Why the change?

In short: to stop subsidising bidding wars for existing homes, and reward building new ones. House prices have grown more than twice as fast as wages since 1999, and home ownership among 25- to 34-year-olds has dropped seven percentage points in two decades. Negative gearing gave investors a tax edge over first home buyers chasing the same established houses. Keeping the concessions only for new builds points investor money at new supply instead. Treasury forecasts around 75,000 extra owner-occupier households over a decade, slightly slower price growth, and minimal effect on rents.

What is changing

The 2026-27 Federal Budget proposes a fundamental change to negative gearing for residential property investors. From 1 July 2027, negative gearing of residential property will generally be available only for new builds. For established residential properties acquired after Budget night (7:30pm AEST on 12 May 2026) rental losses will no longer be deductible against general income such as salary or wages. Instead, those losses will only be deductible against residential property income, including residential capital gains, with any excess carried forward to future years. Established property purchased between Budget night and 30 June 2027 may still be negatively geared up to 30 June 2027.

Who is in and who is out

Property owned or under a binding contract before that Budget night deadline is fully grandfathered, meaning negative gearing is preserved on those assets until they are sold. Commercial property, including office, retail and industrial assets, is excluded from this change and retains full negative gearing on interest and holding costs regardless of when the property was acquired. Investors in new residential builds are also unaffected. Note, however, that the definition of a qualifying new build will be set by legislative instrument: the dwelling must genuinely add to housing supply, and a property loses its new-build status once sold after being occupied for more than 12 months, so subsequent buyers do not inherit the concessions. Together with the CGT reforms, these measures are contained in a Bill introduced into Parliament on 28 May 2026.

What you should do now

The practical implication is a structural shift in how residential property investment is assessed relative to other asset classes. The new rules will apply to individuals, partnerships, companies and most trusts; only widely held trusts and complying superannuation funds sit outside them. For those holding or considering established residential property acquired after Budget night, understanding the interaction between the new negative gearing rules, the CGT changes, and your broader portfolio structure is essential. We recommend seeking advice before making any acquisition or disposal decisions.