduct net rental losses against their other income (salary, wages, business income). You calculate your annual rental income, subtract all deductible expenses including mortgage interest and depreciation, and if the result is negative, that loss reduces your taxable income. The ATO treats rental property the same as any other income-producing investment.

Has negative gearing been abolished in 2026?

Not entirely — but it has been materially restricted. The 12 May 2026 federal budget removed salary-offset for any established residential investment property bought from 7:30pm AEST on 12 May 2026 onwards. Rental losses on those properties can only be carried forward against future rental income or capital gains from rental property. Existing investors are grandfathered (current rules continue on properties owned before the announcement) and newly constructed properties are exempt from the change. The legislative effective date is 1 July 2027, but the trigger date for the new rules is the budget announcement itself.

Is negative gearing still worth it in 2026?

For established property bought after 12 May 2026: only if you have other rental income or expect strong capital gains, because you cannot offset losses against your salary anymore. For grandfathered established property and for new builds (which are exempt): the old maths still applies — best for higher-income earners (37%+ tax bracket) in high-growth areas with a 10+ year hold. The reform makes new builds materially more attractive relative to established stock for new investors.

Who benefits most from negative gearing?

Higher tax bracket earners benefit most because the tax deduction is worth more per dollar of loss — someone on 47% gets back nearly half of every dollar lost, while someone on 34.5% gets back roughly a third. However, ATO data shows that 1.3 million Australians claim rental losses, and the majority are middle-income earners (teachers, nurses, tradies) using it as a long-term wealth-building strategy alongside super.

What is the difference between negative and positive gearing?

Negative gearing means your investment property costs more than it earns — you make a loss and get a tax deduction. Positive gearing means rental income exceeds costs — you make a profit and pay tax on it. Negative gearing suits high-income investors betting on capital growth. Positive gearing suits those wanting cash flow and lower risk.

Can a first home buyer use negative gearing?

Yes — but at the cost of forfeiting most state First Home Owner Grants and stamp duty exemptions, which typically require you to live in the property for 6-12 months. Rentvesting (buying an investment, renting where you want to live) makes financial sense for high-income FHBs (>$135K) in expensive cities, but the lost grant stack is often $40-80K. Run the numbers both ways before committing. Use our borrowing power calculator to see what you can afford.

What's the sweet-spot tax bracket for negative gearing?

Above $135,001 of taxable income, where the marginal rate jumps from 30% to 37% (32% to 39% with the 2% Medicare levy). Below this threshold, the cash flow burden of a negatively geared property often outweighs the tax shield. Above $190,001 (45% rate, 47% with Medicare), the tax benefits are meaningful and stack with the CGT discount on exit.

Does negative gearing still apply after 1 July 2027?

Yes, but only in two specific situations. Grandfathered investors (anyone who owned or was under contract on an investment property before 7:30pm on 12 May 2026) keep full negative-gearing rights on those properties — including salary offset of rental losses — indefinitely. New-build investors (anyone buying a newly constructed residential property at any date) also keep full negative-gearing rights. For anyone else buying established residential property from 12 May 2026 onwards, rental losses can still be claimed against rental income or against future capital gains on rental property — they simply can no longer offset salary. The legislative effective date is 1 July 2027 but the trigger date for the new rules is the announcement.

What is the new-build carve-out for negative gearing?

The new-build carve-out is the 2026 budget's exemption that lets investors buying brand-new residential property keep negative gearing and the 50% CGT discount under the old rules. "New build" means: a property that has never been lived in before (off-the-plan apartments, house-and-land packages, brand-new built-form-approved townhouses). The policy intent is to redirect investor capital away from competing with first home buyers for established stock and toward genuine new housing supply. Combined with the steeper depreciation schedules available on new builds, the post-budget tax outcome on a new-build investment can be meaningfully better than the same investor would have achieved on established stock pre-budget.

Can I still negative gear a property I already own?

Yes — without any change. The 12 May 2026 reform is forward-looking only and grandfathers every existing investor on every existing property. If you owned (or were under contract to buy) a residential investment property before 7:30pm AEST on Tuesday 12 May 2026, the existing negative-gearing rules continue to apply to that property indefinitely. You can still offset rental losses against your salary, you can still use the 50% CGT discount on gains accrued up to 1 July 2027, and the property carries those rights even if you refinance, restructure ownership between spouses (subject to CGT and stamp duty), or hold for decades. The reform only affects the maths on next investment purchases.

How does the 2026 budget change capital gains tax on investment property?

From 1 July 2027, the flat 50% CGT discount on residential investment property is replaced by cost-base indexation plus a 30% minimum tax floor on net capital gains. Cost-base indexation means the property's purchase price is adjusted for inflation over the holding period, and the gain (sale price minus indexed cost base) is taxed at your marginal rate — with the rule that the effective rate on the indexed gain cannot fall below 30%. The pre-1-July-2027 component of any gain keeps the existing 50% discount. New-build investors (the carve-out cohort) can elect to keep the 50% discount on the whole gain regardless of holding period. The practical effect: for long-hold established-property investors in low-inflation periods, indexation is materially less generous than the old 50% discount; in high-inflation periods, it can be roughly neutral. For the full mechanics see our capital gains tax Australia 2026 guide.